More Americans are moving to Spain — and paying high prices for real estate

More Americans are flocking to Spain for longer, whether as so-called digital nomads working abroad or to enjoy a new life in retirement.

The number of Americans living in Spain grew by 13% from 2019 to 2021, and home sales to Americans jumped 88% from the first half of 2019 to the first half of 2022, according to a report by the General Council of Notaries in Spain.

Among expat groups buying in the sun-washed country, Americans paid the second most, after the Danes, shelling out up to 2,837 euros, or $3,119, per square meter. In addition, the home prices that grew the most in the same period were paid by Americans, according to the report.

Purchasing or living in a home abroad requires a certain level of wealth, given the cost not only of real estate but overseas travel, as well, said Alex Ingrim, a Florence, Italy-based private wealth manager and senior investment analyst at global financial services firm Chase Buchanan.

According to the General Council of Notaries report, American buyers are focusing on urban areas like Madrid — as with any big city, people are attracted to its job opportunities and amenities, said Ingrim.

While the southern coastal region of Andalusia has always been a popular location for Americans, there’s a “strong word of mouth” for the city of Valencia, an urban area on the beach farther north on the Mediterranean coast with a large expat community, among them many Americans, said Ingrim.

However, Americans who want a different retirement or remote work experience and an adventure by relocating to Spain should take a few factors into consideration.

Most tax on property purchased in Spain is paid upfront in a stamp duty, or “AJD” in Spanish parlance, rather than in annual property tax payments like in the U.S.

“The stamp duty can run from 1% to 2.5%, and then there is [value-added tax] on new construction or transfer tax on pre-owned homes,” said certified financial planner Jude Boudreaux, partner and senior financial planner with The Planning Center in New Orleans. “It’s all substantially more than in the States.”

It must be paid by the buyer at the treasury office of the appropriate autonomous region in Spain within 30 business days after the property is bought.

“You pay a lot of the taxes upfront rather than on an ongoing basis, so the purchasing costs and the purchasing process are a lot different,” said Ingrim, who advises interested buyers to get in touch with local estate agents and property lawyers early on in the process.

If you are looking to retire in Spain, consider the financial and tax implications, and seek help from an advisor before setting into the idea, he added.

Additionally, make sure your taxes are in order. Although you are rarely taxed on the same income twice, look at the different streams of income and assets you may have in order to understand “who gets to tax what first, whether Spain or the U.S.,” said Ingrim.

For instance, an American citizen working in Spain will have a higher tax rate, but those taxes become a deduction when they file their federal tax return in the U.S., said Boudreaux, who is a member of CNBC’s Financial Advisor Council.

On the other hand, the U.S. taxes your global income, so if an American earns an income from rental properties in Spain, or anywhere else in the world, “the U.S. will gladly tax your income from Spain,” he added.

For his part, Ingrim noted that “while you might have a liability to both systems, you rarely pay tax on the same income stream or asset base twice.”

It’s important to remember your debts in the U.S. doesn’t just go away when you move abroad, he added. “You need to still have a plan to deal with your American liabilities while you’re living abroad.”

Some countries, like Portugal, may ask foreign residents for a credit report from their home country when they take out a mortgage or try to establish credit. Keep your debts in mind and plan to keep up with your payments.

“Keep repaying your student loans, your car payments, mortgages, whatever it may be, and try to [keep up] your U.S. credit history because it may impact your going forward in your new country [of residence],” said Ingrim.

Keep an American bank account tied to a U.S. address open before you move so you can pay your bills through automatic transfers from that account, said Boudreaux, to save on exchange rates and monthly wires.

Additionally, you may need a Spanish bank account to pay your daily living expenses in euros and avoid being regularly at the mercy of fluctuating exchange rates. The U.S. government imposes bank reporting rules on every bank that does business with U.S. citizens. Find a Spanish bank that complies with these rules, “so they can do all the proper reporting when and as necessary,” added Boudreaux.

Spain launched its digital nomad visa earlier this year, making it easier for foreigners to move to and work there. The visa is tailored for “international teleworkers,” and applicants must comply with a set of requirements, such as accreditation or professional experience of at least three years.

“Prior to having this visa, it was difficult to work in Spain because the tax rates were so high and there wasn’t a clear-cut immigration regime, other than the ‘golden visa’ that allowed you to move to Spain and work,” said Ingrim.

The golden visa, which you only obtain if you purchase a property for more than 500,000 euros — or about $550,000 — allows you to live, work and earn a larger set of rights once you’re residing in Spain, he said.

Nonlucrative visas, meanwhile, are meant for people who are no longer employed, including retirees, who can rely on a passive income. This type of visa allows you to live in a new country but prohibit you from working. “The first step would be engaging with a Spanish immigration lawyer and understanding if you meet the requirements,” said Ingrim.

However, before you make your bid on a property, consider renting first to see if the area meets your preferences and needs, added Ingrim.

Some Americans already living in other countries, namely Portugal, are conscious about how arrangements like the golden visa can exacerbate housing problems for locals. That ought to be a consideration for buyers in Spain, he said.

In Ingrim’s experience, incoming U.S. buyers express concerns around the issue, saying “We don’t want any part in contributing to that.” As a result, many prefer to initially rent, as a precaution.