Blacktower Spanish Tax Guide 2023 2
Blacktower Spanish Tax Guide 2023 2
Blacktower Spanish Tax Guide 2023 2
TAX GUIDE
Introduction
Spain is still one of the most popular destinations for British expatriates. Having made
the decision to move to Spain, it is essential that you plan prudently in order to optimise
your finances, particularly in relation to the implications of income and capital gains/
savings taxes as well as wealth tax, rental tax, succession tax and gift tax for example.
Tax laws in the UK and Spain differ significantly and if you are going to manage your
wealth successfully, the support and guidance of a professional who understands all
the relevant cross-jurisdictional issues will be an invaluable asset. As a simple example,
which will be discussed later in this document, winnings and growth from all the com-
mon UK tax efficient savings vehicles such as premium bonds and ISAs are taxable in
Spain.
The contents of this Tax Guide are believed to be correct at the date of publication.
Every care has been taken that the information in this Guide is accurate at the time of
release. However, all information and tax figures are subject to change and you should
always make enquiries, check details and, where necessary, seek legal advice before
entering into any transaction.
The information is for guidance only and does not constitute advice. You should seek
professional tax advice tailored to your needs and circumstances before making any
decision.
01
INDEX
02
Your residency status and tax
– for example, if your spouse or dependent
Tax residency status determines which coun- children live in the country.
try’s tax laws are used to tax your worldwide
income and gains. UK residency
03
Social security and tax status
Working in Spain
04
The UK/Spain double tax treaty
The terms of the UK/Spain Double Tax Treaty
mean it is only possible to be tax resident in
one of the two countries at any given time.
05
Establishing tax efficiency
Although the UK/Spain Double Tax Treaty Furthermore, you may wish to consider the tax
prevents income from being taxed in both efficiency of the following investments when
countries, in some cases it may be possible moving from the UK to Spain:
to pay tax in the wrong country and to conse-
quently pay more than you need to. • Personal Equity Plans (PEPs) – attract
capital gains tax on disposal
Many expatriates in Spain mistakenly • UK pension plans and annuities
continue to pay tax in the UK, particularly if • Investment Bonds – Spanish law does
their main source of income is derived from not provide for the same beneficial tax-de-
UK pensions, UK savings or other UK-based ferred allowance as in the UK
assets. Taking early-stage advice can help • Open Ended Investment Companies
expats establish tax-efficient arrangements • (OEICs)
that reduce tax liability and consequently • Investment Bonds
increase cash flow. • UK shares – Dividends are taxable in
Spain whether the income is received or
Any failure to declare income to the Spanish reinvested
authorities can result in penalties and/or • ISAs - Although it is possible to hold on
prosecution for tax evasion. Paying tax in the to an ISA once you have left the UK for
UK is no defence in these circumstances. And Spain, you will be unable to make any
although it is possible to offset tax paid in one further contributions to the account.
country against tax due in the other, this does Furthermore, all income and gains derived
not always prove advantageous. It is better from an ISA are liable for tax in Spain. If
to avoid the higher liability in the first place. you are becoming, or are already, resident
Finding the arrangement that is most suitable in Spain, you should consider the myriad
for the individual is rarely straightforward, so it alternative investments available as they
is important to take advice regarding the most are likely to prove more beneficial than an
tax-efficient arrangement for your circum- ISA.
stances.
What is tax efficient in the UK may not be tax Offshore Bank Interest
efficient in Spain, and vice-versa. For example
both premium bond winnings and Individual The worldwide bank interest income of
Savings Accounts (ISAs) are tax-free in the residents in Spain is subject to a tax rate of
UK. However, they may attract considerable between 19% and 26% in Spain, regardless of
tax liability in Spain, so it is likely you may want where in the world the account is situated
to restructure any investments of this type and whether it is used to make withdrawals
before you begin residency in the country. etc. Furthermore, this rate is subject to limits
What is tax efficient in the UK may not be tax imposed by the UK/Spain Double Tax Treaty.
efficient in Spain, and vice-versa. For example
both premium bond winnings and Individual It is worth speaking with your adviser about
Savings Accounts (ISAs) are tax-free in the the possibility of adding any such interest to
UK. your other income and to tax it accordingly.
06
Rental income
There are more than 1.75 million landlords in the UK and many of these are expats who have
multiple properties in the UK. Often these serve as a kind of proxy pension fund. Others may
have one or more UK properties which they no longer live in, but do not wish to sell because of
personal or familial attachments.
Rental income from UK properties remains taxable in the UK regardless of residency status and
must be appropriately reported in both the UK and Spain. For residents in Spain, UK rental
income is also taxable in Spain, where it is added to all other income and taxed at the scale
rates of tax. However, tax paid in the UK can be offset against the Spanish tax on the same
income.
Residents of Spain with long-term rental agreements are entitled to a 60% reduction against
net rental income; this includes both rental properties owned inside and outside the country.
Furthermore, some expenses are deductible.
Renting out Spanish property is a common investment for many expats in Spain. Owning
Spanish property can help you feel connected to the country, provides real-estate security, and
can also provide an invaluable cash flow.
However, all rental income derived from property owned in Spain is subject to tax. For
non-residents of Spain living within the EU or EEA, this income attracts a flat rate tax of 19%
(although mortgage interest, agency fees, repairs, and some other expenses are tax deductible).
Residents from outside the EU or EEA (this now includes the UK) are subject to a higher flat
rate tax of 24% with no allowable deductions.
Note: A license may be required in Spain before you can rent out your property.
07
Spains property wealth tax
Any Spanish properties that are not being lived in and are not being rented out are subject to a
separate tax. This is calculated on the notion that you receive annual income at a rate of 1.1%
of the state-sanctioned valuation of the property if the property has been valued within the past
decade, or at 2% if no valuation has occurred during the preceding ten years.
This income is known as ‘imputacin de rentas inmobiliarias’ and is assumed by the state
regardless of whether you actually receive it or not; as such it is deemed to be taxable. For
residents and non-residents who live in the EU or EEA it is taxed at a flat rate of 19%. A higher
rate of 24% applies to residents outside of the EU and EEA.
Overseas properties owned by residents in Spain attract a similar tax on the notional income.
However, the assumed income is calculated as 1.1% of 50% of the purchase price. This is then
subject to a 19% or 24% tax depending on whether you live within the EU/EEA.
08
Capital gains on property
You are likely to be exempt from capital gains tax on the proceeds from a sale of your main
Spanish residence provided you are over 65 and have lived in the property for at least three
years. Similarly, you will be exempt if you are under 65 and reinvest the entire sum in a new
residence.
The UK/Spain Double Tax Treaty dictates that any gains realised from the disposal of UK
properties attracts Spanish capital gains tax of up to 26%. This is true regardless of whether the
property was your main residence, although you may still qualify for the exemptions outlined
above.
It is worth bearing in mind that you will also be liable for UK capital gains tax for gains accrued
after 6 April 2015, even if you are resident in Spain. Unless you have particular reasons for
owning UK property while residing in Spain it may be worth consulting your adviser about the
potential benefits of alternative investments.
09
Undeclared income or “black money”
Not that long ago in Spain many property transactions were borderline in their legitimacy as
neither vendor nor buyer always disclosed the full value of the transaction. Not only is this
practice of under-declaring the purchase price illegal, it can also result in a much larger capital
gains liability than would otherwise apply when the property is sold further down the line. Such
‘black money’ transactions should be avoided.
10
Succession laws
In August 2015 Spain implemented an EU regulation known as ‘Brussels IV’. Under the terms
of Brussels IV, if you reside in Spain you can choose to have UK succession law apply to your
estate, otherwise Spanish succession law will apply automatically upon your death, including if
you die intestate (without a Will).
There may be significant advantages to electing UK succession law: Spain’s forced heirship
rules do not allow you to choose certain beneficiaries – for example stepchildren – while
simultaneously forcing you to hand on as much as half of your estate to your ‘bloodline’ – this
includes children (biological and adopted), spouse, parents and grandparents, regardless of
whether you want this.
You should be aware that if you are a resident in Spain, the country’s succession law will apply
to all your worldwide assets (excluding non-Spanish real estate). As such, careful planning in
relation to succession laws and inheritance taxes is essential.
Note: By stating UK law of Succession it doesn’t mean that you are not subject to Spanish
inheritance tax, it just means you can nominate beneficiaries of choice.
11
Wills and probate
UK Wills are valid in Spain but can be complicated by the cross-jurisdictional probate process
– the Will needs to be translated and notarised before it will be ready for the Spanish probate
process. It can be a laborious and time-consuming process negotiating cross-border probate
before assets can be distributed.
It is important to be careful and to take advice. Writing a Spanish Will, even if it is just for your
Spanish assets, can potentially invalidate your UK Will and in some cases may even lead to
disputes between your heirs.
Note: You should ensure that it/they encompass your worldwide assets.
12
Inheritance tax
Inheritance tax in Spain is known as Succession tax (ISD) and unlike the UK it is the beneficiary
that is liable for the tax not the Estate.
Both lifetime gifts and bequeathed assets are liable for Spanish succession and gift tax. This is
true for all assets situated in Spain regardless of who the asset/gift has been given to (including
spouses) and applies regardless of the recipient’s country of residence.
• Property
• Cash
• Stocks
• Valuable items such as paintings or antiques
Inheritance tax in the UK is paid by the estate. In Spain, succession and gift tax is paid by the
beneficiaries. However, just as in the UK, the tax must be paid before the assets can be
released. This can make matters complicated, particularly as in most cases the tax must be paid
within six months of the testator’s death.
13
Regional differences
Rates of tax and exemption thresholds may vary in Spain depending on the rules of the
applicable autonomous region you are residing in. However, sometimes the state rules may
apply and working out which takes precedence can be complicated for the uninitiated.
National tax exemption thresholds are 16,000 for spouses, parents or children older than 21 –
further reductions are available against the value of the main home, although their complicated
nature means it is best to take advice in this regard.
It is important to note that although some autonomous regions have more favourable rates in
place than others, overall there is not a great deal of variance in approach.
Spanish succession laws mean that any person who is considered a ‘desconocido’ (stranger
– not married to the deceased or related through marriage) could be liable for a succession or
gift tax of up to 82% on the value of any gifted or inherited asset. However, this level is rarely
applied. Unmarried couples, step-children and other non bloodline families should be prepared
and it is wise to plan carefully in order to reduce tax liability as much as possible.
Spain recognises same sex marriages performed in other countries and allows same sex
marriage within its own law. However, UK civil partners are not recognised as ‘married’ for tax
and other purposes. To receive marriage legal rights in Spain, including tax benefits, you should
therefore seek to convert your civil partnership into a UK civil marriage or a Spanish civil
partnership or “pareja de hecho”.
14
Modelo 720
You should declare all your assets and accounts. Spain is signatory to the Common Reporting
Standard, under which almost 100 jurisdictions automatically exchange tax and financial infor-
mation on a global level. Failure to declare could result in significant fines and penalties.
All residents of Spain are required by law to declare all assets they hold outside Spain worth
more than 50,000 (total - per asset class), regardless of the holder’s nationality. The reporting
form for these assets is known as Modelo 720.
Overseas property
Cash, deposits, ISAs – held in overseas financial entities
Financial assets (bonds, investments, pensions, insurances) located abroad
Crypto Assets
The Spanish tax agency (Agencia Tributaria) issue fines for any nondisclosure of assets –
there is no limit to how far back fines may be retrospectively imposed for historical incidents of
non-disclosure.
Under Spanish law tax investigations can go back four years, so the income would be deemed
to arise four years prior to the year the asset is discovered and will be taxed at the marginal
rates of income tax. Recently however the European Court of Justice have ruled these fines to
be excessive.
Still, Blacktower Insurance Agents & Advisors Ltd advise all clients to discuss the Modelo 720
with their tax adviser to ensure that they comply with this law and understand its implications
with regards to assets held offshore.
Any person who has assets exceeding a value of 50,000 at 31 December (the official reporting
date) is required to submit a report. Modelo 720 reporting is only required in subsequent years
in the event the value of the assets reported increases by 20,000 on the previous stated value.
You must also report any event involving the sale or closure of an asset previously reported on
the form.
15
Wealth tax
Wealth tax is payable annually on the total net value of your assets at 31 December of that year.
All residents of Spain who meet the threshold for this tax are liable on the total value of their
worldwide assets. Non-residents are liable only for tax on the value of assets located in Spain. It
is important to note that loans are deductible from your net taxable wealth – the exception is if
they have been used to purchase or invest in assets which are exempt from wealth tax.
Wealth tax is payable on the value of most assets, including the following:
• Property
• Art
• Jewellery
• Cars
• Yachts
• Savings
• Investments
• Non EU private pensions (includes Final Salary pensions)
Some assets may be exempt from wealth tax. These include the following:
• Some household contents (not jewellery, fur coats, boats, vehicles, art and antiques)
• Certain family companies meeting certain conditions (not including most property invest-
ment companies)
• Pension pots – EU based only
• Owner-managed small businesses
• Intellectual property rights owned by the author/creator/artist
• Business assets where income from the business make up at least 50% of the individual’s
taxable income and meet certain other criteria
Spanish wealth tax is effectively a tax on capital assets. There is no comparable tax in the UK
and it can be very difficult to plan for without advice. Furthermore, wealth tax rates may vary
depending on the autonomous region in which you or your assets are located. There are limits
to Spanish wealth and income tax and this means that there are ways to limit your liability by
intelligently managing your assets alongside your total income. It is best to seek advice in this
regard.
16
Conclusion
Professional, expert advice is critical to effectively manage your tax liability in Spain, particularly
if there are possible cross-jurisdictional and language issues to consider.
Spain’s taxation and succession laws differ markedly from those in the UK – sometimes this
may work to your personal advantage, but at other times it may not. It is only by carrying out a
full analysis of your situation and with careful planning that you can feel confident of striking a
balance that most closely aligns with the interests of you and your family.
At Blacktower, we understand that everyone is different and it is important your adviser has an
understanding of you, your circumstances, your long-term goals and your cash-flow needs. We
take the time to get to know you and will answer your investment, savings and retirement
planning questions so that we may provide a truly bespoke service.
The contents of this Tax Guide are believed to be correct at the date of publication. Every care has been taken that
the information in this Guide is accurate at the time of release. However, all information and tax figures are subject to
change and you should always make enquiries, check details and, where necessary, seek legal advice before entering
into any transaction. The information is for guidance only and does not constitute advice. You should seek
professional tax advice tailored to your needs and circumstances before making any decision.
17
Tax rates in Spain
Income tax
You should declare all your assets and accounts. Spain is signatory to the Common Reporting
Standard, under which almost 100 jurisdictions automatically exchange tax and financial infor-
mation on a global level. Failure to declare could result in significant fines and penalties.
All residents of Spain are required by law to declare all assets they hold outside Spain worth
more than 50,000 (total - per asset class), regardless of the holder’s nationality. The reporting
form for these assets is known as Modelo 720.
Interest on savings
Shareholder dividends
Income from annuities
Income derived from life assurance contracts
Capital gains on the sale/transfer of assets
Income tax rates are made up of a state tax plus a regional tax. Each autonomous community
sets their own local rates.
The following pages contain the 2022 tables for the regions most popular with expatriates.
18
Income tax tables
Andalucia
Taxable base Taxable base National tax Regional tax Total tax Tax on band Cumulative
from Euros to Euros rate rate rate tax
~
Cataluna
Taxable base Taxable base National tax Regional tax Total tax Tax on Cumulative
from Euros to Euros rate rate rate band tax
19
Comunidad Valenciana
Taxable base Taxable base National tax Regional tax Total tax Tax on Cumulative
from Euros to Euros rate rate rate band tax
20
Islas Baleares
Taxable base Taxable base National tax Regional tax Total tax Tax on Cumulative
from Euros to Euros rate rate rate band tax
21
Islas Canarias
Taxable base Taxable base National tax Regional tax Total tax Tax on Cumulative
from Euros to Euros rate rate rate band tax
22
Murcia
Taxable base Taxable base National tax Regional tax Total tax Tax on Cumulative
from Euros to Euros rate rate rate band tax
23
Savings income
Taxable base from Euros Taxable base to Euros Total tax rate
Wealth tax is payable annually on the total net value of your assets at 31 December of that year.
Residents of Spain are liable for the total value of their worldwide assets. Non-residents are
liable only for assets located in Spain.
24
Allowances
The above assumes a main home value in excess of 600,000 and all assets held in joint names.
For lower value property, the balance of allowance cannot be offset. Autonomous regions can
and do vary the allowances and rates. Wealth tax is an individual tax and joint tax returns are not
permitted.
Please note: The Catalua individual deduction has fallen from 700,000 to 500,000.
The Comunidad Valenciana individual deduction has fallen from 700,000 to 500,000.
Andaluca has a personal allowance for Wealth Tax of 700,000 and a main residence allowance
of 300,000 (each).
25
Wealth tax rates
Andalucia
From Euros To Euros Tax rate Tax on band Cumulative tax
The Spanish tax regulations state that cumulative wealth and income taxes cannot exceed 60%
of a resident’s total taxable income (there is no limit for non-residents), subject to a minimum of
20% of the wealth tax calculation.
26
~
Cataluna
27
Comunidad Valenciana
28
Islas Baleares
Islas Canarias
*State wealth tax rates apply
29
Murcia
10,695,996 Onwards 3% - -
30
Succession and gift tax
Rates vary across each autonomous region, and notably in Andaluca, Murcia, Comunidad
Valenciana, Catalua, Madrid, Islas Baleares and Islas Canarias.
First, beneficiaries are divided into the following four groups, depending on the closeness of
relationship to the donor or deceased
31
Relative Reductions
There are no state reductions for life-time gifts. The tax-free state relatives’ reduction for
inheritances received by members of the different groups are as follows
Group 4 nill
32
Succession and gift tax state rates
Tax liability is dependent on the relationship between donor and recipient and the
preexisting wealth of the recipient – multipliers apply.
33
Succession and gift tax multipliers
For region specific tax rates, please contact Blacktower directly and we will be happy to help.
34
Contact us
Barcelona
Tel: +34 935 47 73 63
Avinguda del Portal de l’ngel, 36 2, 1, 08002 Barcelona, Spain
Costa Blanca
Tel: +34 965 05 82 12
Avinguda d’Ausis March 9 Local 7 (Esquina, Carrer de Joan Fuster, 03730 Xbia, Alicante,
Spain
Costa Calida
Tel: +34 968 18 73 31
120 Avenida Dr. Artero Guirao 2C, 30740 San Pedro del Pinatar, Murcia, Spain
www.blacktowerfm.com
info@blacktowerfm.com
36
Our heritage protects your horizon
This communication is for informational purposes only based on our understanding of current
legislation and practices which is subject to change and is not intended to constitute, and should
not be construed as, investment advice, investment recommendations or investment research. You
should seek advice form a professional adviser before embarking on any financial planning activi-
ty. Whilst every effort has been made to ensure the information contained in this communication is
correct, we are not responsible for any errors or omissions.