What Happens After the Beckham Law? Taxation and Financial Planning for Expats in Spain Post-Expat Regime

The Beckham Law offers a lucrative six-year window of reduced taxation, primarily applying a flat 24% rate on Spanish-sourced employment income and exempting most foreign-sourced passive income.

However, after the final tax period—the so-called “Beckham Law end of regime”—the expatriate transitions from a quasi-non-resident status to a standard Spanish tax resident. This shift often results in a significant increase in the overall tax burden and compliance obligations, commonly referred to as the “Fiscal Cliff.” Preparing for this transition, ideally starting in Year 4 or 5 of the regime, is essential for long-term wealth protection.

The Switch: Moving from Non-Resident Status to IRPF

Upon exiting the Beckham Law regime, the taxpayer is automatically subject to the General Personal Income Tax (IRPF). This fundamentally changes the scope of taxation.

The most crucial difference is moving from a territorial tax system (mostly taxing Spanish income) to a worldwide income tax system.

Progressive Tax Rates: The New Reality

Under the Beckham Law, the executive enjoyed a predictable, flat tax rate of 24% on Spanish employment income up to $600,000.

• Standard IRPF: As a standard resident, you become subject to progressive marginal tax rates. These rates vary by Autonomous Community but can reach 45% to 50%+ for the highest income brackets.

• The Impact: The transition means that every euro earned will be taxed at the highest marginal rate applicable to your total worldwide income, a drastic increase compared to the previous flat 24%.

Worldwide Assets and Form 720

This is arguably the most critical compliance step when “Moving from non-resident to IRPF”.

Upon becoming a standard tax resident, the individual gains two new major obligations regarding global wealth:

1. Declaration of Foreign Assets (Formulario 720): You are required to inform the Spanish Tax Agency about all assets held outside of Spain exceeding €50,000 (including bank accounts, investments, and real estate). Failure to file this form, or filing it incorrectly, is subject to extremely high penalties.

2. Wealth Tax (Impuesto sobre el Patrimonio): While exempt under the Beckham Law, standard residents are subject to the Wealth Tax on their worldwide net assets. This tax varies significantly by region (e.g., Madrid has a 100% deduction, while other regions are highly punitive).

Learn more about your new obligations for declaring overseas assets in our comprehensive guide to Form 720 in Spain.

Strategic Financial Planning Post-Beckham Law

Effective planning must be initiated years in advance to manage the transition smoothly and legally minimize the new tax burden on global wealth.

Managing Global Investments and Capital Gains

As a standard resident, all capital gains realized globally (e.g., selling stocks, funds, or real estate) are subject to Spanish taxation.

• Strategy: Assets that have accumulated significant unrealized gains should be reviewed. Strategic restructuring, or even the sale of assets, may be considered before the last year of the Beckham Law regime to potentially mitigate future Spanish capital gains tax liability, depending on the asset’s location and applicable Double Taxation Treaties (DTTs).

Taxation of Foreign Pensions and Real Estate Income

Under the Beckham Law, foreign-sourced passive income (such as pensions and rental income from property outside Spain) was often exempt. Post-regime, this income is fully integrated into the Spanish tax base:

• Pensions: Foreign pension income is generally taxed as work income under IRPF and is therefore subject to the high progressive marginal rates.

• Foreign Real Estate Income: Rental income from foreign properties is taxed in Spain, with credit available for taxes paid in the source country as per DTTs.

Key Tax Benefits You Gain Back

While the tax rate increases, the standard resident status grants access to several tax benefits and deductions previously unavailable under the special regime.

The Main Residence Exemption

As a standard resident, your primary residence is generally treated more favorably:

• No Deemed Income: Under the Beckham Law, if you owned property in Spain that was not your main residence (or you were not exempt), you often faced imputed rental income (Imputación de Renta Inmobiliaria). As a standard resident, your main, habitual residence is exempt from this deemed income.

• Reinvestment Exemption: Standard residents can benefit from the exemption of capital gains on the sale of their main residence, provided the proceeds are reinvested in a new main residence.

One of the biggest advantages is that you regain the tax exemption on your main residence. This contrasts with the recent Main Residence Tax Ruling that affected expatriates under the special regime.

Tax Deductions and Allowances

Standard residents can utilize numerous personal and family-related deductions that were not available while under the Beckham Law:

• Personal and Family Minimums: Significant reductions based on age, marital status, and dependents (e.g., children or elderly care).

• Deductions: Eligibility for deductions related to donations, investments in specific sectors, and regional deductions (depending on the Autonomous Community).

Long-Term Wealth Strategy in Spain

The end of the Beckham Law regime is not just a tax change; it is a fundamental shift in your financial profile. Proactive consultation is necessary to transition from an expat tax model to a standard resident tax model, focusing on optimizing global assets, investments, and income structure.