The small corner of Spain luring British expats with huge tax breaks
In January, the country's prime minister, Pedro Sánchez, announced plans to levy 100pc tax on home buyers who are from outside the EU. And law firms warn the country's existing foreign residents are increasingly being caught out by 'tax traps' in the country.
But one small corner of the Iberian peninsula is quietly bucking the trend – and is luring in Britain's best and brightest with huge tax breaks.
The Basque Country, nestled in Spain's northern Costa Verde, currently offers a tax discount worth as much as 50pc of earnings to highly skilled foreigners.
That's on top of a tax-free personal allowance of €20,000 (£16,776) – £4,200 higher than in the UK, where the taxman will not spare a penny more of your earnings until the end of the decade.
Thanks to a deal struck with the Spanish government more than a century ago, Álava, Gipuzkoa and Biscay – the three provinces that make up the green Basque region – set their own tax policy separately from Madrid.
It means Spain's planned 100pc tax on the sale of properties to foreign buyers from outside the European Union will not apply in the Basque, where purchase tax is currently 7pc of a property's value.
The autonomous community, where Spanish as well as the native Basque language are widely spoken, has used its devolved powers to make its tax system one of the most attractive in Europe to working professionals.
Those seeking to take advantage of it must first obtain a job offer to be based in the Basque region as a 'highly qualified' employee – meaning the role must be classed as either scientific, financial or commercial in nature.
Senior managerial positions and entrepreneurs starting Basque-based companies that fall within those categories can also qualify for the scheme. Applicants must not have been tax residents of Spain at any point in the past five years.
'This will cut your tax bill by a quarter'
Once enroled in the scheme, workers are given a generous tax discount for the next 11 years they are taxpayers in the region, starting with 30pc of their salary being exempt from income tax.
But the icing on the cake is an additional tax deductible allowance worth 20pc of workers' salary that is spent on housing costs, educating children, moving expenses to and from Spain and language classes in Spanish and Basque.
Ivan Jimenez, managing director of Bizkaia Talent, a Basque government-backed non-profit, said the scheme had been successful in 'attracting highly qualified professionals'.
He said the provincial Basque government has full tax-raising powers.
'We can decide what we do about taxes and we pay Spain for the services they give to us but 92pc of the taxes we collect stay in the Basque Country,' he said.
'To begin with, we have a tax rate after 30pc of the income for highly qualified professionals. Basically this is focused on people that are related to science, finance, commerce and highly qualified managers.'
Started in 2018, the tax scheme was later expanded in 2022 to include entrepreneurs and the introduction of the 20pc tax-free allowance for spending associated with the costs of moving to and living in the Basque region.
Mr Jimenez said the 'tax break helps a lot because you end up with an increase of approximately 25pc of your net salary'.
He cautioned those seeking to take advantage of the scheme not to move permanently to the region before securing a job.
'You need to demonstrate you came to the Basque Country for a job contract or you are an entrepreneur creating a company and that you are in these roles. The reason why you come here must be an [employment] contract, it's not for people who are coming and waiting here to find a job.'
While figures for the exact number of Britons who have taken advantage of the Basque tax break system are not available, Mr Jimenez notes 93 skilled workers from the UK settled in the region last year.
The tax breaks they could be claiming under the scheme are substantial.
A worker earning £67,907 in Britain – the equivalent of €80,000 – would take home £49,947 after paying income taxes. In the Basque Country, the same worker using the tax breaks scheme would earn £56,209 after tax under the 30pc rule.
If this worker used up the full tax-deductible allowance worth 20pc of salary, their take home earnings would rise to £61,012, a difference of £11,065 a year when compared with British taxes.
When compared with ordinary Spanish taxes, the tax breaks are worth tens of thousands of pounds over the full 11-year eligibility period.
'Tax breaks give me extra cash to spend on my family'
Philip Martin moved in 2021 from Cambridge to Guernica, near Bilbao, and said tax breaks provide extra money to pay for the costs of raising his two young children with his Spanish partner.
'Tax in Spain is probably about the same overall [as in Britain], but at least for me during the first 10 years I am resident here I get a tax break that is equivalent to me getting around €200 to €300 a month extra. With family it's really useful to have a bit of extra cash.'
The forest ecologist, 43, was pleasantly surprised to learn of the tax breaks he qualified for during his move to Spain from Britain, but says it was not a motivating factor for his decision to emigrate.
'I didn't know anything about the tax situation before I moved here and it didn't influence me to move. Brexit meant I was unable to apply for some European Union grants, so I moved knowing I would be able to access a pot of money I wouldn't be able to in the UK.'
Mr Martin said he knew of those who had moved to the Basque region and were able to claim back taxes on the cost of relocating.
'I have friends that moved from other bits of the world and were able to claim back some of the costs of around £5,000 to move.'
He said he was also attracted to the better job security he found for his profession in Spain when compared with back home.
'For me, more than the tax issue, is what opportunities are coming. I have primarily worked in universities in the UK and lots of my friends are seeing cut backs so more than the tax burden it would be the job security.'
Mr Martin added that Britons thinking of making the move to the Basque Country should not expect much sunshine.
'It's very different from what people perceive. It rains two or three times as much [as in Britain] so it's not sunny [in this part of] Spain, it's completely different and lots of people from the UK would feel quite at home in terms of the weather.'
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