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The tax year in Spain starts on the 1st January and runs to 31st December. If you are a Spanish resident then you are liable to tax in Spain on your worldwide income, capital gains from all sources and on assets world wide. It is the responsibility of the resident to file a tax assessment with married couples having the option to file individual returns or jointly.
You will be a Spanish resident if you have taken up residencia in Spain, you spend more than 184 days in Spain in a calendar year, your principal place of business is Spain or your spouse or dependent children are normally resident in Spain.
Income Tax
IRPF is the income tax payable by Spanish residents. There are some tax free allowances in Spain which are increased if there are dependent children to be taken into account and depend on personal circumstances and total earnings. Income tax operates on a sliding scale starting at 15% rising to 45%
Rental property
Rental property in Spain is taxable and property not used as the main home a business or rented out is also taxed on a deemed income basis linked to the cadastral value.
Wealth tax
An annual tax is applied to residents based on the value of their worldwide assets. There is an allowance and amounts above this are taxed on a sliding scale varying from between 0.2% and 2.5%
Capital Gains Tax
Assets held for more than one year and generating a capital gain are known as special income and are taxed at a flat rate of 15%. This may be reduced depending on the length of time an asset is held. If the asset is held for less than a year it will full under general income and form part of the income tax calculation.
Inheritance Tax
Residents are taxed on worldwide assets received. The amount of tax depends on the relationship between the donor, the residents wealth and the value of the assets received. Whilst there are some exemptions the rate of tax varies between 7.65% and 34%.
Property Taxes
An amount of real estate tax based on the cadastral value of property is payable to the local municipality each year. There are small variations between municipalities but normally the rate is 0.4% of the cadastral value on urban properties and 0.3% on rural properties.
Non-Residents in Spain
If you do not meet the criteria of being a resident for tax purposes then you will fall under Spanish non-resident taxation. This means you will be taxed on income and gains generated or received from Spain. An individual tax return will need to be filed each year and there are some different tax rates that apply to non-residents:-
a) Capital gains are taxed for non-residents at 35%
b) Interest received and dividend income is taxed at 18%
c) All other income will be taxed at 25%
There are no allowances for non-residents, although non-residents from other EU countries may be exempt from taxation of interest income in Spain, for example.
Importantly inheritance tax implications do apply to non-residents in respect of assets in Spain.
Get some Advice
The above is only to provide some background information and is not a definitive guide. If moving to Spain then you should get some professional advice about your finances, considering the full range of options open to you to ensure you manage your investments, tax position and estate planning most effectively.
We are a mortgage and general insurance broking company and do not provide investment or inheritance tax planning advice. This is a specialist area and as such whilst we are knowledgeable about mortgage and general insurances we leave investment and estate planning advice to experts in that field. We recommend you seriously consider having a discussion with an independent financial adviser who understands you have or are buying assets in Spain and/or thinking of relocating to Spain.
Regulation for financial advice in Spain is different and not as stringent here as it is in the UK. Whilst there are some good people in the industry ensure they can offer you the protection afforded to you through the FSA in the UK. Make sure the independent adviser you talk with in Spain does not just have the qualifications they brought with them from the UK but that they are regulated by the FSA and have a regulatory passport to carry out business in Spain. Ask them to confirm in writing they have public indemnity cover and that you are able to seek recourse (if necessary) for any concerns about advice they provided to you through the Financial Ombudsman and the Financial Compensation Scheme in the UK.
We can introduce you to an FSA regulated adviser who meets the above criteria if you would like someone to assess your financial position either before you move to Spain or even if you are now here.
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