Restructuring investments and accounts before becoming resident

Terms used

• Patrimonio — Patrimonio is the yearly wealth tax on what you own above an allowance.
• Beckham — The Beckham law is Spain's special tax regime for some newcomers who move to Spain for work.
• Solidarity tax — The solidarity tax is an extra yearly tax on very large fortunes.
• Modelo 720 — Modelo 720 is the Spanish return in which residents report accounts, securities and property held abroad.
• Impuesto sobre el Patrimonio — Impuesto sobre el Patrimonio is Spain's annual wealth tax on net assets held on 31 December.
• Beckham regime — The Beckham regime is a special Spanish tax regime for some new residents, taxing them mainly on Spanish income.
• Modelo 714 — Modelo 714 is the return used to file Spain's wealth tax.
• Modelo 718 — Modelo 718 is the return used to file Spain's solidarity tax on large fortunes.

Key rules

• No step-up: Your original purchase cost stays your cost in Spain, so pre-arrival growth is taxed when you sell as a resident.
• Foreign assets return: Once resident, you report foreign assets if any category (accounts, securities or property) is worth more than €50,000 at 31 December, filed between 1 January and 31 March.
• Wash-sale rule: The rule deferring losses on quick rebuys applies only to residents, so it does not touch a sale before you arrive.
• Foreign funds: Every sale or switch of a fund or ETF based outside Spain is taxable once you are resident.
• Abuse line: Ordinary sales before arrival are accepted, but artificial structures and short-lived transfers can be challenged.

The starting point: Spain gives no step-up

When you become resident, your holdings keep their original purchase cost, converted to euros at the date you bought them. Spain does not reset that cost to the value on the day you arrive. If you sell later, Spain taxes the whole gain since you first bought, including growth that happened before you moved.

So the plan comes down to three choices for each holding: sell it before you arrive, move it, or keep it. The decision matrix below goes holding by holding.

Selling before you arrive

You can sell while you are still non-resident and, if you want, buy the same holding back. This resets your cost to the new, higher price. Two things to weigh:

• The sale may be taxed in the country you are leaving. Compare that tax with what Spain would charge later.
• The sale and rebuy must have a real purpose. If the only point is a paper reset of cost, Spain's tax office can challenge it as abuse.

Spain's rule that defers a loss when you rebuy the same securities soon after selling applies to residents when the loss is realised. It does not affect a sale you make before you become resident. If you sell at a loss after you arrive, wait before buying the same securities back: 2 months for listed securities, 1 year for unlisted ones.

Where planning ends and abuse begins

Spain can ignore acts that are clearly artificial for the result they produce and that have no purpose beyond saving tax. It then charges the tax and interest. A penalty needs a special procedure, which includes a report from an advisory committee.

Usually accepted:

• Ordinary sales of assets before you arrive.
• Realising gains while you are non-resident.
• Moving to a position protected by a tax treaty.
• Using real operating companies.

Risky:

• Shell holding companies with no real activity.
• Short-lived transfers to relatives or entities just to raise your cost.
• Selling and rebuying in a round trip.
• Leaving Spain and coming back to dodge tax.

Separate anti-avoidance rules also exist, such as exit-tax and tax-haven rules. If a restructuring is large, you can ask the tax authority's central tax office for a binding ruling in advance. It gives you certainty before you act.

Funds and ETFs

Where your funds are based matters more than most people expect. Spanish-registered funds let a resident switch from one fund to another with no tax until you cash out. Funds and ETFs based outside Spain do not get this. Every sale or switch is a taxable gain. Savings income is taxed at 19% to 30%: 19% up to €6,000, 21% to €50,000, 23% to €200,000, 27% to €300,000 and 30% above. A few foreign funds registered with Spain's securities regulator can qualify for the switch rule. Many US-based ETFs are also restricted for retail investors in Europe.

If you hold foreign funds, consider whether to sell or switch before you arrive, while it is not a Spanish taxable event. Funds in tax havens face a special regime, so get advice on those.

Declaring foreign assets

Once resident, you must file a foreign assets return, Modelo 720, for accounts, securities and property held abroad. The limits and the filing window are in the key rules above. The first filing covers your first year as a resident. After that you file again only if a category has risen by more than €20,000. Since a 2022 reform, the old disproportionate fines are gone and the general penalty regime applies. Filing is still not optional. Taxpayers under the Beckham regime are generally not required to file.

Wealth tax

Spain's Impuesto sobre el Patrimonio taxes residents on worldwide assets valued at 31 December. Non-residents pay only on assets in Spain. The state-level allowance is a personal minimum of €700,000, plus a €300,000 exemption for your main home. Regions set their own allowances and rates:

• Madrid and Andalucía give a 100% bonus, so residents there pay effectively nothing.
• Catalonia, Valencia and Asturias tax heavily.

Net wealth above €3 million also falls under the solidarity tax, at 1.7% to 3.5%. Wealth tax you pay is credited against it. Regional bonuses do not cancel it. Wealth tax is filed on Modelo 714 and the solidarity tax on Modelo 718, in April to June of the following year. Where you choose to live can change your bill a lot, so look at the region before you pick a home.

A simple plan

1. List every holding with its purchase cost and current value.
2. Mark the ones with large gains, the ones at a loss and the foreign funds.
3. Work out the tax in your origin country on selling each one, and compare it with Spain's.
4. Sell what makes sense while you are non-resident, for real reasons.
5. Keep a record of your purchase prices and dates, because Spain will use them later.
6. Get advice from an adviser who knows both countries before you do anything large.

The timeline and warnings below cover the order of events and the pitfalls.

Sell or hold before moving: a matrix by type of holding

Sell or hold before moving, by type of holding

For each holding, should you sell it before you become Spanish resident or keep it?

• Sell holdings with a large unrealised gain: The gain is large and your origin country taxes the sale lightly or not at all. Sell in a year before you become resident, because once you are resident Spain taxes gains on the same scale as dividends and interest, starting at 19%.

• Sell shares bought very cheaply: Your purchase price is far below today's value, so most of the sale price is gain. Selling before the move keeps that gain out of Spain. Check the cost basis article first so you know your real purchase price.

• Keep shares with a high purchase price: Your purchase price is close to today's value, so there is little gain either way. Selling gains you little and may cost you fees or origin-country tax.

• Handle holdings that are at a loss with care: The holding is worth less than you paid. A loss realised in the year you become resident can offset gains of that same year in Spain. A loss from an earlier year, before you were resident, generally cannot be carried into Spain. Sell it in the arrival year only if you have gains to offset, and keep documents showing the loss in euros.

• Review funds and ETFs based outside Spain: You hold funds or ETFs domiciled abroad. In Spain, selling or switching them is a taxable gain every time, unlike Spanish funds, where you can switch between funds without tax. If you plan to switch often, consider selling before the move or moving into Spanish funds.

• Compare origin-country tax with Spain's: Your origin country taxes a sale on departure or taxes gains more heavily than Spain. Work out the tax in both places for each holding, and sell only where selling before the move is cheaper.

Go through your holdings one by one: sell where the gain is large and the origin-country tax is low, use losses only against gains in the same year, and keep holdings with little gain. Sell in a year before you become resident, and if you cannot, sell only what you have worked out is cheaper.

Check the current Spanish savings tax scale and how your origin country taxes a sale with a tax adviser before selling.

Timeline and deadlines

• Sell or rebuy holdings to reset your cost basis, while you are still non-resident: before you become resident, in a year of non-residence

• Become resident and hold foreign assets over the limit at year end: on 31 December of your first year of residence

• File the foreign assets return for your first year as a resident: between 1 January and 31 March of the following year

• File the return again only if a category has risen by more than €20,000: in later years, when the rise happens

What to watch out for

• No cost basis step-up on arrival: Spain uses your original purchase cost, converted to euros at the purchase dates, so a large gain you built up abroad is taxed in Spain when you sell. Decide before you move whether to sell in a year of non-residence, and check what tax your origin country charges on that sale.

• Selling and rebuying can be challenged as abuse: A sale and repurchase with no genuine purpose beyond tax can be disregarded, with the tax, interest and possibly a penalty charged. Keep to ordinary sales with a real purpose, and ask for a binding ruling from the tax authority if you want certainty.

• Artificial structures and short-lived transfers: Shell holdings, brief transfers to relatives or entities to raise cost basis, and leaving and returning to dodge tax are the kinds of arrangement most likely to be challenged. Avoid them, or take professional advice at least 6 months before the move.

• Missing the foreign assets return: If any category of accounts, securities or property abroad is worth more than €50,000 at 31 December, you must file it by 31 March. Failing to file brings fines under the general penalty rules. Add up your foreign accounts, securities and property by category before 31 December and file between 1 January and 31 March.

Frequently asked questions

Can I sell and rebuy shares before I arrive to raise my cost basis?

Yes, you can sell and rebuy before arrival, in a year when you are not resident, to reset your cost basis, but your origin country may tax the gain. Spain gives no step-up on arrival, so your original cost is used for a later sale. A sale and quick repurchase with no genuine purpose can be challenged as abuse.

Does Spain's wash-sale rule stop me from rebuying right after a sale at a loss?

No, the Spanish wash-sale rule does not affect a sale you make before becoming resident, because it applies to losses realised by residents. For residents, a loss is deferred if you buy identical securities back within 2 months, or 1 year for unlisted securities.

Will wealth tax apply to my worldwide assets once I am resident?

Yes, residents pay wealth tax on worldwide assets valued at 31 December, but the amount depends on your region. The state allowance is 700,000 euros plus 300,000 euros for your main home, and Madrid and Andalucía apply a 100% bonus. A separate solidarity tax applies to net wealth above 3 million euros, at 1.7% to 3.5%, and is not cancelled by regional bonuses.

Can I keep switching between foreign ETFs without paying tax in Spain?

No, switching between foreign-domiciled funds or ETFs triggers a taxable gain in Spain, unlike switching between Spanish funds. The gain is taxed at 19% to 30%, from 19% up to 6,000 euros to 30% above 300,000 euros. Only funds registered with the CNMV, Spain's securities regulator, and meeting the switch conditions keep the deferral.

Which pre-move restructurings are safe and which look like abuse?

Ordinary sales of assets and realising gains while you are non-resident are generally accepted, as is using real operating companies. Artificial shell holdings, short-lived transfers to relatives to raise cost basis, and round-trip sales and repurchases are risky. To get certainty in advance, you can ask the tax authority for a binding ruling.