Yes, Spain has a wealth tax but it is highly unlikely that it will affect you. We are ourselves a pretty frugal family from Sweden and our monthly expenses was fairly low before we moved abroad. When we relocated to a “cheaper” country the expenses become even smaller, a.k.a. geo-arbitrage. This is something that you might consider when calculating your FI-number for a life abroad. Anyway, the amount of money necessary for FIRE in Spain is probably smaller than you might think.

Example of costs

Im coming back in later post (this month!) regarding more detailed expenses as soon as I get ahold of some details from our bank. For the moment say that you buy an 3-bed apartment for 250k € then for a family of four, it’s easy to live frugally on 2000€/month. Excluding any private schooling now. Please remember that an average salary on the island is 1200€/month after taxes.

FIRE economy

How much money do we need

Using the famous 4%-rule we get 2000€/month * 12 makes 24k€ / year. We take that 24k€ * 25 to get our FI-number of 600k€ in total stash. Thats the amount that a family of four might need, but you can make it with half that if really pushing it. Using the Butterfly Portfolio, that we fancy, would give an FI-number of 480k€ in the portfolio. As you can see, thats pretty much half the 1 million $ portfolios that we read so much about in US media.

The Patrimonio (wealth tax)

The wealth tax is a progressive tax 0,2%-3,75% that applies to the wealth above the threshold. The threshold for wealth tax is currently 700k€ / person. Thats quite a small margin for the 4%-rule (for a single person!), but there is something you might not know – Spain has optional joint taxation for families. So as a family you can have a wealth of 1,4million € before being targeted. Yikes, now we are getting huge FIRE-margins. As if that wasn’t enough, you have an allowance on 300k€ on your house/apartment if you happen to own that much. So all in all, you’re allowed as a family to have a wealth of 1,7 million € before being target of wealth tax. I don’t think that’s going to be a problem for the majority of us frugal FIRE-people, but maybe thats just us.

Exemptions and allowances

There is also a jungle of legal exemptions out there which i am not that familiar with. But it seems that there are so many loopholes in this legislation that I wonder if the government get any wealth taxes at all in the end. I’ve met several very wealthy persons here, way above the threshold, and not a single one of them seems to be paying any wealth tax. “Beckham law/specialist from abroad”, resident in Madrid, endowment funds and complicated setups that nullifies the wealth tax. If your total wealth is around or above the 1,7 million € threshold, get a financial advisor as there is likely a solution for you as well.

Disclaimer

It should go without saying but i am not responsible in any way of the details above. I’m just telling you what i´ve heard and read. You should always contact an experienced financial advisor if you want to make sure you get all the facts straight.

6 comments

  1. Could you do a post regarding how you handle KF or ISK when moved out?
    I would like to see info about that as I see that is hard find info on the net.

    The common seems hold on to an ordinary account and that makes us wonder how you did it?

    1. Very good questions! Yes, there is a huge lack of information on this.

      I can definitely do that a little closer to the summer as I am not 100% sure on certain legal parts of the Swedish KF yet. Its complicated as contries tend to “interpret” KF:s differently. A normal Swedish KF is most likely to be viewed as a normal account in Spain and you should declare profits when selling and be taxed(~20%) on those. That said, the “normal” way Swedish expats seems(!) to handle KF is by not mention them at all to the Spanish goverment.

      ISK:s are converted into a normal account (aktiedepå) during the period you are a tax resident abroad.

      An ordinary account is probably the easiest way to deal with this.

  2. Thank you, looking forward to a deeper insight.
    Got same tip to just not tell anyone, but plan to have dividends as extra money so want to do it by the book.

    some investigation recommended to use Luxemburg KF but you cant have Swedish stocks in it due to high taxes.

    1. We are playing by the book as well and have cash in the bank so we don’t have to touch the portfolio for quite some time.
      Regarding Luxemburg – another problem with those are that you are not allowed to manage the portfolios yourself and that both the portfolio and funds have high fees…

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