How Spain became a ‘tax trap' for British expats

Telegraph

05-03-2025

It has long been an obvious choice for wealthy, sun-starved Britons looking to move overseas.
The food, climate and coastline have enticed hundreds of thousands of expats over the last 20 years. Favourable tax breaks have only sweetened the deal.
But Britain's love affair with Spain appears to be ending on bad terms.
The country has become a 'tax trap' for expats who are being 'fleeced' by its authorities, one international law firm has claimed.
Amsterdam & Associates LLP has launched a campaign – 'Spanish Tax Pickpockets' – to highlight the plight of foreigners who moved to Spain for financial reasons, only to find themselves subject to 'punitive tax claims'.
The campaign's website states that families have been hit by 'unprompted and unexplained audits, attempted asset seizures of foreign property [and] onerous, expensive, and confusing compliance requirements'.
Robert Amsterdam, partner at Amsterdam & Associates, told The Telegraph that he had been contacted by 80 victims, many of them British, whose 'lives have been ruined' by tax probes that are 'inconsistent' with European law and human rights.
'What Spain is doing to expats would embarrass a mafia don,' he added.
His firm has gone as far as taking out full-page adverts in the Financial Times. At the centre of the row is the so-called 'Beckham law' – a tax break introduced in 2005 designed to attract wealthy foreigners.
The legislation allows qualifying foreign workers to pay a flat 24.75pc tax rate on Spanish-sourced income up to €600,000 (£497,000) per year for a maximum of six years – far lower than the progressive tax rates of up to 47pc paid by native Spaniards.
Dividends, interest and capital gains generated outside Spain are generally exempt from tax under the regime.
The law earned its nickname when David Beckham became one of the first foreigners to take advantage of it after moving to Spain to play for Real Madrid.
Since then, it has become popular with footloose high-earners looking to slash their tax bill. But many of these expats are now having their 'Beckham law' tax status reassessed, according to León Fernando del Canto, a tax lawyer and founder of Del Canto Chambers, which has offices in Spain and Britain.
'We are now seeing the tax office contesting the granting of the status after two or three years in the country,' he said.
'This has upset a lot of people and created insecurity, as they are no longer confident that only a certain amount of their income would be taxable.'
While the tax authority has the right to contest if it believes an individual's tax status has changed, the decision to pursue a case appears 'a little bit discretionary', Mr del Canto said.
The result is that foreign employees who came to Spain expecting to be protected by due process and a robust rule of law have instead been subjected to a tax inquisition that has left them 'distressed and bitterly disappointed', Mr Amsterdam said.
'It's a massive bait-and-switch. Victims are subjected to a draconian process which is an international outlier – often denied any explanation of why they are being audited and any right to challenge investigations until just before they conclude.'
The 'tax trap' furore is the latest sign that wealthy foreigners are no longer welcome in Spain.
Last April, the Spain's government axed its famous 'golden visa' scheme, which offers non-EU citizens residency rights in exchange for a €500,000 investment, typically in property. It is due to close on April 3 this year.
And in January, Prime Minister Pedro Sánchez announced plans to impose a 100pc tax on property purchases by non-residents living outside the EU, branding buyers 'speculators', who were out 'just to make money'.
Mr Sánchez was tapping into Spaniards' anger at what they see as an influx of foreigners buying up homes amid an acute housing crisis. Industry experts believe foreign property buyers – including Britons – are being treated as 'scapegoats' by the Spanish government.
The 'Beckham law' crackdown is made possible by ambiguous rules enforced arbitrarily to squeeze money from taxpayers, according to Mark Stücklin, founder of the website Spanish Property Insight.
Over the years, he has heard 'a steady stream of horror stories' from foreigners and tax lawyers about the 'high-handed tactics' of the Spanish tax authorities.
'The problem is systemic: poorly defined tax regulations, aggressive inspectors chasing bonuses, weak oversight, and a view of wealthy foreigners as easy prey.
'It's also a postcode lottery. Catalonia, in particular, has a reputation for being high-handed, while Madrid is often seen as more reasonable.'
Mr Stücklin points to 'Modelo 720' as another example of Spain's tax system working against foreigners. The declaration form for overseas assets of over £50,000 was introduced in 2012 by the Spanish tax authorities, which charges fines of up to £20,000 for non-compliance or errors.
The law was sold as a tool to fight corruption, money laundering, tax evasion, and terrorism financing. In reality, according to Mr Stücklin, it resembles 'a shakedown targeting foreign expats rather than dodgy local politicians'.
Like other Spanish civil servants, tax inspectors are awarded bonuses for hitting targets. In 2013, the Spanish Tax Agency (AEAT) launched a fraud crackdown, which included productivity bonuses for inspectors who increased collection rates.
In 2019, the last year for which data is available, a €95m bonus pot was set aside to incentivise raising €150bn of income tax and VAT revenue. The bonus system has been criticised for encouraging arbitrary investigations and confiscations.
Another part of the problem is the timid response of foreigners hit with tax demands.
'Most people do not fight back,' Mr del Canto said. 'They tell themselves it's better to pay, because they fear other income will be brought into the regime.'
However, when taxpayers do challenge a decision, they tend to win. The online newspaper, El Confidencial, reported in 2021 that AEAT loses around 45pc of appeals before economic-administrative courts, and around 30pc of cases that proceed to judicial review. Overall, taxpayers win over half of all disputes.
Mr del Canto believes the low success rate of convictions is evidence that many of the cases being pursued are legally tenuous.
'As a tax authority, you should not lose so many cases. It's a sign that something is wrong here.'
The AEAT was approached for comment.