Complete Guide to Banking, Taxes and Pensions in Spain

There are many wonderful benefits of owning property in Spain: you get to live the dream of year-round sunshine, a laidback lifestyle, and unbeatable culture. But living in Spain doesn’t mean that you can leave all of the admin of everyday life behind – you'll still have to organise your finances between jugs of sangria and beach time to top up your tan!
The good news is that, just like the cost of living, financial services in the south of Spain are cheaper than almost anywhere else in Europe.

And organising your Spanish finances doesn’t have to be complicated. Here’s our complete guide to banking, taxes, and pensions in Spain:

Banking in Spain

One of the questions most frequently asked by people thinking of moving to Spain is whether they will need a Spanish bank account. The simple answer is no, you’re not obliged to, but if you’re thinking of buying property in Spain then it would certainly make sense to have a Spanish bank account.

You can set up a bank account by simply walking into any bank. And as most banks in the Costa del Sol employ English-speaking staff, the language barrier shouldn’t be a problem. You’ll need to take your passport with you and your NIE number. This is your foreign identification number; if you haven’t secured this yet then it is incredibly simple to obtain from the nearest National Police station.

Just like in the UK, the bank you choose will depend on your unique needs. But a good rule of thumb to remember is that “bancos” are commercial banks where you can hold a current account and “cajas” are savings banks more similar to UK building societies. Whilst they operate in very similar ways, one or the other may suit you better, depending on how and when you like to access your money.

Taxes in Spain

No one likes to think about taxes, but even in Spain there are certain taxes that you simply can’t avoid paying. The main taxes that you should be aware of are:

  • Value Added Tax – Just like in the UK, VAT is automatically added to many of the products that you will buy when you’re shopping. The only difference is that the rate in Spain is lower than in the UK. As the tax is already added, you don’t have to consider this when you hit the shops.

  • Income Tax – If you are earning money whilst living in Spain then you will have to pay income tax. The amount of income tax you will have to pay will depend on whether you are  resident or non-resident of the country. Non-residents will pay income tax on any income they make in Spain, whilst residents will pay income tax on their global income.

    NB: If you spend more than 183 days in Spain each year then you will be classed as a resident.

  • Business Tax – Business tax must be paid by businesses of all sizes (including sole traders and self-employed individuals) but only if their annual turnover is more than 1 million Euros. This generous tax law was designed to encourage small and medium business growth, and often proves a major attraction of living in Spain.

  • Inheritance Tax – If you inherit any significant sum of money whilst living in Spain then you are advised to secure the services of a tax lawyer. This will help you to better make use of appropriate laws to keep as much of your money as possible.

Pensions in Spain

State Pension

Many people choose the Costa del Sol as their retirement destination, which means that accessing their pensions in Spain is a considerable concern. The good news is that you are still entitled to receive your UK state pension, even if you are living overseas.  If you haven't yet reached retirement age, you should ask the Pension Service's Retirement Pension and Forecasting Advice Unit for a pension forecast so that you know how much you will be entitled to. You should also note that you will pay income tax on this pension: this will be paid to the UK government if you are a non-resident and to the Spanish government if you are a resident.

Private Pensions

The rules surrounding private pensions are a little more complicated. The most important note, on an individual level, is that you can receive and access your private pension when you are living in Spain. However you should receive advice on how much tax you will pay on this, as this is often different from a case to case basis. The good news is that in general you will find that your annuity is taxed pretty favourably in Spain, giving you the extra cash you need to live the high life in your Spanish dream home.

If you have any questions about the financial commitments involved in buying a property in Spain, or if you’re ready to start looking for your dream home, just get in touch with us today. Our expert team are ready and happy to help!