The real cost of retiring in Spain

Telegraph

16 hours ago

It has long been the dream destination for British retirees wanting to spend their golden years in the sun.
More than 100,000 pensioners have settled in Spain to take advantage of the Iberian climate, cultural riches and delicious food – as well as the prices.
Housing and living costs are generally far lower in Spain than in Britain, easing the pressure on pension pots that have to last retirees for the rest of their lives.
But any would-be expat rushing to make the move without careful planning risks visa headaches, punitive tax rates and pension complications.
Failing to budget properly can mean a retirement that is much more expensive than planned.
Here, Telegraph Money breaks down the true cost of retiring in Spain. Jump to:
Visas and minimum income
Tax residency and tax rates
Tax-free personal allowance
How pension income is taxed
Housing and living costs
Visas and minimum income
The first step towards achieving that dream retirement is to secure the appropriate visa.
According to tax advice firm Blevins Frank, the most popular choice for British citizens planning to retire in Spain is a Non-Lucrative Visa, which allows retirees to reside in Spain without having a job.
Any citizen not from the EU or European Economic Area (EEA) wanting to apply for this visa must prove they have an income of €28,800 (£24,260) per year, with an extra €7,200 (£6,065) per year for each dependent. This means a pensioner couple would need a combined income of at least €36,000 (£30,325).
The visa fee for 2025 is approximately £516 per applicant, plus a processing fee of around £9.
If you plan to continue working part-time after moving to Spain, the country also offers a Digital Nomad Visa. This visa allows foreign remote workers or freelancers to live in Spain while working for non-Spanish companies.
Applicants must demonstrate that they have a stable income from outside the country of at least €2,762 a month, or of €33,152 per year. Proof of remote employment and health insurance is also a requirement.
Tax residency and tax rates
Tax residency in Spain is established if you spend more than 183 days in the country during a year or if your main economic interests are in Spain.
The country's tax authority treats you as either a resident or non-resident for the full tax year (January to December). Residents pay tax on worldwide income, and must declare foreign assets over €50,000 on a form called 'Modelo 720'. Failure to do so could result in significant penalties.
Spanish tax residents pay income tax on their worldwide income, applied progressively with rates starting at 19pc and rising to 47pc for higher income brackets.
These rates vary slightly across Spain's regions as the headline rate is made up of state tax and a regional tax.
British tax-efficient investments, such as Isas and National Savings & Investments, do not have the same tax-efficient treatment abroad. In Spain, any interest, dividends or capital gains arising within these accounts will be taxable.
This 'investment income' is taxed at separate savings income rates of between 19pc and 30pc, with the top rate applying on investment income or gains exceeding €300,000.
Any prospective expats should also be aware of Spain's wealth tax. In 2022, the Socialist government introduced a temporary 'solidarity tax' levied on the value of worldwide assets.
The progressive rates are 1.7pc for wealth over €3m, then 2.1pc for assets between €5.35m and €10.70m, and 3.5pc for any wealth above this level.
Spanish tax residents get a general €700,000 allowance plus €300,000 against the main home, meaning the tax only affects those with wealth over €4m (or €8m for married couples).
But tax rules can differ across regions. For example, Madrid and Andalusia currently offer a 100pc rebate on the wealth tax, making these areas particularly attractive for wealthy residents.
Inheritance taxes also vary hugely from region to region in Spain. Some areas like Madrid have 100pc relief on inheritance tax, while other regions can charge up to 34pc in death duties.
Tax-free personal allowance
In Britain, taxpayers are given a £12,570 tax-free 'personal allowance' before being charged income tax.
Spain offers a less generous personal allowance for tax residents – the 'mínimo personal' – which varies by age: €5,550 for those under 65, €6,700 for those aged 65 to 74, and €8,100 for anyone aged 75 and over.
To achieve a 'moderate' standard of living in retirement in Britain, a pensioner would need an income of £36,500 according to the Pensions and Lifetime Savings Association.
A 70-year-old single pensioner with an income of £36,500 would pay £4,800 of income tax in Britain. In Spain, the equivalent income of €41,000 for the same pensioner would mean a significantly higher income tax bill of €8,500 (£7,250).
How pension income is taxed
In Spain, pensions are taxed in the same way as employment income, with rates ranging from 19pc to 47pc.
If you receive the British state pension, you will need to declare it in your Spanish tax return and pay tax on it in Spain.
Thanks to a reciprocal agreement with EU countries, British pensioners living in Spain also benefit from the annual 'triple lock' increase to their state pension payments, unlike the nearly half a million expats living in mostly Commonwealth countries who do not receive the uplift.
For private pension income, HM Revenue & Customs (HMRC) will continue to deduct tax at source until it is satisfied that you are resident in Spain and paying Spanish tax on this income. You can request a tax residency certificate from the Spanish tax office and send it to HMRC.
The only pensions exempt from Spanish taxation are British government pensions, paid to retired members of the fire service, police, civil servants, armed forces and local authorities, which continue to be taxed in Britain. Even so, you are required to list the pension income on your Spanish tax return.
In Britain, anyone over the age of 55 can take 25pc of their pension as a tax-free lump sum. But crucially, this rule will not apply if you take the lump sum after relocating to Spain. The withdrawal is taxable because Spain does not have a non-taxable element of a pension fund. It means anyone wanting to make the most of the rule should consider doing so before relocating.
Raquel Plaza, of Blevins Frank, said that assuming the tax-free lump sum rule applied in Spain was a 'common pitfall' among expat retirees. She added: 'The timing of your move to Spain is especially important. The moment you become a Spanish tax resident it can significantly affect how your income and assets are taxed.'
Housing and living costs
The cost of living is, on average, considerably cheaper in Spain. This includes utilities like electricity, water, eating out at restaurants, and the price of clothes, public transport and essential foods.
Property, too, is significantly more affordable. According to the real estate portal Idealista, property in Spain costs an average of €2,237 per sq metre, compared to €5,009 in a city centre in Britain, or €3,783 on the outskirts of a city.
That said, there is considerable regional variation, with tourist and expat hotspots, such as Costa Brava and Costa del Sol, attracting a premium, as well as major cities.
Prices in coastal areas popular with British buyers typically range from €2,000 to €3,500 per sq metre, according to Blevins Frank, a financial advice service for expats. In major cities like Madrid, prices are higher, usually between €3,500 and €5,000 per square metre. Moving to smaller towns, prices drop, generally falling between €1,200 and €2,000 per sq metre.
Relatively cheap property has helped fuel anti-foreigner rhetoric in Spain. In January, prime minister Pedro Sanchez announced plans to impose a 100pc tax rise on property purchases by non-residents living outside of the EU. He also said he aimed to introduce an outright ban on house purchases by non-EU citizens.
Mark Stücklin, founder of website Spanish Property Insight, believes the threat was 'political posturing' and not to be taken seriously.
He added: 'Spanish property still represents good value compared to the UK, especially when you factor in the significantly lower cost of living and higher quality of life.
'Property prices in popular regions like the Costa del Sol, Costa Blanca and the islands have risen steadily since the pandemic, with growth accelerating into high single and even double digits in late 2024 and early 2025.'