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United Kingdom vs. Spain, where are taxes lower?
Compare taxes in the UK with those In Spain and decide which country is best for living, working or setting up your business.
One of the most crucial factors when deciding whether to live, work, or start a business in a certain country is knowing the tax burden in advance. That is why,. In this article, we are going to compare taxes in the UK versus Spain, to find out where a foreigner would pay the least tax, for both individuals and businesses.
Each tax system has its own characteristics, such as progressive tax rates, deductions, indirect taxes, social security contributions, and significant differences depending on your profile. Throughout this guide, we will analyse each of them, including corporate tax, VAT, and income tax, comparing rates in both countries and showing how they may affect you as an employee, resident, or entrepreneur. So, if you are considering moving, investing, or working in one of these destinations, this analysis will help you understand which system is most favourable for you.
We analyse taxes for companies or legal entities
Do you want to start your business abroad and don’t know which country will benefit you the most tax-wise? Companies or legal entities are subject to various taxes that can directly impact business profitability and, therefore, influence where to establish themselves. When comparing taxes in the UK vs. Spain for this sector, we see that, although both offer incentives and tax benefits to attract investment, there are differences in conditions and accessibility. In the following sections, we will explore each of them in more detail.
1. Corporate tax in the United Kingdom vs. Spain
This is one of the most significant taxes when comparing corporate tax burdens, as it applies to profits. In this first comparison of taxes in the UK vs. Spain, we see that the Spanish tax system offers greater deductions for new and small companies, with progressive deductions compared to the standard 25% rate:
- United Kingdom: The standard rate is 25% for large companies, while small businesses can benefit from lower rates around 19%.
- Spain: The standard rate is 25%, but SMEs with turnover below €10 million ($11.051.000) pay 23%, and micro-companies pay 19% on the first €50.000 ($57.789) of profit. New companies and startups enjoy a special 15% rate for the first four years.
2. VAT in the United Kingdom vs. Spain
The second of the UK taxes vs. Spain is VAT (Value Added Tax). This is an indirect tax applied to goods or services in their final price, which companies must include on invoices before remitting it to the tax authorities. Here, the difference is minimal, although Spain has more variations in reduced rates, while the UK applies a simpler and more favourable system for essential goods:
| VAT Type | United Kingdom (rate) | Examples | Spain (rate) | Examples |
| General | 20% | Electronics, clothing, alcohol. | 21% | Electronics, clothing, tobacco |
| Reduced | 5% | Household energy, children’s goods | 10% | Hospitality, transport, new housing. |
| Super Reduced | 0% | Food, books, children’s clothing | 4% | Bread, milk, eggs, medicine. |
| Exempt | 0% | Education, healthcare, insurance. | 0% | Education, healthcare, financial services. |
VAT comparison United Kingdom vs. Spain
3. Social security contributions paid by companies
We continue with the tax comparison between the UK and Spain for businesses Social security contributions are taxes that every employer must pay on behalf of their employees, and they are deducted directly from their pay. In this aspect, Spain has a much higher rate at 30% of the employee’s gross salary, compared to 13,8% employer contributions in the UK. Therefore, hiring staff in the UK is more cost-effective for expanding your business project.
4. Other local taxes
When you start a new business, you face several local taxes on activities, real estate, or license fees. If we compare taxes in the UK with those in Spain, it is clear that Spain imposes a higher burden, including a license fee that does not exist in the UK. Therefore, the initial procedures for opening a new company are usually simpler in the UK.
| Local Tax Type | United Kingdom (rate) | Spain (rate) |
|---|---|---|
| Municipal Tax on Activities | Generally, not applied | from $0-3,467 (€0-3,000) depending on the type of activity, some exempt |
| Property Taxes | 43%-50% of rental value | 0.4%-1.1% of cadastral value |
| License Fees | It doesn’t exist | $2,700-3,467 (€2,300-3,000) |
Features of local taxes in Japan versus Spain.
Taxes for individuals or natural persons
When comparing taxes in the UK vs. Spain, it’s essential to also analyse the tax burden on natural persons. If you are an employee, freelancer, digital nomad, or tax resident, you will be subject to different compulsory taxes that you need to know.
1. Differences in income tax (Income Tax/IRPF)
One of the most crucial taxes for workers and tax residents is income tax. When comparing taxes in the UK vs. Spain, it is observed that a progressive system is used in the United Kingdom. This model ranges from 20% to 45% and has a high minimum threshold that is exempt. Conversely, this tax in Spain can reach rates up to 47%, depending on the autonomous community. The table below clarifies each bracket:
| Annual income bracket approx. | United Kingdom (Income Tax) | Spain (IRPF) (approx) |
|---|---|---|
| Up to $15,600 (€13,497) | 0% | 19% |
| $15,600–25,000 (€13,497–21,630) | 20% | 24% |
| $25,000–43,700 (€21,630–37,809) | 40% | 30% |
| $43,700–75,000 (€37,809–64,890) | 40% | 37% |
| $75,000–156,000 (€64,890–134,972) | 40% | 45% |
| More than $156,000 (€134,972) | 45% | 47% |
Income tax comparison in the UK vs. Spain.
2. VAT in the UK vs Spain as applied to individuals
In the section on businesses, we have already looked at how VAT affects this sector and what the standard rates are in each country. As an individual, every time you buy a product or use a service, you will have to pay this tax, which is shown on the receipt or invoice for each purchase.
As we saw earlier, general rates are similar, 20% in the UK and 21% in Spain. However, the UK applies 0% to more essential goods, such as food or children’s clothing, while Spain has more reduced rates at 4% and 10%, easing the burden for certain items in a more segmented way.
3. Wealth tax and other taxes
Another individual tax in the UK vs. Spain involves declaring each asset or right you own. In Spain, a progressive rate up to 3,5% applies, though some autonomous communities, like Madrid and Andalusia, offer 100% exemptions. In the UK, no equivalent tax exists, making it more favourable for high-net-worth individuals.
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4. Inheritance and Donation Taxes
The last taxes in the United Kingdom vs. Spain that we’ll evaluate involve the transfer of assets between individuals, either by inheritance or gifts. In Spain, these taxes are delegated to the autonomous communities, so the burden varies depending on your residence, ranging from 7,65% to 34% at the state level, with exemptions up to 100% in regions like Madrid.
In the United Kingdom, there is no gift tax, but there is an inheritance tax called Inheritance Tax (IHT). The general rate is 40%, applied only to inherited estates exceeding €351.275 ($406.000). Inheritances between spouses are exempt.
Comparison of taxes in the United Kingdom vs Spain
To better understand the data we’ve analysed throughout this article, let’s review all the taxes of the United Kingdom vs. Spain in the following two tables. Spain in the following two tables First, you can see the tax burden for a company in both countries; second, the taxes for individuals.
1. Tax table in the United Kingdom vs Spain for businesses
| Tax | Rate in United Kingdom | Rate in Spain |
|---|---|---|
| Corporate Tax | 19-25% | 15%-25% |
| VAT | 0–20% | 0%-21% |
| Employer’s social contributions | 13.8% | 30% |
| Property Tax | 43–50% | 0.4%–1.1% (depending on the municipal) |
| License Fees | It doesn’t exist | $2,700-3,467 (€2,300-3,000) |
| Municipal Tax on Activities | Generally, not applied | from $0-3,467 (€0-3,000) depending on the type of activity, some exempt |
Summary of taxes for companies in the UK and Spain.
2. Tax table in the United Kingdom vs Spain for individuals
| Tax | Rate in United Kingdom | Rate in Spain |
|---|---|---|
| Income Tax | 0%-45% | 19%-47% |
| VAT | 0%-20% | 0%-21% |
| Employee social security | 0–12% | 6–7% |
Wealth Tax | 0% | 0%-3.5% (cadastral value) |
| Inheritance tax | 0%–40% | 7%–34% (depending on the community) |
Summary of taxes for individuals in the UK and Spain.
In summary, the United Kingdom shows a lower tax burden for social contributions and certain business taxes, making it more attractive for starting a business or earning a medium salary. Spain applies higher rates for some taxes, but choosing to live in an autonomous community with significant exemptions can be advantageous. Now that you know the differences between taxes in the UK and Spain, you can choose your new destination more easily based on your tax profile, income level or economic activity.
