Did you know you’ll pay taxes in Spain that don’t exist in the UK: wealth tax, potential rental income, succession and gift tax? And the Spanish tax year ends on December 31-not April 5th?
Spanish tax inspectors are fining expats who paid tax in the UK on income that was supposed to be taxed in Spain. Authorities are taking tax debts straight out of bank accounts, so get your “gestor", your Spanish tax accountant, and be sure you start off on the right foot.
You’re either a resident or non-resident for the whole tax year, and are considered a tax resident if:
• You in Spain 183 days a year (accumulated, not consecutively), whether you’re registered or not.
• You work in Spain.
• Your spouse or dependent children live in Spain.
Both residents and non-residents must register with the Spanish tax authority, Agencia Tributaria.
What’s Your Cadastral Value?
Local tax authorities set a value to your property that’s a base to calculate several taxes. It’s usually well below the property’s market value and is found on your IBI or SUMA bill.
3 taxes everyone pays:
1. Income representing rental potential of property (IRNR)
2. Local property tax (IBI)
3. Municipal maintenance (rubbish collection, street lighting, etc.)
• Pay these by a bank standing order; often you don’t receive a notice until the bill is past due.
• Check these 3 bills before buying your property-so you don’t inherit the owner’s unpaid taxes.
How Spanish Property Taxes Are Calculated:
IRNR-All property owners pay Impuestro de la renta de no residents, declaración ordininaria (IRNR). This is a rental potential tax paid even if you don’t let your property. The base level is 2% of the cadastral valuation and non-residents pay 24%, residents 19%.
A rural finca in the hillside could pay under €100, but a luxury villa might pay IRNR tax of €2,000.
IBI- Impuesto sobre Bienes Inmuebles is Spanish council tax. It’ll be less than your IRNR, about €200 to €800.
Changes to capital gains, inheritance and gift tax
Capital gains tax (paid on profits from selling your property or other investments) was cut to 19% in 2016.
Rules regarding succession and gift tax (Spain’s inheritance tax) have changed so the rate is between 1–7 %, depending on region. Previously non-residents paid about 80% more than residents.
New rules require that anyone living in Spain declare all overseas assets over €50,000, due between 1 January and 31 March, with stiff fines for not filing. This includes bank accounts, property and life assurance policies. Modelo720 isn’t a tax form, but will be compared with filed tax returns.
What’s a Wealth Tax?
Spain’s wealth tax is a tax on your capital assets, not on income or any profit like capital gains taxes. If you aren’t a tax resident you’re just taxed on your assets in Spain. If you’re a resident, you’re taxed annually on your worldwide assets. Your personal allowance is €700,000, with up to €300,000 for your main home, if you live in Spain. The rate is between 0.2% and 2.5%
Spanish Income Tax
As a non-resident, you only pay tax on any income you make in Spain, for instance, from letting your property. This is paid quarterly, and is due on the 20th of July, October, January and April. You’re taxed at a fixed rate without personal allowances or deductions.
Spanish tax residents pay income tax on their worldwide income after deductions for personal allowances. Your income is split into two categories: income from savings (even if they’re not located in Spain) and general income.
Savings income includes:
• Interest gained on savings
• Dividend payments
• Income from life assurance policies
• Income from annuities
• Profits from the sale or transfer of assets
After deductions and allowances, the 2016 rates are:
• Up to €6,000: 19%
• From €6,000 to €50,000: 21%
• Over €50,000: 23%
Two key points: Spanish residents are taxed on worldwide income from savings, regardless of where they’re held.
If you take a lump sum pension payment, this is taxable as Spanish savings income tax, not tax-free.
Your general income includes:
• Employment income
• Profits from renting
General income taxes
Impuesto de Renta sobre las Personas Fisicas (IRPF), are shared between national and regional coffers. Spanish income tax rates vary by region, these Madrid’s, with the lowest rates.
• Up to €12,450: 19%
• €12,451 to €20,200: 24%
• €20,201 to €35,200: 30%
• €35,201 to €60,000: 37%
• Over €60,000: 45%
Residents pay 19% on rental income. You can deduct mortgage loan interest payments, home insurance, property maintenance and rental related expenses.
Tax residents under 65 have a personal allowance of €5,550. If you’re 65, yours is €6,700, increasing to €8,100 when you’re 75. There are allowances for disabilities, married couples and children under 25 living with you.
Spanish tax on UK pensions
Once you’re a tax resident in Spain, you pay Spanish tax on your pension income. Notify HMRC if you become a Spanish tax resident. Send them your completed certificado de residencia fiscal NEN which your gestor can translate.
Public pensions will be taxed in the UK, regardless of your tax status in Spain, but NHS pensions might not be. All the more reason to get your gestor to look after these taxing matters to avoid running afoul of Spanish tax agents.