The allure of living abroad is increasingly tempting for many Americans, and Spain, with its rich culture, vibrant cities and visa options, is among the most popular choices for expats. Whether you’re moving to Spain for love, adventure, to work remotely, a career opportunity or perhaps retirement, it’s important to plan your finances carefully. In this guide, we’ll explore the essential financial planning considerations when relocating from the US to Spain.
In this article, we look at:
- Brokerage and other financial accounts
- Banking and currency fluctuations
- Tax considerations: navigating double taxation
- Real estate considerations
- Estate planning
- Conclusion: embrace the adventure with prudent planning
Brokerage and other financial accounts
One of the most common questions we get asked by Americans moving to Spain is whether they can and whether they should keep their US brokerage and bank accounts open.
Whether you can will depend on each brokerage firm or bank’s rules. Some won’t deal with expats, and others will, so it’s important to talk to your US banks and brokerage firms to find out what their policy is. We recommend calling your broker before you move and ask them the hypothetical question, “how would it impact my accounts if I moved to Spain”.
Regarding retirement plans, it’s fine to keep US retirement plans from overseas. If you will be able to still contribute depends on where your income is generated and how it is treated in the joint tax treaty, also whether or not it makes sense to keep contributing (rather than contribute to a retirement plan in Spain) will depend on a number of factors, such as your future plans.
If you have to move your investments because your broker won’t work with expats, talk to an expat specialist financial advisor who will know how best to move forward, again based on your unique circumstances and future plans. As an American in Spain, you’re subject to both EU and US investment regulations, so seek advice from an expat financial advisor who is dual licensed in both places and has experience working with expats in Spain.
Banking and currency fluctuations
Unless they have cut all their financial ties with the US, most Americans living in Spain retain a bank account in the US as well as opening a new one when they move to Spain. It may even be possible to open a Spanish bank account from the US before you move, although it can be difficult if you don’t already have an address in Spain. Banco Sabadell for example allows Americans to open an account with just a passport (without needing an NIE number), and they have a branch in Miami where you can sign the forms. Otherwise, they have English speaking staff in most Spanish cities and will open an account for you within a couple of days once you arrive.
You’ll need an account in Spain to pay bills and also to receive Spanish income if you’re working there. If you’re transferring money between the US and Spain though, it normally makes sense to use a specialist currency broker for larger sums or firms such as Moneycorp or Wise for smaller amounts, who offer a better exchange rate and lower fees compared to banks.
Note that Spanish banks and brokerage firms are required to report their US account holders, including account balances, to the US Treasury. This is an unavoidable feature of the modern age. US citizens also have to report their Spanish bank accounts and any foreign investment accounts by filing a Foreign Bank Account Report (FBAR) or IRS Form 8938, depending on the total value of balances and investments across all your foreign financial accounts. Expat specialist US tax professionals can help with this.
Keep an eye on currency fluctuations, as they can impact your purchasing power abroad. Your expat financial advisor can help you to assess how changes in exchange rates may affect your finances. For example, it might make sense to invest in both Euros and dollars to mitigate the risk of currency movements, or you might wait to transfer funds until the exchange rate is favorable.
Tax considerations: navigating double taxation
Americans moving abroad face the unique challenge of taxation based on citizenship rather than residence. This means expats living in Spain must pay taxes and file a US tax return in addition to paying Spanish taxes. This includes taxes on capital gains, interest, rental income, and earnings. Note that typically Spanish tax rates are higher than US tax rates.
Expats can claim the Foreign Tax Credit however, an IRS provision that helps alleviate double taxation, while the US-Spain tax treaty has some provisions that can help Americans living in Spain, too.
US expats also have to report their Spanish bank and brokerage accounts to Uncle Sam by filing an FBAR and Form 8938, as described above. There is also a Spanish requirement to report brokerage and other financial accounts residents hold outside Spain.
Your former US state may also require you to file state taxes, depending on the rules in the state, which may relate to whether you’ve retained ties there or intend to return to live there.
US requirements can also impact investment choices, as some types of Spanish investment products can trigger new US taxes or burdensome reporting, while owning a company is Spain also means extra US reporting.
It’s worth mentioning that Americans employed by a Spanish firm that they don’t own more than 25% of can lead to reduced Spanish tax rates for the first few years of residency under the so-called ‘Beckham’s Law’.
In general, the tax landscape is complex for Americans living abroad, and it’s important to seek help from qualified and experienced professionals who have significant experience working with expats.
Real estate considerations
Real estate can be part of a balanced diversified investment portfolio, as well as providing you with a home. If you’re buying a home in Spain, rent in the areas you’re thinking of buying first though, to get to know it and be sure it’s where you want to live.
If you’re selling a property in the US, it often makes sense to do so before you move abroad, as once you’re a tax resident in Spain you’ll be liable to Spanish capital gains tax, which is much more punitive than US capital gains tax.
There are no tax implications in terms of buying real estate in Spain, though any rental income from Spain will need to be reported on your US tax return, and when you sell, any gains will count towards US capital gains tax calculations.
Estate planning
Americans living in Spain should adapt their estate planning by ensuring that they have wills in both jurisdictions.
Clarity in your wills and related documents is essential, outlining how assets should be distributed in both countries.
When the beneficiaries or executors of a Spanish estate reside outside of Spain, it’s a common practice to grant a Power of Attorney to their Spanish attorney. This legal authorization empowers the attorney to act on their behalf in managing the various aspects of the inheritance process.
Conclusion: embrace the adventure with prudent planning
Relocating from the US to Spain is an exciting journey filled with opportunities and challenges. It’s important to seek expert cross-border advice though, ideally before you move or otherwise as soon as possible afterwards to ensure that you can embark on your expat adventure with confidence.
If you have any questions about financial planning as an American living in Spain, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.