Five Spanish Non-Resident Taxes

For many of my regular Spanish resident readers there are elements of this that will not apply but I was writing specifically for a non-resident audience. It equally applies however to non-residents who have already purchased. By all means, email me if you want more detail.

To begin I’ll list three common myths that are wrong. These have all been said to me or written to me;

• ‘I’m not liable to Spanish Inheritance Tax because I’m not a resident’ – wrong
• ‘I live in the UK and pay my taxes to the tax office in Salford Quays. I have a house in Spain but I’ve no need to pay Spanish taxes’ – wrong
• ‘The people who rent my Spanish house pay me in pounds so I don’t need to pay Spanish tax’ – wrong

The following is the leaflet contents I referred to earlier;

There are 5 key taxes most applicable to non-resident property owners.

Income Tax

Every non-resident owner of a Spanish property has to pay an annual tax to account for their "share" of the property. Although it's called an "income tax" it's not actually based on your level of income, but on a "deemed" or "notional" income, which is a percentage of the rateable value of the property multiplied by the non-resident tax rate of 24.75%.

This tax is based on the calendar year and is always due within 12 months of the end of the tax year, so for the 2020 tax year, tax needs to be paid before 31st December 2021.

Property or IBI Tax

Property rates in Spain is referred to as IBI and, like the UK, this tax will be levied by your local council in Spain. The council will assign a rateable value to your property and then your rates or property tax will be a % of this amount. The % will depend on your council, but in most cases it will be somewhere between 0.5% and 1%. So if you had a rateable value of €50,000 and your local percentage was 0.75%, then your annual rates bill would be €375.

This tax is also based on the calendar year but will normally be payable between June and September each year, again this will be dependent on your local council.

Rental Income Tax

Up until the end of 2009, rental income tax was 24% of the gross income you received on any rentals. So if you generated €1000 by renting out your property, then you would have to pay €240 in tax. You could not offset any expenses - i.e. cleaning, utilities, insurance, mortgage interest, marketing, management fees etc.

However, since January 2010, the rules have changed, which means that you can now offset expenditure when calculating what income, or effectively profit, will be subject to tax of 24.75%.

In theory rental income tax returns need to be submitted each quarter, to account for income received in the preceding 3 months

Capital Gains Tax 

When a non-resident owner sells their property, they will make a capital gain or a loss upon the sale, which is the difference between what they paid for the property and the proceeds of the sale. The buyer of the property should always withhold 3% of the sales value and pay this to the Spanish tax office as an "advance" of the buyer’s potential capital gains tax. It is then up to the buyer to calculate their gain or loss, and if a gain has been made this will be subject to 21% tax. The buyer should pay the 3% within 1 month of the sale date, and the seller then has a further 1 month in order to submit their calculation of a gain or loss and the corresponding tax returns.

Inheritance Tax

Inheritance tax for non-residents is a tax on the beneficiaries and not on the deceased as it is in the UK. The tax rates themselves can vary depending on the relationship of the beneficiaries to the deceased, the amount that is being gifted, their age, and even their wealth in Spain and in the very worst situation tax rates can reach levels of 81%!

The other major issue for UK people is that transfers between husband and wife in Spain are not tax exempt as they are in the UK, so if a spouse were to die, then the surviving spouse, in most cases, will need to pay inheritance tax (as well as probate) in order to take on the additional 50% share of the property.

It will normally take approximately 6 months to deal with the probate issues in Spain and pay any outstanding inheritance tax, before the property deeds can then be altered.

No Inheritance Tax is payable if the property is owned by a UK company, since even if a shareholder dies, the company can continue in existence and the shares passed on to a beneficiary under UK rules. This requires SPECIALIST advice.

* * * * * * *

This is a very basic outline of taxes in Spain, applying to non-residents. Both residents and non-residents are always encouraged to seek professional advice.

Email : davidgoodall.spain@gmail.co.uk

Facebook : https://www.facebook.com/financialpagesinspain

Twitter : @davidgspain

Website : http://www.financial-pages-in-spain.co.uk/

Blog : http://expatsfrombritain.blogspot.com/

You will note that the leaflet does not contain the Spanish titles of the taxes, as it is aimed at a UK audience. 

Further reading recommended, includes the following;

Scam Watch Just say NO to cold calls

Professional Advice  Legal, Tax and Property advice is always best

Money Transfers – Foreign Exchange  beating the banks on bank transfers!

Please email me if there is anything I can help with.

David Goodall

Financial Pages in Spain

Email

Professional Advice - Always Best

Regulated, Qualified and Professional Advice

If you need advice, please email me.

UPDATED APRIL 2020
'In these difficult times it's good to know that you can see an adviser with modern technology. After initial contact by email, phone and text, but only if necessary, it is possible to make video calls'

My own connections included the following professionals;

• Regulated financial advisers

There are many people and organisations who call themselves ‘financial advisers’ without any qualifications and no regulatory body. I will only recommended regulated and fully qualified advisers who’s services I have checked.

Value for money comes from open and clear commissions and charges declared in an honest way. Hidden charges and undeclared commissions should always be avoided. For a referral to a suitably qualified & regulated adviser, please email me.

Due Diligence is vital

• Suitably qualified accountants and professional lawyers

Both the Institute of Chartered Accountants and the Law Society have qualified professionals working in Spain. Whilst you may have a good local source for advice, the professional standing of these people cannot be denied. If you need a referral, please email me.

You are further protected as all qualified professionals will carry ‘Professional Indemnity Insurance’ (PI) just in case anything goes wrong.

Unless your situation is very complex, I would expect most professionals to give you an estimate of costs upfront.

• Chartered surveyors in Spain

Similarly, I can recommend UK qualified Surveyors. Please email me to be referred

• Estate Agents

This is an area of service which is by definition very local. You could already know of a local estate agent with a good local reputation. If this is not the case I can recommend you to a Member of the Association of International Property Professionals.

• Company formation for property ownership

This is a very specialised service and is often used to save on Spanish Inheritance Tax (ISD). There is a service on my blog under the heading ‘Check your Spanish Inheritance Tax Liability’ to the right of this article.

The service involves the formation of a UK company to own a property in Spain. It involves UK law for the formation of the company and Spanish contracts, translations and knowledge of Spanish law. For this reason, the company concerned has offices in both UK and Spain.

• Foreign Exchange

I set up La Torre Fx – Foreign Exchange with the specific objective of beating the banks. This is a service and it is worth checking out, with easy access on the right of the blog.

La Torre Fx – Foreign Exchange is linked to a highly professional ‘trading platform’ provided by FTT Global. All of the necessary regulations are in place;

Key Facts about FTT Global:

·        Registered in the United Kingdom - Company Number 5685288

·        Regulated by FCA - Registration Number 503228

·        Regulated by HMRC - Registration Number 12231114

·        Registered for Client Data Protection - ICO Number Z9470988

·        Underwritten by A Rated Insurer

·        Corporate Bankers - Barclays Bank PLC

·       Get the best rate today

If you email please let me know your question and where you live. I may be able to answer myself, just point you in the right direction or refer you to a suitably qualified person.

Please remember that my Blog is about unbiased, factual financial information. You can look elsewhere for information but remember that an advert will certainly be biased towards the company who paid for it. I have no problem with that but remember it’s biased!

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Also Recommended:

Qualified Financial Advisers

Readers’ Favourites

Newspaper Adverts

Financial Healthcheck

UPDATE:

If someone referred you to an unqualified quack doctor you wouldn’t thank them for it, would you?

Well here’s a deal: I’ll never send you to an unqualified, unregulated financial adviser and I will check them out beforehand. Also, I promise you there will be NO upfront charges. My Email 

Background

The peak year for house purchases by UK & Irish citizens in Spain was 2006. Expanding equity in main residences fuelled the desire to buy second homes, many with the specific intention of retiring to Spain. Let’s call it living the dream!

Many emigrated with the specific intention of making Spain their permanent home. Why is this important? Many non-residents are also affected. Let’s look at what has changed since 2006

Major Changes

How many of you readers are affected by one or more of the following changes?

• Exchange rates

I made a comparison of mid February 2006 to 2019. Using a sum of £500, say a monthly income or pension the exchange rate reduced. €734 in 2006 became €560 in 2019.

• Interest rates

If you have savings or investments based on interest rates, you won’t need me to spell it out. Have you considered any alternatives? This would be a vital part a Financial Healthcheck with a fully qualified adviser. My Email

Interest rates that affect us are set by the European Central Bank and Bank of England and at present, low rates are likely to continue 

• Mortgages

If interest rates are low, this must be good for mortgages, so you would think. However, there are two factors which cloud this issue;

• Because of past mistakes, which lead to bank closures, it can difficult to get a mortgage.
• Many people, especially those who borrowed high percentages often can’t get out of deals they made in earlier years. If you are paying more than 2.25% you definitely need a review

The mortgage market has changed substantially in the 13 years since 2006. If you need help with getting a mortgage I can put you in touch with a major company who have been successful in the past  My Email

•  UK Pension Schemes

If you have emigrated or plan to, then it helps to know and understand your existing scheme. The rules which are ‘set in stone’ in the UK may be very different if you seek a transfer. This often surrounds retirement age. There have been many changes in the past few years with new ones planned.

One of the values of a Financial Healthcheck is for the adviser to understand and tell you exactly what you have now and to compare with the alternatives. The Financial Conduct Authority (FCA) is very strict about pension transfers. You should fully understand your rights & options. To help this, I only ever recommend QUALIFIED and fully INDEPENDENT financial advisers.My Email

• QROPS and other OPTIONS

The concept of QROPS became available in 2006 but did not really have a market until 2008. Along the way, there have been many  major changes and 11 year old schemes are hardly recognisable today and almost CERTAINLY need reviewing by a PENSIONS SPECIALIST.

In 2019, whilst QROPS suit many expats, International SIPP's are often a very realistic option. Unless your adviser considers ALL OPTIONS then you have NOT received best advice.

Remember QROPS or SIPP's are a UK pension transfer and NEED regulated specialist advice plus a comparison with alternative options. Ask me for a referral My Email

•    UK & Spanish Inheritance Tax

This subject is so complex that it cannot be dealt with in a paragraph.

The headline topic for me is that Spanish ISD is levied on the death of the first spouse or partner. It’s bad enough becoming a widow(er) without having to pay a tax too! This can be avoided by careful planning. I will put you in touch with a suitably qualified adviser My Email

It’s also important to understand the difference between residency and domicile which affects these two taxes in a major way.

One factor which affects most UK expats and property owners in Spain, unlike other taxes there is NO double taxation agreement between UK & Spain on Inheritance Tax, because the taxes are so different

•  Spanish compliant Investment Bonds

If you have had an investment bond for more than five years it definitely needs a review. In recent times the charging structures have been reduced and you maybe losing a benefit. As I only recommend Qualified and Regulated advisers you can seek best advice. I addition, there are many companies offering Investment Bonds so it is important that the advisers I recommend are Independent too.My Email

This is just a sample! When did you last review your finances? Can you get better arrangements? Can you save money? Can you cut your tax bill?

Whatever your objective, you can get help. A Financial Healthcheck, without obligation and no upfront fees can be arranged with a regulated, qualified & independent financial adviser. If the advice involves a pension transfer, a specialist consultant will check your suitability.

YOUR Financial Healthcheck

Please send me a few outline details, so that I can source the right adviser for you. In particular, the subject(s) you want to discuss, age(s), your concerns and the area where you live. It will also help if you can give a contact number and the best time(s) to call. My Email

After checking out where you stand, with peace of mind you can get back to living the dream!

Further Reading

More detailed information can also be accessed from Financial Pages in Spain;

Scam Watch

Readers’ Favourites

La Torre Fx – Foreign Exchange

Please feel free to My Email on any aspect of financial information, UK or Spain

​David

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Spanish ISD and UK IHT - Comparison

As the old saying goes ‘Like chalk and cheese’

• Impuesto sobre Sucesiones y Donaciones (ISD)

• Inheritance Tax (IHT)

• There is no Double Taxation Treaty or Agreement between Spain and the UK on these inter-linked but very different taxes

This will only be a short article because it is vitally important that you get Professional Advice

What are the principal differences?

	Spanish ISD	UK IHT
Married Couples: When is tax payable?	On First Death	On Second Death
Are Rules applied Nationally?	There are Regional differences but these only apply to Spanish residents. Non-residents only get National rules	Yes, all rules are based on a set of UK laws
Who pays the tax?	The beneficiaries pay any tax due	The Estate of the Deceased pays any tax payable
Does the tax rate change according to who is the beneficiary?	Yes	No
Who pays on what assets?	Spanish resident beneficiaries pay on worldwide assets, whilst non-residents pay only on Spanish sited assets	UK domiciled deceased Estates pay on worldwide assets. Residency is NOT an issue
Will Tax Planning reduce or eliminate the tax payable?	Yes	Yes

Please note that only one answer is common to both ISD and IHT. Tax Planning is vital

Additional reading is also recommended;

ISD in more detail

Spanish Inheritance Tax

Five Spanish Taxes affecting Non-Residents

Non-Resident Taxes

Please email me with any query you may have or to be referred to a Specialist Professional for advice

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Moving to Spain

Some Key Issues

This is not intended to be a definitive list but I come across so many problems amongst UK nationals in Spain which can be put down to poor or even no planning. Even though there are costs, to get professional advice is almost always cheaper in the long run.

1.    Research

In the internet age there are huge numbers of resource waiting to be read. However, I always ask you to consider who is giving you the information. Beware of vested interests!

The more independent information you can gather, the better. The archive to my blog or my website are based on my own experiences but I encourage you to look at other resources. Financial Pages in Spain

2.    Know your area before you move

If you’ve been somewhere on holiday, and loved it, do you really know it? From my experience many people move on that basis and only then begin to know the place. It’s part of your initial research really.

I found the British Embassy in Madrid very helpful and follow them on Twitter (@ukinspain)

3.    Consider ‘Rent before you buy’

My Estate Agency friends and contacts will tell you I’m wrong because there are so many bargains to be had! I still think this caution is good advice and I’ve written about it before Rent before you buy in Spain

If you do buy, the research and knowing your area are even more important.

4.    Take health very seriously

Spain has one of the healthiest lifestyles in Europe and generally has excellent medical facilities. You must remember that whilst a European Health Insurance Card (EHIC) covers you as a tourist, once you settle in Spain, you need to register locally. This procedure can be different according to area so you need local information about health services and facilities

5.    Work out your finances including tax

I apologise if this seems obvious, but based on my INBOX, it doesn’t happen often enough!

Choosing a Bank is often an early decision. It can be a problem if you choose the wrong one. Personally, I prefer Internet Banking but it doesn’t suit everyone. Whether you can speak Spanish is another key issue, as the local service you get can vary. Another reason to ask around and see which one gets the most positive comments. There is no ‘best’ or even ‘worst’ bank but local knowledge is, in my opinion, key.

Getting Professional Advice for which there is no substitute is also very important. I often refer people to advisers that I have checked out or my contacts have recommended. After 11 years experience, in Spain, I’ve learned only to recommend the very best advisers.

Tax is vital and often misunderstood. Some people have said to me (in summary) ‘I thought it would be the same as in England’, that’s so, so wrong. From my own experience the starting point is that it’s always different from the UK! Especially in the early days and vitally if your Spanish is poor, you need a Fiscal Representative, mainly to help with the endless paperwork. It maybe a service your solicitor could provide but if you need specialist tax advice please Email me.

6.    Get independent legal advice

If you were buying a house in the UK, chances are you’d choose your own Conveyancing Solicitor or one recommended by a friend. That should apply in Spain too, but buyers seem happy to accept the recommendation of the builder – he’s not independent or even on your side – he’s the builder’s solicitor

Your solicitor, knowing your situation, is also the best person to advise on a Spanish Will which you do need

If you don’t know a solicitor, please ask around or I will recommend one if I know a proven one in your area. Certainly in your early days in Spain, you need an English-speaking legal adviser. Email me for a recommendation.

7.    Put your UK affairs in order

In many respects it’s the mirror image of what you need to do in Spain. I would however suggest in particular that you tell the tax authorities. If you don’t then HM Revenue & Customs (HMRC) will chase you for years to come. Timing your departure can also be beneficial in having a tax-free year, if applied correctly. Email for more information.

The Department of Work & Pensions need to know of the change in circumstances whether or not you are retired and should be informed. You should also tell your local authority and GP.

8.    Don’t become isolated

Even if you get to know many British expats, learning Spanish can really help your life in many respects. I’ve always found the Spanish very tolerant even if you only try to speak their language.

Courses are widely available and always of value

There is much more information on many subjects in my BLOG ACHIVE but the following are especially recommended;

La Torre Fx – Foreign Exchange

Offering better rates and service than the banks, internet facility available 24 hours per day.

UK Savings

If you live in Spain, should your savings be in the UK. It’s worth considering.

Spain – The sun still shines and the lifestyle is healthy

Serious reasons to move to Spain but my light hearted review

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

Getting Professional Advice

IMPORTANT : I never recommend advisers who charge up front fees

Follow Financial Pages in Spain

This is one of the major issues affecting British and Irish expats and property owners in Spain. On first view it may not look ‘major’ but I know from emails received that it certainly is, especially if things go wrong.

No trick question but where do think is the best place to seek advice?

• Hearsay. The classic quote I hear so often is ‘I heard somewhere  ……’ What often follows is either wrong or out of date!

• An unauthorised, non regulated and unqualified person or company who call themselves an ‘adviser’. Always ask about their qualifications.

• A properly trained, fully qualified, authorised and regulated, individual or company who not only give you the best advice, but as part of their professionalism carry PI (professional indemnity) cover in case things go wrong.

Is there really a choice?

Why would you not use a professional? If you think that cost might be a problem, ask up front! I am playing my part in establishing why expats should always get PROFESSIONAL advice, whilst at the same time convincing professionals that their advice should represent VALUE FOR MONEY.

Apart from owning property in Spain for ten years and originally struggling to find professional advice, in the last year and a half through my Blog I have found many professionals. If you need advice, please email me.

My own connections included the following professionals;

• Regulated financial advisers
• Suitably qualified accountants
• Professional lawyers
• Chartered surveyors in Spain
• Members of the Association of International Property Professionals (AIPP)
• Company formation for property ownership specialists

If you email please let me know your question and where you live. I may be able to answer myself, just point you in the right direction or refer you to a suitably qualified person.

Never trust Unauthorised Advisers

I always recommended qualified and regulated advisers

Please remember that my Blog is about unbiased, factual financial information. You can look elsewhere for information but remember that an advert will certainly be biased towards the company who paid for it. I have no problem with that but remember it’s biased!

David Goodall

Financial Pages in Spain

davidgoodall.spain@gmail.com

PS

Testimonial

 "I stumbled across David's blog one Sunday afternoon when looking for advice on living and working in Spain. 

Each post encouraged me to email him for advice, so I did. However, imagine my surprise when I got an answer a few hours later. Don't forget this is a Sunday! He's referred me to a specialist who sounds like she can help.

Thanks again David.

Al Elliott, Manchester, UK ' 

Financial Pages in Spain - Key Issues

Since starting in August 2010, Financial Pages in Spain has grown to over 150 posts. Whilst time moves on, many of the issues remain the same, but need updating. This is a summary of the most popular posts over the last year, by important categories;

Pensions

• UK Pension Scheme but you Live in Spain

This post lists 30 different types of UK Pensions Schemes to help readers understand what the might have. There are then a series of questions and answers

http://expatsfrombritain.blogspot.co.uk/2011/08/uk-pension-scheme-or-plan-but-you-live.html

• QROPS – Comparing Jurisdictions

Following very substantial changes to the rules and regulations, in April 2012, QROPS (Qualifying Recognised Overseas Pension Schemes) have changed substantially. Here is an update of the key jurisdictions for QROPS

http://expatsfrombritain.blogspot.co.uk/2012/08/qrops-2012-comparing-jurisdictions.html

• QNUPS (Qualifying Non-UK Pension Schemes)

These were introduced in 2010 under arrangements to shelter retirement income producing assets from UK Inheritance Tax (IHT). British nationals who are Spanish residents often, mistakenly, think that IHT doesn’t apply to them

http://expatsfrombritain.blogspot.co.uk/2012/07/qnups-qualifying-non-uk-pension-schemes.html

• UK Overseas Pension Schemes

This summary will be of interest to expats who work, are near retirement or already retired. It includes a summary of Section 615 schemes for those who work in Spain.

http://expatsfrombritain.blogspot.co.uk/2012/08/overseas-pension-schemes-updated.html

Our hard earned pensions are often our second biggest asset (even if you didn’t know it). You need PROFESSIONAL ADVICE to look after your future income and protect its capital value. Please email to be referred to an adviser I have thoroughly checked.

Taxation

• Tax Avoidance and Tax Evasion

These issues are topical though I am regularly annoyed that newspapers, broadcasters and politicians confuse the two. Its easy to deal with tax evasion – it’s illegal. Tax avoidance is legal but much more complex. Seems to me that most taxpayers, in any country, want to AVOID tax as long as they are not illegally EVADING tax!

http://expatsfrombritain.blogspot.co.uk/2011/04/tax-avoidance-and-tax-evasion.html

• Five Non-Resident Taxes

This is an issue which never fails to amaze me.  I’ve produced a PDF which anyone can request. I suspect that everyone who owns property in Spain should be checking out. Just email me

http://expatsfrombritain.blogspot.co.uk/2012/04/five-spanish-non-resident-taxes.html

• Spanish Inheritance Tax (ISD) - Impuesto sombre sucesiones y donaciones

The first important fact that expats and property owners should know is that UK IHT and Spanish ISD are not covered by a Double Taxation Agreement or Treaty. British nationals are often shocked to learn that ISD is payable on the death of the first spouse or partner.

http://expatsfrombritain.blogspot.co.uk/2011/06/spanish-inheritance-tax-isd.html

Whatever your taxation position and even your liability in the future, planning is key. Email and I’ll link you to a professional if you give me a brief outline.

Investment Planning

• Why Invest Offshore?

Well certainly NOT for tax evasion! Offshore investment suits a surprisingly large number of expats and property owners. It’s certainly worth investigating but only through professional advice.

http://expatsfrombritain.blogspot.co.uk/2012/07/why-offshore-financial-planning.html

• Tax Efficient Savings for Expats

This includes long term investments as well as traditional savings. For the expat there is often the added complication of foreign exchange differences too.

http://expatsfrombritain.blogspot.co.uk/2012/03/tax-efficient-savings-for-expats.html

Other Important Issues

• 10 Things that some advisers won’t tell you

When someone first told me, I didn’t believe it! Many advisers, even those saying they are regulated by FSA, refuse to disclose commission which has been a UK rule since 1993. These nine other abuses too. I can refer you to advisers I have carefully checked if you email me.

http://expatsfrombritain.blogspot.co.uk/2012/09/ten-things-some-advisers-wont-tell-you.html

• Getting a Second Opinion

Financial Pages in Spain will gladly give a second opinion to any advice received – just ask!

http://expatsfrombritain.blogspot.co.uk/2012/09/getting-second-opinion.html

• La Torre Fx – Foreign Exchange

It’s online and available 24 hours per day, every day of the year. After setting up the account, it can be used over and over again. Your first use takes a little longer to comply with necessary ID checks, but after that it’s super-quick! The rates offered have been specifically targeted at beating the banks and giving you the bonus

http://expatsfrombritain.blogspot.co.uk/2012/05/unrivalled-foreign-exchange-la-torre-fx.html

Enjoy Spain – avoid the usual pitfalls and can I suggest that you follow ‘Financial Pages in Spain’

@davidgspain                                 Twitter

DavidGoodall.Spain                        Facebook

davidgoodall.spain@gmail.com    Email

David Goodall

Financial Pages in Spain