Relocating to Spain is a life-changing move, but as an expat, ensuring your investments are tax-efficient under Spain’s complex tax system is essential. Strategies that worked well in the UK or elsewhere often fall short once you become a Spanish tax resident. Understanding how your investments are taxed and what structures are available will help you protect and grow your wealth in a compliant and tax efficient manner.
What Are the Best Ways of Investing in Spain as an Expat?
Expats in Spain have a variety of investment choices, each with its own tax treatment and practical implications. Getting this wrong can result in unnecessary tax, complex reporting, or poor estate planning. Getting it right means lower tax, less admin, and better outcomes for you and your family.
1. High Street Bank Investments
Spanish banks such as BBVA, Santander and Sabadell offer a range of investment products that may seem convenient, but they’re typically limited to the bank’s own funds and offer little flexibility. These investments are usually denominated in euros and often lack multi-currency functionality, something many expats rely on.
In addition, fees are generally higher, investment strategies are restrictive, and the paperwork and support are almost always in Spanish. While these solutions might suit local residents, they rarely meet the needs of internationally mobile individuals with global assets and income.
2. Directly Held Stocks and Shares
Using platforms like Interactive Brokers or Saxo, expats can invest in global markets directly. This approach offers flexibility and control, but it comes with key challenges for Spanish residents.
Firstly, any dividends or gains are taxed annually at savings income rates ranging from 19% to 28%, removing any benefit of tax deferral. Secondly, the reporting requirements are complex and may involve submitting Modelo 720 and annual tax returns—something many people underestimate until it’s too late. Without the right structure, direct investments can become more of a liability than an advantage.
3. Collective Investments (Funds & ETFs)
Mutual funds and ETFs offer diversification and cost-efficiency, but when held outside a recognised Spanish tax wrapper, they can trigger punitive treatment—especially non-EU or offshore funds, which may be classified as “non-transparent” under Spanish law.
Dividends and capital gains are taxed annually, and many international funds are not recognised by the Spanish tax authority, leading to excessive tax burdens or even fines. For this reason, many expats restructure these holdings within a Spanish-compliant investment bond.
4. Pension Structures (SIPPs & QROPS)
UK pensions such as Private Pensions, SIPPs and QROPS can still be useful for expats in Spain. These vehicles are not included in Spain’s wealth tax calculations while funds remain invested, and you don’t pay tax until you draw income. However, there’s a catch: pension income is taxed as general income, not savings income, meaning rates can be as high as 45% depending on your region.
Spain also does not allow a 25% tax-free lump sum like the UK. So, while pensions are valuable for long-term growth, strategic withdrawal planning or a transfer to a more flexible structures can potentially improve tax efficiency.
5. The Spanish Compliant Investment Bond
One of the most efficient and flexible solutions for expats in Spain is the Spanish-compliant investment bond. Structured as a life assurance policy, it allows your savings to grow in a tax-efficient manner while offering simplicity and flexibility in how you access and report your money.
Why Invest in a Spanish Compliant Investment Bond?
A Spanish-compliant investment bond provides a structured, tax-efficient solution tailored specifically for the needs of expatriates living in Spain. This structure allows capital to grow without annual taxation, offering far greater tax efficiency than directly held investments. Withdrawals are only partially taxed, based on the gain proportion of each transaction—meaning you can control when and how you are taxed, which is ideal for managing your income in retirement.
You also benefit from the ability to switch between mutual funds, ETFs, and asset classes within the bond without triggering capital gains tax. This makes the bond an ideal home for long-term investments, allowing you to make strategic changes to your portfolio without any immediate tax consequences.
For expats concerned about paperwork, it’s a welcome relief to know that these structures are exempt from the Modelo 720 overseas asset declaration. And when it comes to estate planning, these bonds offer direct beneficiary designation, meaning your wealth passes smoothly to your loved ones without going through probate or Spanish inheritance tax.
Key Benefits of an Investment Bond
- Tax Deferral: No tax is paid on investment growth until a withdrawal is made, allowing full compounding of returns over time.
- Reduced Tax on Withdrawals: Only the gain portion of each withdrawal is taxed, and it’s taxed under the savings income regime with lower rates.
- Multi-Currency Flexibility: You can invest in EUR, USD, GBP and rebalance your portfolio without any tax impact.
- Simplified Tax Reporting: Only withdrawals are declared in your tax return, significantly reducing admin.
- Exempt from Modelo 720: Avoids the burden of declaring the policy under Spain’s overseas asset declaration rules.
- Succession Planning: Policies allow you to pass your wealth directly to beneficiaries, bypassing probate and Spanish inheritance tax.
👉 See how Spanish Compliant Bonds compare: Prudential vs Utmost
Taxation of Compliant Investment Bonds in Spain
Spanish-compliant bonds are taxed under the savings income regime. This is much more favourable than general income tax:
- 19% on gains up to €6,000
- 21% from €6,001 to €50,000
- 23% from €50,001 to €200,000
- 27% from €200,001 to €300,000
- 28% over €300,000
Only the proportion of the withdrawal representing gain is taxed, so with careful withdrawal planning, you can remain in lower tax brackets. Bonds are also excluded from annual taxation while your money remains invested, offering a powerful compounding advantage.
What About Wealth Tax and the Solidarity Tax?
Spain applies wealth tax on global assets above €700,000 per person, with an additional €300,000 exemption for your main residence. However, wealth tax is regionalised, and many communities such as Madrid, Andalusia, and Murcia apply a 100% exemption—meaning you may owe nothing at all.
In 2023, the Spanish government introduced the Solidarity Wealth Tax for those with net assets over €3 million, regardless of region. While temporary, it reinforces the importance of managing your investment structures and understanding how location affects your overall liability.
Also worth noting is the 60% rule: the total of your income tax and wealth tax cannot exceed 60% of your taxable income. If it does, your wealth tax is reduced accordingly, which can benefit retirees who have high-value assets but draw only modest income.
Investing in Spain as an Expat Requires the Right Structure
If you’re an expat in Spain seeking long-term tax efficiency, flexibility, and simplicity, then a Spanish-compliant investment bond could be an ideal solution. It offers far more than just investment access, it’s a tool for wealth preservation, tax control, and estate planning.
That said, every individual’s situation is unique. Your region of residence, the value of your assets, your income needs, and future plans should all be factored in before committing to any strategy. It’s not just about picking good investments, it’s about putting them in the right structure.
If you’re wanting explore how to align your investments with Spain’s tax system, reach out below with any questions.
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Disclaimer: While care has been taken to ensure the information in this article is accurate at the time of publication, laws and regulations may change. This content should not be relied upon as a substitute for personalised professional advice. Always seek guidance based on your specific circumstances.
