| Though taxes are not everyone's favourite subject (and not many of us are overly keen on meeting the taxman) it is a matter that affects our daily lives, and definitely our pockets. And in relation to this, I was recently asked about the main difference between being a resident and non-resident when it comes to having a property in Spain and paying taxes. But the answer to this does not come as simple as having a piece of paper. For the Spanish Inland Revenue, anyone residing in Spain for more than 183 days a year is resident for tax purposes. And this means that all worldwide income made by that person will be taxed under Spanish Legislation. This is not unique to Spain, as the UK Inland Revenue uses exactly the same time criteria (183 days) to determine whether someone is subject to UK tax or not as regarding time spent in the country. |
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| Residents |
| Residents are subject to the same law as Spanish nationals, and so income and wealth tax are calculated on all income made by that person, independently of where it was generated. There are double treaty conventions between Spain and tile UK, so tax paid in one country can be deducted in the other, to avoid double taxation. This includes income generated by an inheritance, and these cases are reviewed by the tax inspectors in each individual case. But as with everything, there are certain exceptions, such as income generated by rent received on UK property, which can be taxed in the UK. |
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| Non-Residents |
Non-residents (either those who spend less than 18'3 days a year in Spain or holiday home owners) are subject to a different system. The non-resident bill, which came into force a couple of years ago, aimed to regulate the situation of an increasing number of holiday homeowners who were not paying taxes on their property. It also wanted to regain some control over off-shore companies owning Spanish properties and who were eluding payment of any tax.
Offshore companies, if not operating as a business in Spain, now have to pay a set percentage on the rateable value of the property, in one annual payment, and due on the 31st. of December. As regard private owner, they still have to pay their annual rates (IBI).
Income generated by letting out a property is subject to a flat rate of 25% on income, with no deduction applicable. This payment is supposed to be done within thirty days of receiving the rental, but there are other payment method (quarterly). There is also income and wealth tax, which is based on a "notional" income, and calculated by applying a 25% rate to the rateable value of the property. This all sounds rather complicated, and will all depends on whether one takes the route of paying these taxes or not. Rates, payable to the local council, can be paid through the bank, and are worth keeping on top of.Some help from a local advisor or solicitor will ease the task of calculating our annual income and wealth tax. |
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| Capital Gains |
| When it comes to capital gains tax, residents will benefit from the system applied to nationals, as the gain is incorporated in the annual income tax bill and a sloping percentage will be used to calculate the gain. Non-residents are subject to a rate of 35% on the gain. A 5% will be deducted by the buyer on the initial transaction, in order for the Inland Revenue to get back some of the tax. The rest has to be filed by the seller directly at the local tax office. |
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| Banking |
Rember that if you are a non-resident, you can still have a bank account in Spain. Be aware that on opening a non-resident account, the bank will request a certificate of non-residence to the Bank of Spain, for which they will make a charge of around 1,700 pesetas/10.22 Euro. I have had clients getting back to me asking why their bank account was overdrawn for such a strange amount! The interest generated by non-resident accounts will not be taxed in Spain. This does not apply to residents, as they can open a straightforward Spanish account and interest will be taxed at source. Of course, there are many other financial areas to look at when thinking of moving or retiring to Spain. It is pretty straightforward, but it may be wise to get some tax planning advice, as the Spanish tax system has changed in the last few years. Investment funds, insurance plans, off-shore companies have been recently regulated by new laws and have to be taken in to account if you are thinking of investing in Spain. And planning is never a bad idea, both for your assets in the UK and in Spain.
Josie Carmen Atkins Garcia is the legal director of Libra Spanish Legal Services Ltd., Phone 0044 1539 735588 or e-mail jag@libralegal.co.uk |
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