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Taxes In Spain For Residents & Non-Residents

Taxes in Spain for non-residents

Let’s talk about Spanish taxes for expats: rates, deadlines, reporting, allowances you can use and most importantly the difference between being resident and non-resident.

If you live in Spain for less than six months (183 days) in a calendar year, you are classed as a non-resident.

In this case, you will only pay taxes on income earned in Spain. For example, you will be taxed in Spain if you have a property in Spain that you rent out, a savings account, or any other assets that earn you income.

Your Spanish income will be taxed at flat rates with no allowances or deductions. The rates are 24%, or 19% if you are a citizen of an EU/EEA state.

Non-residents who have property in Spain must submit a tax return and pay a property tax for non-residents.  This is what’s known as imputed income tax on your property.

In addition, non-residents must pay local Spanish property taxes regardless of whether they rent it out or not. 

Tax residency in Spain: why you need it

To make sure you don’t pay income taxes in both the UK and Spain when you live in Spain, you have to acquire a non-resident status in the UK.

In simple terms, it means that you need to persuade HMRC that you have truly become a resident of Spain and therefore are obliged to pay taxes in Spain.

In some cases, the process of acquiring non-resident status can take up to three years. During this time, you might be granted conditional non-resident status by HMRC, and if in the end, you qualify, the full status will be granted retrospectively.

Residency status is based on the number of days you spend in the UK in the tax year (6 April to 5 April the following year).

You’re automatically classed as resident if you spend more than 183 days in the UK in the tax year, or if your only home is in the UK and you spend at least 30 days there during the tax year.

You’re automatically classed as non-resident if you spend fewer than 16 days in the UK in the tax year (or 46 days if you haven’t been classed as a UK resident for the 3 previous tax years).

If you fall in between, which might easily be the case in your first year of establishing your life abroad, then HMRC might decide to look into your circumstances to define your residency status.

This means you will have to prove that your intention to retire abroad and take up residence in another country is genuine.

Read “Guidance note: Statutory Residence Test (SRT)” to help you understand how residency is established by HMRC.

The examples given in the note clearly demonstrate what information helps HMRC to establish your residency status if you don’t meet the conditions for automatic qualification.

The fact that you had informed HMRC about your move abroad before you left the UK is just a first step. In case HMRC doubts your tax residency, you need to officially become a tax resident in Spain. 

Becoming a tax resident in Spain

You are considered a tax resident in Spain if you stay in the country for more than 183 days a year. To confirm this, you can apply for a Certificate of Tax Residency in Spain.

A Certificate of Tax Residency in Spain (Certificado de Residencia Fiscal en Espana) is a crucial document when it comes to some very important issues:

  • Proving to the HMRC that you’re now a Spanish tax resident and therefore don’t have to pay UK taxes anymore,
  • Proving your residency if/when you sell your Spanish home to avoid having 3% of the sale price retained,
  • Proving your residence to avoid complications if there’s an inheritance claim,
  • Proving your residence to minimise your inheritance tax.

A Certificate of Tax Residency in Spain is the only document that can help you resolve all the issues above, so it’s well worth applying for.

It is issued by the tax office (Agencia Tributaria or Hacienda). You can apply for one only after you have submitted and paid (if applicable) your first personal income tax return in Spain.

For the sole purpose of obtaining your tax residency certificate, it’s advisable to submit your tax return even if you are below the tax threshold. It’s quite difficult to obtain a Certificate of Tax Residency in Spain otherwise.

UK taxes that Spain residents might be liable for

If you have any assets in the UK, savings or any income (a rental income, for example), you will still be liable for UK tax on those even when you become non-resident for tax. 

In many cases, it’s worth hiring a UK-based accountant to deal with all your UK tax liabilities. This way you don’t need to worry about deadlines and HMRC queries. 

UK inheritance tax

Even if you are living outside of the UK, you will still pay inheritance tax in the UK if you are deemed to be of a UK domicile status. 

If your estate is valued over £325,000, it will be taxed at either 40 percent, or 36 percent (if a certain amount is willed to the charity), on everything over this amount. 

Since 2007, this threshold has increased to £650,000 for married couples and civil partners, but only if the spouses/partners will their share to each other after they die. 

If you wish to protect your UK estate (which you probably would if it’s valued at over £325,000), changing your domicile is not an easy option.

The best way is to seek professional advice. With careful planning and independent advice, it is possible to legally avoid a significant amount of inheritance tax in the UK. 

Spanish taxes

In general, taxes in Spain aren’t an easy thing to understand. This is made worse by the fact that the Spanish government changes tax rules pretty often. So keeping up to date with Spanish taxation can be challenging, particularly if you are an expat and have multiple income streams and assets abroad. 

Hence the most important advice is to consult a tax specialist. It will save you a lot of time going through paperwork and will give you peace of mind that no nasty surprises will be ever coming your way from the Spanish tax office.

Spanish tax year and reporting deadlines

The Spanish tax year runs from 1 January to 31 December.

As a tax resident of Spain, you are required to complete a resident tax declaration (your personal income tax declaration) every year. 

However, it’s not as simple as that. Depending on your income streams, and your own occupation status (whether you are a pensioner, a sole trader, self-employed, or a company owner), there are different reporting requirements and deadlines.  

There are also various options for how you file your declarations: in most cases, you can do it online, over the phone, or in a traditional way – filling out paper forms. 

The easiest way to make sure you do everything correctly is to delegate all the work to a professional accountant. Or at the very least get professional advice on how to DIY tax reports correctly.

Remember that failure to comply can result in hefty fines and penalties, so it’s best to try to keep your taxes in order. 

Declaring offshore assets to the Spanish Tax Authorities

If you have assets worth more than €50,000 anywhere in the world (for example, your house in the UK), you have to report them to the Spanish Tax Authorities. 

You do this using something called the 720 Asset Declaration Form. It is used by residents of Spain to record their assets in other countries. 

The authorities do not collect any tax from the form directly, and they claim it’s for informational purposes only and to help them prevent tax fraud. 

The deadline for filing is the 31st of March. You only have to submit the 720 form once; however, if your circumstances change, you will have to do it again.

What you have to declare on the 720 form

Well, basically everything you have outside Spain in excess of €50,000, including:

  • Assets held in any bank accounts with a total balance over €50,000 
  • Shares, bonds, life insurance policies, pension plans, annuities, etc. with a total value over €50,000
  • Business premises or/and property with a purchase value over €50,000

If your circumstances change, you will have to file the 720 form again. It’s worth keeping in mind that the value of your assets fluctuates depending on exchange rates, and this may make a considerable difference to how much your offshore assets are worth.

Fines and penalties for non-reporting

When the 720 asset declaration form was first introduced, not many expats appreciated the seriousness of Spanish Authorities. 

However, the heavy fines and penalties for non-reporting, late reporting, and misinformation are now bringing it home. The submitted forms are investigated and in some cases in great detail. 

It’s better to submit your 720 late than not do it at all. The fines for late submission aren’t as extortionate as the penalties for being found out.

So, if you have become a Spanish resident and it’s your first year, or if there’s a change in the value of your offshore assets, you must file the 720 form between 1st January and 31st March of the same year. 

Thus, you will ensure that you never get a letter from the Spanish Tax Authorities concerning your 720 declaration form.

How much tax will I have to pay in Spain?

Spain has tax thresholds, according to which residents pay income tax:

Spain income tax rates and allowances for 2018/19

The general income tax rates are made up of the state tax rates and the regional tax rates. Regional rates are set independently by each particular Spanish Autonomous Community so they vary a little across regions.

State income tax bands (without regional adjustments):

Personal tax allowance €5,550

IncomeTax rates
€5,550 – €12,45019.0%
€12,450 – €20,20024.0%
€20,200 – €35,20030.0%
€35,200 – €60,00037.0%
€60,000 or more45.0%

Pensioner allowances

65 years and over – €6,700

75 years and over – €8,100

Capital gains and dividends tax rates

Dividends up to €1,500 are tax-free

€0 – €6,000 – 19%

€6,000 – €50,000 – 21%

Greater than €50,000 – 23%

Child allowance

For families with children the following child allowance applies if a child/children are under 25, living with the parents and have an income under €8,000:

First child – €2,400

Second child – €2,700

Third child – €4,000

Fourth and additional children – €4,500

Additional for a child under 3 – €2,800

Wealth tax in Spain

If your wealth is over €700,000, you will be liable for a wealth tax of 0.2–2.5% on net assets. Residents pay tax on worldwide assets, while non-residents pay tax on their Spanish assets only.

Spanish local council tax

IBI (Impuesto Sobre Bienes Inmuebles) is a council tax in Spain. It is collected annually by your town hall to pay for local services. 

The tax is calculated based on the rateable value of your property (the valor catastral), which takes into consideration the size, condition, location, title, lease details, cost of improvements, and construction cost of the property. 

The tax rates vary a lot depending on your location and can be between 0.4% and 1.17%. 

It is important to pay IBI on time. If you miss a year then this might not be chased up immediately but a record will be held against your property. It might cause trouble later when you want to sell or bequeath it.

Spanish succession tax and inheritance

If you live in Spain, your or your family’s succession tax depends on where in Spain you reside. Regional inheritance rules – where they exist – are almost always more beneficial than the state rules.  

In some regions, there’s a 99% succession tax relief and substantial exemptions for spouses and descendants. However, the local taxes apply only to habitual residents who have lived in the area for five years or more. Otherwise, the state rules apply.

Under the state rules, an inheriting spouse, for example, can have an allowance of just €15,956 before paying tax. 

Children or grandchildren under the age of 21 would receive an additional tax-free allowance based on their age. 

Any inheritance above the allowance amount for the relevant heir would then be taxed, starting from 7.65% up to 34%.

The actual tax rates also depend on the relationship between donor and beneficiary.

The calculations are complex and vary according to the circumstances and exact habitual residence of the deceased and the heirs, so taking legal advice is recommended.

Cross-border estate planning is a complex process and requires professional advice. If you are concerned about your Spanish and UK estate and want to protect family assets, seek independent advice.

If you are retiring to Spain from the UK, read our ‘UK Pensions And Tax In Spain‘ guide to understand what pension options you have and how you can reduce taxes on your retirement income in Spain.  

You might find useful:

Angie

Saturday 8th of October 2022

Hi I now have my spanish residency but am from the UK but with an EU passport...If i get paid for self-employed online work into my UK account, do i have to declare the taxes to the UK? i will not have worked actually in the UK.

or is it possible to choose to pay UK taxes instead of Spanish self-employment ones even if i do not live there?

thanks for your help

Ola Degteva (Editor)

Monday 10th of October 2022

Hi Angie, cross-border tax planning is a very complex question, the best way to ensure you do everything right is to consult a specialist. You can get in touch with our Spain expert Maria Luisa through her Expatra profile: https://expatra.com/author/marialdecastro/. Maria Luisa helps expats with all legal matters and taxes.

Maria

Wednesday 24th of August 2022

Diane:

Is your US pension private or public?

In general, private pensions will only be taxable in Spain.

However, payments made under the U.S. Social Security system to a resident of Spain or to a U.S. citizen may also be subject to taxation in the United States, in which case the Spanish resident taxpayer would be entitled to apply the international double taxation deduction in his Spanish personal income tax, provided that such income has been subject to taxation in the United States based on criteria other than citizenship.

Finally, with respect to the elimination of double taxation, in the event that the pension has also been taxed in the United States, the provisions of Article 24.1.a) of the US-Spanish Convention will be taken into account: "when a resident of Spain obtains income which, in accordance with the provisions of this Convention, may be subject to taxation in the United States on the basis of criteria other than citizenship, Spain will allow a deduction from the income tax of such resident of an amount equal to the tax actually paid in the United States. However, such deduction may not exceed the portion of the income tax, computed before deduction, corresponding to income earned in the United States."

Diane Graham

Tuesday 23rd of August 2022

I am so confused. The text says that Spain wants one to have an income of at least 2,130 euros but then that they impose tax on that money. My only income is from Social Security which would give me enough to live in Spain -- but not if I have to pay 6,700 in tax as text calls a "pensioner allowance" -- or is that deducted from the 19%-45% basic tax? In the US I don't have to pay any tax on Social Security.

Michael Peter Henry

Thursday 23rd of June 2022

Hi, We own a house in England which we do not rent out and we live in a rented house in Spain do I have to pay tax on a second home

Thankyou

Maria

Monday 27th of June 2022

Hi, Michael:

No tax to be paid on a property abroad if it is noy rented or dole, but, it its value is over 50 thousand euros, you need to declare it through model 720.

Maria

Wednesday 1st of June 2022

MINIMU´s RATES

In general, the taxpayer's minimum will be 5,550 euros per year. When the taxpayer is over 65 years of age, the minimum will be increased by 1,150 euros per year (6,700 euros per year). If the age is over 75 years old, the minimum will be increased additionally by 1,400 euros per year (8,100 euros per year). In joint taxation it will be 5,550 euros per year, regardless of the number of members, taking into account the personal circumstances of each spouse (age, disability, etc.).

MINIMUM FOR DESCENDANTS (ART. 58 OF THE LIRPF)

The minimum for descendants will be, for each of them under 25 years of age or with disability, whatever their age, provided that they live with the taxpayer, do not have annual incomes, excluding exemptions, higher than 8,000 euros and have not filed a tax return with incomes higher than 1,800 euros, of:

2,400 euros per year for the first. 2,700 euros per year for the second. 4,000 euros per year for the third. 4,500 euros per year for the fourth and following. When the descendant is less than three years old, the minimum shall be increased by 2,800 euros per year.

MINIMUM FOR ASCENDANTS (ART. 59 OF THE LIRPF)

The minimum for ascendants will be 1,150 euros per year, for each ascendant over 65 years of age or disabled, regardless of age, who lives with the taxpayer for at least six months, has no annual income, excluding exempted income, of more than 8,000 euros and has not filed a tax return with annual income of more than 1,800 euros.

When the ascendant is over 75 years of age, the above minimum will be increased by 1,400 euros per year (2,550 euros per year).

MINIMUM FOR DISABILITY (ART. 60 OF THE LIRPF)

The minimum for disability will be the sum of the minimum for disability of the taxpayer and the minimum for disability of ascendants and descendants. The minimum for disability of the taxpayer will be 3,000 euros per year and 9,000 euros per year when the degree of disability is equal or higher than 65%. This minimum will be increased by 3,000 euros per year when the taxpayer proves that he/she needs help from third parties or reduced mobility, or a degree of disability equal or higher than 65%. The minimum for disability of ascendants or descendants will be 3,000 euros per year and 9,000 euros when a degree of disability equal or higher than 65% is accredited. Said minimum will be increased, in concept of assistance expenses, in 3,000 euros per year for each ascendant or descendant that accredits needing help from third parties or reduced mobility, or a degree of disability equal or superior to 65 %. Taxpayers with a degree of disability equal to or higher than 33% will be considered as disabled persons.

When two or more taxpayers are entitled to the application of the minimum for descendants, ascendants or disability, with respect to the same ascendants or descendants, its amount will be prorated between them in equal parts.

TAX AMOUNT REDUCTION FOR JOINT TAXATION

Family units opting for joint taxation will be entitled to the following reduction:

In the first modality of family unit ( not separated) the taxable base will be reduced by 3,400 euros per year.

In the second type of family unit, ( separated, divorced...) the taxable base will be reduced by 2,150 euros per year. This reduction will not be applied when the taxpayer lives with the father or mother of any of the children forming part of the family unit.

Application of the reduction for joint taxation:

The reduction will be applied, in the first place, to the general taxable base without being able to be negative as a consequence of such reduction. The remainder, if any, will reduce the savings taxable base, which cannot be negative either.