Renouncing US citizenship after retiring to Spain

The question almost never arrives at the beginning. It arrives about a decade in, when an American who came to Spain on a non-lucrative visa has renewed twice, taken long-term residence, buried a parent back home, and realised that the tax return they file every April is for a country they no longer live in and do not intend to return to. Somebody at a lunch mentions Spanish nationality. Somebody else mentions that you have to give up the American passport to get it. And the conversation that follows is, in our experience, built almost entirely on a misunderstanding.

The misunderstanding is this: people believe there is one renunciation. There are two, they belong to two different legal systems, they are performed in different buildings in front of different officials, and neither one automatically does the work of the other. Getting that straight is worth more than any amount of tax modelling, because a large number of Americans in Spain have already made one of these declarations while believing they made the other.

The two renunciations that are not the same act

Spanish law and United States law both use the word "renounce". They mean different things by it, and neither country is much interested in the other's paperwork.

Spain's version lives in Article 23 of the Civil Code. To validly acquire Spanish nationality by residence, an applicant over fourteen must swear or promise loyalty to the King and obedience to the Constitution and the laws, and must declare that they renounce their previous nationality. The exception is carved out for nationals of the countries listed in Article 24.2 — the Ibero-American states, Andorra, the Philippines, Equatorial Guinea, Portugal. Americans are not on that list. So an American who wants a Spanish passport will stand in a civil registry and say the words.

America's version lives in the Immigration and Nationality Act. Loss of nationality by formal renunciation happens under section 349(a)(5): you appear before a US diplomatic or consular officer, abroad, take an oath of renunciation in person, and the act is evidenced by a Certificate of Loss of Nationality (CLN) issued by the State Department after review. The State Department's own account of the process, in the 2026 rulemaking on the fee, is explicit about why it is done that way: consular officers must satisfy themselves that the person understands the gravity of what they are doing and that the renunciation is voluntary and intentional.

The practical consequence is a quiet population of dual nationals who did not plan to be dual nationals. Spain records the declaration and grants the nationality; it does not ask the new Spaniard to come back later with a US Certificate of Loss of Nationality in hand. The United States, meanwhile, has no idea the ceremony happened. Nobody is defrauding anybody. The two systems simply do not talk, and the gap between them is where people live for years.

What the Spanish oath actually does

Before any of this becomes urgent, it is worth knowing how far away it is. Article 22.1 of the Civil Code requires ten years of legal residence for nationality by residence. Five years for those granted asylum or refugee status; two years for nationals of the Ibero-American countries, Andorra, the Philippines, Equatorial Guinea and Portugal, and for Sephardic Jews. An American gets the ten-year rule.

That single number reshapes the whole conversation for the retiree. Someone who lands in Málaga at 66 is not eligible until 76. Long before then they will have taken long-term EU residence at five years, which delivers most of what people actually want from the passport — the right to stay, to work if they ever wanted to, to stop renewing. Nationality adds the vote, the EU passport, and consular protection. It does not add the right to live here, because you already had that. We say this to clients more often than they expect: the thing you are contemplating giving up your citizenship for, you may already have.

And the oath's renunciation clause, whatever else it is, is not a tax event. It changes nothing about how your US income is taxed in Spain, and nothing about what the IRS expects from you.

What a real US renunciation requires — and what it now costs

If you want the American side to actually end, the process is narrow and deliberately uncomfortable. You contact a US embassy or consulate. You complete two separate interviews with a consular or diplomatic officer. If you still wish to proceed after the first, you take the oath of renunciation in person at the second. Your file then goes to the Office of American Citizen Services in Washington, which reviews it and decides whether the burden of proof has been met before the CLN is issued.

There is one genuinely new fact here, and it is recent enough that most advice online is still wrong about it. The fee fell. In a final rule effective 13 April 2026, the State Department cut the charge for administrative processing of a CLN request from $2,350 to $450 — a return to the below-cost fee that applied from 2010 to 2014, adopted after a rulemaking in which 910 comments were received, most of them about the burden of worldwide taxation and FATCA rather than the fee itself. The Department declined to make the reduction retroactive and declined to refund the difference to those who had already paid the higher amount.

Two things follow. First, the cost of the door dropped by eighty per cent, which will move some people who were sitting on the fence for the wrong reason. Second — and this matters more — the Department also declined to allow renunciation by videoconference, holding to the in-person requirement. You will be travelling to a consulate, twice.

The three tests: are you a covered expatriate?

Everything on the tax side turns on one label. You are a covered expatriate if any one of these is true on the date you expatriate:

• The net worth test. Your net worth is $2 million or more. This figure is not indexed for inflation and has not moved in years.
• The tax liability test. Your average annual net US income tax for the five years ending before expatriation exceeds an inflation-adjusted threshold — $211,000 for 2026 (it was $206,000 for 2025). Note that this is the tax, not the income.
• The compliance test. You cannot certify on Form 8854 that you have complied with all US federal tax obligations for the five preceding years.

Read those again with a Costa del Sol retiree in mind. The $2 million line is a balance-sheet test, not an income test, and it has been frozen while asset prices have not been. A couple with a paid-off house in the US, an IRA that has done its job for thirty years and a brokerage account is not what most people picture when they hear "covered expatriate", and they can be over the line without ever having had a high-income year. The third test is worse: it has no threshold at all. Miss five years of clean filings — an unfiled FBAR, a forgotten PFIC disclosure — and you are covered on a technicality, regardless of how modest your wealth is.

Which produces the most useful piece of sequencing advice on this page: the compliance clean-up comes before the appointment, not after it. Certification is a precondition, and Form 8854 carries a $10,000 penalty for failure to file.

The exit tax, and the basis Spain will not give you back

For a covered expatriate, section 877A imposes a mark-to-market regime: all your property is deemed sold at fair market value the day before the expatriation date, and the resulting gain goes into that year's return. The gain that would otherwise be included is reduced by an exclusion amount — $910,000 for calendar year 2026, indexed annually ($890,000 for 2025). Losses count, the wash-sale rules do not apply, and it is possible to elect to defer the payment of the tax attributable to property deemed sold.

So far this is a US problem with US numbers. Here is where living in Spain changes the arithmetic, and it is the analysis we would most want run before anyone commits.

The deemed sale is a fiction of American law. It is not an alteración patrimonial that Spanish law recognises: nothing was sold, no consideration moved, and the Agencia Tributaria has no reason to notice the day passed. That sounds like good news — Spain does not tax the phantom gain — and in the year itself it is. The problem lands later. Spain does not rebase your assets to the value the IRS just taxed you on. When you eventually make a real sale, the Spanish gain is generally still measured from your original acquisition cost, so the same appreciation you already paid US exit tax on is sitting inside the Spanish taxable gain — and the US tax that might have relieved it was paid in a different year, on an event that, from Spain's point of view, never happened. There is very little for a foreign tax credit to work on. And when that real sale is a piece of US real estate, a further layer appears: as a foreign person you now meet FIRPTA withholding on the sale of US property, so the buyer holds back 15% of the price up front, recoverable only through a later US return.

Founders should read this next to the QSBS analysis: the pattern of "excluded in America, fully taxable in Spain, no credit available" is not a quirk of one code section. It is structural. And note the mirror image on the Spanish side, because Spain has an exit tax of its own for people leaving this country — covered separately in our note on the Spanish exit tax when you leave Spain. Two exit taxes, pointing in opposite directions. It is possible, with sufficiently bad sequencing, to meet both.

The sting on the far side: your estate tax gets worse

This is the part that stops the conversation, and it is almost never raised by the people selling renunciation as liberation.

And it gets worse in one specific marriage, which is more common here than anywhere else in the file: if your surviving spouse is not a US citizen either, the marital deduction that would have absorbed everything is denied by a separate rule that looks at their passport and is indifferent to yours. The two rules stack, and no adviser on either side is reading both chapters. See your non-citizen spouse, the marital deduction and the move to Spain.

While you are a US citizen, you die with a federal estate tax exemption of roughly $15 million in 2026. Renounce, and — assuming you are not US-domiciled, which by then you are not — you become a nonresident non-citizen for estate tax purposes. That person is taxed on their US-situs assets above a threshold of $60,000, at rates reaching 40%, with Form 706-NA due if US-situs assets exceed that figure. The $60,000 has not been indexed for decades. US real estate is US-situs. Shares in US companies are US-situs.

And there is no relief coming from a treaty, because the United States and Spain do not have an estate tax treaty. Some countries' treaties give a proportional slice of the citizen's unified credit. Spain's do not exist to give one. This is a point we already make in our note on US estate tax and Spanish inheritance tax; renunciation takes the same unprotected position and makes it dramatically worse, by swapping a $15 million exemption for a $60,000 one on the very assets an American retiree is most likely to still own.

The fix is not complicated, but it has to be done before, not after: if the American portfolio and the old family house are going to outlive the American passport, the situs of those assets is the first thing to look at, alongside the Spanish will and the US living trust that may or may not still work here.

What actually changes, in one table

Three positions, and most people cannot tell the middle one from the right-hand one until it is explained. All assume a US retiree who is tax-resident in Spain.

The middle column is the one to stare at. It is where a great many people believe they are in the right-hand column. And the bottom two rows of the right-hand column are why we describe renunciation as a trade rather than an escape: you hand back the compliance burden and the saving clause, and you accept a materially worse position on death and on anything US-situs you still hold. The foreign-account reporting row also needs timing discipline: a CLN ends future US-person FBAR/Form 8938 reporting, but the last US-person year and any missed years still need to be cleaned up. Read the right-hand column alongside what already happens to your US brokerage account when you move — losing the passport does not persuade Schwab or Vanguard to keep you; for many firms a non-US person with a Spanish address is a harder client to hold, not an easier one.

What it does to your American children

One more asymmetry, and it is the cruellest in the code because the person who pays is not the person who chose.

Section 2801, enacted with the HEART Act in 2008, imposes a 40% tax on covered gifts and covered bequests received from a covered expatriate. Unlike ordinary US gift and estate tax, which the donor or the estate pays, this tax falls on the US recipient — your American children, or a domestic trust for them. It is reported on Form 708, whose instructions the IRS finally issued in December 2025 after seventeen years of the statute sitting there without a form, and which is due on the fifteenth day of the eighteenth month following the close of the calendar year in which the gift or bequest was received. Covered gifts are taxable only to the extent they exceed the annual exclusion — $19,000 for 2025 and 2026.

Read plainly: if you are a covered expatriate, everything you ever give or leave to an American — for the rest of your life and at your death — can arrive in their hands 40% lighter, and they file the return. That is a decision about your children's inheritance being made in a consular interview, and it is a strong argument for taking the covered-expatriate tests seriously rather than treating them as a formality. It also interacts with what we cover on lifetime gifts and Spanish gift tax: the two systems tax the same transfer on opposite sides of it.

When it does make sense

Having spent this page on the reasons for caution, honesty requires the other side. Renunciation is sometimes the right answer, and the profile is fairly consistent.

It tends to make sense when the American connection is genuinely finished — no US real estate, no US-situs portfolio, no intention to return, heirs who are not US persons; when the annual cost and anxiety of compliance is real and permanent; when you are comfortably under all three covered-expatriate tests, so the exit tax is a non-event and section 2801 never engages; and when Spanish nationality is actually available to you, which for an American means the ten-year clock has already run.

It tends not to make sense when it is being done for tax reasons by someone resident in Spain, because Spain is taxing you either way; when the balance sheet is over $2 million and nobody has modelled the deemed sale against the Spanish basis; when substantial US-situs assets will remain; or when the heirs hold US passports. And it never makes sense as a reflex response to a fifteen-minute conversation about the Spanish oath — which is, in our experience, exactly how the subject usually arrives.

"People come to us saying they have already renounced, because they said the words at their jura. They have not. They are still American, and they have been filing — or worse, not filing — for years on that assumption. The two systems never speak to each other, so nothing corrects the mistake. It only surfaces when somebody dies, or when a bank asks a question."

None of this is a reason to avoid Spanish nationality. It is a reason to stop treating the two renunciations as one decision. The Spanish oath is an immigration milestone with a clause in it that sounds like a tax event and is not. The American renunciation is a tax event with a fee attached that sounds like the whole cost and is not. Ten years is a long time to think about it — and unlike most of what we write about on this site, this is a deadline nobody is imposing on you.

Among the duties that renunciation ends prospectively are two civic ones that no amount of time abroad will shake off: the jury summons that keeps finding whatever US address is attached to your name, and — for a male citizen under twenty-six — a Selective Service registration duty that has no residency element whatsoever. Neither is a reason to renounce, and both are far easier dealt with directly; what they are is a useful illustration of how little a change of address does to US obligations. They are set out in jury duty and Selective Service when you live in Spain.