Spanish Taxes and Costs of Living for Americans

One of the most common questions we get from our potential American clients is whether they should be worried about Spanish taxes as they are so high. It's stated as a fact but misses half the story even if it were true. What is true is that Spanish taxes are more progressive as you get higher. The most pressing question is how much they will have to pay in wealth tax? And the answer is usually, "you won't have to pay anything". This is because despite the fact that most Americans may consider themselves temporarily financially embarrassed millionaires, or even inconvenienced billionaires with cashflow issues, the truth is that the levels at which wealth tax gets levied are quite high for most people, not all though.

However, this article isn't all about that, although we will have details later of both the standard wealth taxes and the extraordinary solidarity tax (a two year wealth tax levied on all Spanish multimillionaires in all regions to avoid tax dumping in Andalucia and Madrid, more of that later too.)

We also look today at people who have already made the move as James Blick from Spain Revealed interviewed some Americans already in Valencia for his Spain Revealed YouTube channel. Some of them are our clients and in two cases we did the modernisation of their apartments one of which you get to see in its full glory.

So the question for today is how much does it cost you to live in Spain compared with the USA? And of course, before we continue you need to get financial advice according to your own circumstances but here we look at typical levels of costs in the States and Spain for things you have to pay for. It was based on a question in a Facebook Group for Americans coming to Spain as follows.

"I did a simple calculation to figure out how much tax I may have to pay to live in Spain. The result was that I would have to pay an extra $10,000 in taxes. We haven't sold the home, and we're still working. All the numbers I used were guesstimates.

Has this been your experience? I haven't talked to an accountant yet, but I'd like to know how badly are people impacted by having to pay taxes in Spain."

My answer was quite well received and you can see it below but today I want to expand on that answer with some figures as a few people doubted what I was saying and in certain individual cases it may be the case that they pay considerably more if they come to live in Spain but many Americans already in Spain agreed.



Let's assume that the initial poster's numbers were right and they would have to pay an extra 10k per year in tax to live in Spain, that may well be true as taxes are much more progressive here than in the USA. However your increased tax costs don't necessarily mean that your cost of living will be higher here. I delved into Numbeo, asked our American clients and made some educated guesses (Google) and came up with the following.


Let's compare the large outgoings and see what a difference it makes. Now I could just be lazy and compare Valencia and New York and walk away whistling nonchalantly having made my point but I won't. However you can see that comparison here on day to day costs and that doesn't include some of the biggies we are going to talk about.

When comparing Valencia to other places it is also considerably cheaper but New York is the biggie. If the cost of living is set to 100 there then Valencia is exactly half as expensive on day to day costs when considering what your earnings buy you. As stated in Numbeo:



"You would need around 8,314.8€ (9,071.5$) in New York, NY to maintain the same standard of life that you can have with 3,100.0€ in Valencia (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax)"

In other words, you need to earn almost 63k more per year for the same standard of living in New York as in Valencia and as the majority of our clients are looking at maintaining their income and having it taxed at source meaning no extra tax here on income whether that is through work or other incomes such as pensions, then the orginal poster's 10k extra per year in taxes is dwarfed by the saving of living here. And we still need to talk about a few other costs.


Apples with Apples

This comparison isn't fair though I'll be told because New York is the most expensive place to live in the States. True. However that's not the point. The point is that many of those coming to live here come from New York and other expensive places in the States. In the last year we have had clients from Pennsylvania, Florida, Colorado, Texas, Seattle and of course California among others, mostly the expensive bits of the USA.

We don't really get many clients from the flyover states where the cost of living may be cheaper. Nevertheless the comparison needs to be made in this way because as previously stated most of our clients maintain their income levels but swap their cost levels for Valencia, it's basic geographic arbitrage.

Let's do the comparison with Tennessee. Why there? Well, Bloomberg did a report on this same thing which you can see here just using the USA as examples that suggested that Tennesee was one of the cheapest places to live. When we compare Memphis with Valencia we find out that it is 35% higher. However you may want to live in Nashville which is 80% more expensive and if you really hate yourself and have a penchant for cowboy hats (or red MAGA hats) go into the hinterland of Tennessee, Wayne County where Trump got 87%, and I'm sure you'll get a cheaper lifestyle. If you do have a penchant for MAGA hats and country music then please feel free to go to Tennessee rather than Valencia (I even prefer the hated Reggaeton to Country music about pickups breaking down and dogs dying although Billy Connolly did write the essential country song once.)


Health Care Costs

The Biggie!

"Every year, 530,000 American families file for bankruptcy due to medical bills. (Nasdaq) US medical bills are a major reason behind filing for bankruptcy for 59% of Americans."

I believe the numbers in Spain are some 530,000 fewer. But that's not what we are looking at. Let's look at the cost of avoiding this by having health insurance and remember that in Spain the insurance companies don't spend their whole life looking not to pay out.

I pay private health insurance here in Spain for nine people, my family and staff. The price per month for nine people is... any guesses?... I'll reveal it at the end of the post.

In the answers that we were given the average price of health insurance in the States was around $800 per month meaning almost 10k per year. Funny that, as it is almost as much as you can save by moving to Spain. And the deductible was also a factor meaning people paid between 7-15k of medical costs before the insurance starts paying out. That doesn't exist here except in car insurance where you may pay the first 200-400 Euros. A simple visit to the doctor even with insurance cost $60-100 before they even start to poke and prod you and that can quickly add up. One of our clients pointed out that their cost in the States was $1100 per month but that their employer paid $900 of that, their deductibles were complicated but meant they paid the first $2700 of any treatment. Others also pointed out that this payment by employers is why people in the States are always working as losing the job is a dangerous place to find themselves.

The average price for health insurance in Spain from those we either know of or asked directly was 140 Euros per month and when you pay this the visit to the doctor is free and the treatments have no deductibles. Obviously the younger people were then the less it cost. But that's not the only thing. To get one of the visas that is popular you need no copayment meaning you pay for medicines. The average cost of medicines here is 80% lower than in the States for the same products! This means of course that if you are using medicines regularly then there is a huge saving there too.

Remember though we also have a very extensive and well run public health system for those of you coming to work in Spain which is essentially free at point of use. And if you are here with private health insurance and working you can start paying into this system through the Convenio Especial after a year at 60 Euros per month for under 65s and 157 Euros per month for those over 65.

Private Health Insurance in Valencia
Get Your Quote For Health Insurance with Gidea.

Property Taxes

"We pay about 11k for a property valued at 560k in Dallas, Texas."

The most expensive apartment in Valencia for property taxes that we have ever sold was around 2200 Euros per year and it was a whole floor of over 500m2. That's almost the 10k saved mentioned by the poster over on Facebook just through the annual property tax. However Dallas may be more expensive than other places. We got told of 4k in Virginia so still double our highest amount, $5200 and 12k on two properties in and around New York valued around $1m,and the frankly terrifying 38k per year in Pennsylvania which I am assuming is a big place but even so... that's a range. The range in Valencia is from 80 Euros per year (Yes just 80 Euros) up to that previously mentioned 2200.


Condo Fees

Again here we are in danger of not comparing Apples with Apples as condo fees in the States often include heating and other utilities which are separate individual bills here. However, the average condo fee in Valencia, la Comunidad, is around 50 Euros per month and lower if the building doesn't have a lift. But let's assume an all-singing, all-dancing building with shared pool, gym, and concierge. You still only pay around 100-150 Euros per month. If we then include heating costs for the winter months and cooling costs for the summer then you may pay up to 200 Euros per month extra as a maximum but most people pay around 70-100 Euros per month.

Some of the numbers we were quoted in the States were scary. New York condo fees in Manhattan average 2123 dollars per month!!! but we did hear of one place at just $900 per month but the requirement for home insurance by the Condo Association in that case raised the cost by 4k per year (My home insurance here is around 300 Euros per year)

That 25k plus per year average in New York compares disfavourably with our maximum of around 3k but more usually around 600 Euros plus your heating, maybe 1200 more. Again the whole 10k extra tax is looking like a bargain. However there is a whole discussion going on in the States about Condo Fees and what is and isn't included. The average around the country tends to be 300-400 Euros per month which isn't that much higher than here but still makes a difference of a couple of thousand a year.


School Fees

This only affects those with children of course and only those who want to send their kids to private schools. We found 11-15k to be the average price in the States but our clients who have or had their children in private education there gave us numbers up to 50k per year (Ouch). Here in Valencia prices are around 800 Euros per month so a maximum of 10k per year.


Intangibles

What do you get for your tax money though? We call them the inteangibles because they are not personal but societal. The infrastructure is new and constantly updated, a health service, amazing roads, a basic safety net for those less fortunate than you, fewer people socially excluded, less extremes of wealth creating resentment, less of the circus and interest surrounding sociopathic billionaires or overpaid celebs (We have our own much cheaper celebs), a cleaner environment, a lack of a gun culture because people don't fear a new Civil War at any time and most of all your rubbish collected every night ;-) with major recycling projects in place everywhere. There's loads more. You can make up your own list and it is almost endless. 10k is a good deal perhaps. But...


Wealth Taxes in Spain

As we said to begin with in this article the Spanish wealth tax is the worry of many American coming to live in Spain. In this part of the article we are going to look at generic figures and how much you will have to pay if you fall into the category of having more than 2 million Euros in assets which is more or less where the wealth tax starts for most people (You need to submit the form even if you have no Wealth Tax to pay on amounts over 2 million Euros).

Firstly there is usually an allowance of 700k per person so a married couple has an allowance of 1.4 million, but in Valencia this has now been reduced to 500k per person. Each region has their own rules about the primary residence and what can be discounted and as a resident you are allowed 300k in general per person for the primary residence. You can also deduct any outstanding loans on the primary property so if you have a property worth 1.2 million but the mortgage on that property is 600k then you use up your full allowance of 600k as a couple.

It's probably better to show some examples though. Strong Abogados gave some good examples that you can see in the screenshot.



The wealth tax bands in the Valencian Community once you get over the 2 million mark are as follows


In the past many people have avoided this payment by simply registering their main residence in Madrid or Andalucia where there is an exemption of 100% of the wealth tax. This meant that they rented a cheap place there, established residency and lived in another place elsewhere.

This was typically done by people with huge fortunes buying in Mallorca and other high end destinations. To avoid this "tax dumping" the Spanish government brought in a two year solidarity wealth tax applied on everyone in all of Spain with large fortunes. Any wealth tax due in the other regions can be deducted from this liability so it doesn't become double wealth tax.


The Solidarity Wealth Tax

It is a tax applicable for the years of 2023 and 2024 only at the moment (Don't be surprised if it extended or possibly even dumped as it may be deemed unconstitutional in an upcoming court case). Therefore for the majority of you coming this year you won't pay it as long as you become resident after 1st July 2023 and then it may just be a tax for one year, 2024, paid in 2025. It's for individuals with a net worth of 3m and above, couples therefore should only be paying on net worth over 6m Euros, and the tax rate is from 1.7% on amounts above this level up to 3.5% on levels above 10m Euros per person. A couple with a net worth of 7 million for example would pay 1.7% on the 1m above their 6m allowance, 17,000 Euros. For those of you coming to be residents in Spain in 2024 and affected by this tax it may be prudent to delay your arrival until after 1st July 2024. If you arrive in the first half of the year and become resident then you will be liable for payment of this tax in 2025.

The new solidarity wealth tax is not expected to affect 90% of those who are currently liable for Spanish wealth tax as they have greater wealth than 2m Euros but are under the 3m Euro starting point for this new tax. It will affect nobody in Valencia as the normal wealth tax starts at rates below the solidarity tax. The top rate of 3.5% is only expected to affect 1.4% of wealth tax payers, those with a patrimony of over 10m Euros.


As with all of the things referring to tax if you think that it will affect you then it's better to have expert advice rather than "some bloke on a blog on the internet with an interest in selling property" as I get described at times in that wonderful place known as Facebook.


Conclusion?

It's difficult to draw conclusions that are valid for everyone as each person's situation is different. But if we take averages, then the average saving per year by living in Valencia/Spain just on the big ticket items might be 8k on health insurance, 10k on median property taxes, 4k but up to 20k on Condo Fees, a few thousand on school fees and then anything from 25-50% on day to day costs. But even without the day to day costs, 22-38k less per year to live here rather than in the USA is not to be sniffed at. And then you add in the intangibles.

Nevertheless, you still need to look out for the wealth tax. If you have a net worth of 8 million as a couple then you may find yourself a little out of pocket and with a net worth of 15 million quite a bit out of pocket. However if you have 15m then maybe you don't need to worry about that because of the lifestyle upgrade and not having to worry about being shot (among other worries in Magaland).


As If By Magic...

A video about the Americans fleeing the USA for various reasons was released on Saturday morning and it's all about Valencia. The cost of living issue is asked and also why they left. Interestingly you can see one of our modernisations in there with a tour of David and Patrick's apartment in Valencia and also they meet up with another of our clients, Corinne, whose modernisation we also did and you can see at this link.


By the way. How much was the health insurance for nine people?

420 Euros per month. For all of them. Not for each person! Also immediate attention when needing to see a doctor and cheap medicines when needing prescriptions compared with medicine costs in the USA. An example is insulin. Check out the prices in the USA and Spain and then thank Mark Cuban for trying to change that there.


Property of the Week

4 Beds and 2 Bathrooms in Valencia with a small terrace for 205k.

In a recent communication from a slightly confused would-be client, we were accused of taking them for pigeons! Which sent us scrambling for the urban dictionary, or in this case ‘le dictionnaire urbain’. Apparently, it means someone easily fooled. A sucker. Now, I am not familiar with French pigeons, but Valencian pigeons are not easily fooled. I have several hanging around my terrace everyday pecking at my plants, and despite various tricks and disguises and sheer violence, I have managed to kill or maim exactly none of them.

Which takes me nicely to this apartment, because you can probably see pigeons from this fourth floor apartment balcony. A four bedroom apartment, and with over 120m2, a proper 4 bed. South facing, so lots and lots of light. Across the road are green areas and an excellent swimming and sports complex, and the tram passes by just a couple of hundred metres away.

2 bathrooms, air conditioning, I don’t know that there’s much more to say. Except that pigeons are not nice, and we would never think of anyone as such. Even if they are unnecessarily mean and distrustful and write emails that would be considered out of order in their own country just as much as here. Just listen to the people with over 20 years experience in the Valencia Property market. If we say it’s a good property, it’s a good property.

And by the way, this apartment here, it’s a great apartment or as the French say "une super appartement".


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