Taxation of Spanish Property. One of the most common concerns for British and other expat residents in Spain is their property taxes. How many taxes are there? When are they applied? How much and what are the timings for taking care of them? Taking care of these duties is very important, particularly if your house in the sun is supposed to be an escape from your daily life. If you want to really relax at your Spanish home, make sure that you contact law and taxation experts like those at Del Canto Chambers.They will start with a quick complimentary first review, and let you know if there are ways to save through tax planning.
Here is a brief summary of the relevant taxes for those who own properties in Spain.
Taxation of Spanish Property: The Spanish Non-Resident Income Tax (NRT)
Just under a million British expats are regularly spending a few months of the year Spain, most of them owning their own house. The problem is that many of them actually ignore they must pay the Spanish Non-Resident Income Tax. If you spend less than 183 days a year in the country, you are liable for it.
What are the rates? There is a single flat rate of 24%. For UK citizens, it used to be 19% when they were EU citizens. This is changing after Brexit, so make sure that your tax advisor knows this or check with us to ensure that you have switched to the higher rate.
Other sources of income taxed at 24% or more include:
- Pensions are progressively taxed, from 8% up to 40%.
And other gains taxed at 19% include:
- Interests from investments and dividends; though the existing Double Taxation Agreement UK-Spain will lower the rate.
- Gains in capital from the transfer of assets.
There are at least three different forms you must use to complete your tax declaration as a non-resident. Make sure to ask your tax experts about them, or call Del Canto Chambers to clarify the process. Remember: there are no exemptions, unless of course you were to become a tax resident in the country; or switch your nationality to Spanish altogether!
What if you are not living at the property, but renting it?
If you are a non-Spanish citizen who is also not living in the country because the property is currently rented, you are still liable for certain tax. It is important to clarify your tax residency (the 183 day rule) to calculate the rate. There are also geographical differences regarding certain rules that have been implemented to fight against the proliferation of online rental apartments (Airbnb and others). It is best if your legal team, like Del Canto Chambers, is familiar with this diversity across regions and cities in Spain.
The rates are as follows:
- If you are a non-resident for tax purposes, and also a non-EU citizen (as British people will be starting in 2021), you must pay the 24% flat rate without exemptions. At the same time, you might be able to pay less under certain provisions of the Dual Taxation Agreement.
- EU citizens pay at the reduced rate of 19%. Spanish citizens also have access to other advantages.
What if you are owning a property through a company?
Some decades ago, a relaxed regulatory environment and the desire for expats to save on taxes led to the creation of property-owning structures. At the time, these structures were built by advisors who were quite lax regarding due process. Buying large-sized properties was relatively cheaper when employing private firms, often located in offshore jurisdictions. This has allowed some to avoid taxes like inheritance tax, and pay reduced rates of tax with exemptions.
These advisors took advantage of what at the time were considered tax havens, but many of these places, such as Gibraltar or Jersey, now share their information with Spanish authorities. As a result, Spain’s tax inspectors are more and more interested in going after these properties owned through companies, following the EU-wide perspective on aggressive tax planning. They know that many of these clients have not updated their structures or their tax reports about them, so they are easy targets.
Of course, the clients are not at fault. It is their advisors, who lack preparedness in conducting due diligence and compliance adapted to current regulations. At Del Canto Chambers, we have been able to straighten many difficult situations on behalf of worried clients. We can help you update your records, and ensure that you do not end up paying high penalties. Today, there are relatively higher maintenance costs involved in owning property through a company, and perhaps it would be more beneficial to transition towards personal ownership.
What about wills and inheritance taxes for your Spanish properties?
While inheritance and wills are issues that might seem very far away in time, it is better to plan them in advance. This is particularly the case when two jurisdictions, such as Spain and the UK, are involved. Many expats tend to take for granted that asset transfer after death works similarly across countries. That is a mistake.
First, in Spain there is no testamentary freedom. Rather, forced heirship rules impose that children must always receive a share of the assets; this is not the case in the UK. Plus, the inheritance tax is not exempt by the Double Taxation Agreement between the UK and Spain. While it is not necessarily costiler, it is an acquisition duty. This means that the receiver must pay the tax before enjoying the asset. As a result, if the deceased does not make these plans in advance, his or her descendants could be driven to a precarious financial situation depending on the size of the inheritance.
What is the solution? Since 2015, any citizen in the EU can decide by which succession regime they want their assets to be dealt with after death. However, this can only be set through a written will. Otherwise, the state of reference will be that of permanent residence. This could be the case for many British expats in Spain. In conclusion, the best thing to do is to contact real estate experts . At Del Canto Chambers, since we have both barristers and abogados in our team, we can make sure that you can have both a British and Spanish will. This way, you can limit your tax exposure and avoid family conflicts regarding your inheritance.
What if you were interested in a complimentary tax review?
There are many inexperienced legal firms offering free online assessments of your situation. However, their lack of dual presence in Britain and Spain can lead to serious gaps in their reviews. Del Canto Chambers, the Anglo-Spanish tax and legal expert for UK residents, offers a complimentary review of your legal and tax affairs in Spain. Our multidisciplinary team will ensure that all of your affairs are in order, and you can enjoy your property in Spain.
Taxation of Spanish Property. By Del Canto Chambers
Del Canto Chambers, the only London-based set of chambers specialising in Spanish tax and legal residence. We have an in-depth understanding of international tax, legal affairs, property law and residence issues.
We can advise you on your Spanish residency application and discuss the implications of moving to Spain with you. We can also process your application on your behalf and put together the correct supporting documentation to ensure that your visa request stands the best chance of success.
We offer a Tax and Legal Residence Opinion service that will clearly set out your options with regard to living and paying tax overseas. This will enable you to make an informed decision as to how to structure your affairs and which country of residence will be most advantageous for you.
To make a no-obligation enquiry, please either call us on:
+44 2070 430648, or make an online enquiry.
We will come back to you within 24 hours, and we will be delighted to help you.