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Viewing posts categorised under: Tax in Spain

More Spanish residents to pay wealth tax

By John Hayward - Topics: Spain, Tax in Spain, Wealth Tax
This article is published on: 19th May 2021

19.05.21

Valencia reduces allowance with more people having to pay
the Impuesto Sobre el Patrimonio

Further to my article from last week, and after consultation with our accountant associates, it appears that the main residence wealth tax allowance of up to €300,000 only applies after 3 years of living in the property (habitual residence). This has been questioned but, as is often the case in Spain, getting a response from the tax office can be tricky.

The tax office words that are relevant in terms of getting around this 3-year rule are “circumstances that necessarily require the change of housing”. Moving to Spain to retire or for a change of lifestyle would not generally tick that box. If there are justifiable health reasons or similar then that appears to be acceptable in terms of applying the allowance.

To emphasise the habitual residence aspect, from JC & A Abogados in Marbella: “Please note that you must live effectively and consecutively in the property for more than 3 years, so you cannot rent the house out even for one day. In addition, you have to impute a benefit in kind for the Spanish property during the same 3 years period.”

In the words of JC & A, “The 3 year period starts counting from the purchase date as long as the dwelling is inhabited effectively and permanently within 12 months as from the purchase date.”

“…..a taxpayer who bought his main home but could not live in it because it was not suitable and had to have some works that exceeded 12 months; the conclusion is that the 3-year period starts counting from the date he moved in and not the purchase date.”

Adding salt to this potential tax wound, whilst it is not treated as your main residence (even though you live there permanently), you have to pay tax on its value as if you were a non-resident.

This all seems rather inequitable but is the law as things stand.

If you would like to discuss managing your money in these volatile and uncertain times, please do not hesitate to contact.
Visit John Hayward of The Spectrum IFA Group or complete the form below.

Wealth Tax in Spain

By John Hayward - Topics: Spain, Tax in Spain, Wealth Tax
This article is published on: 10th May 2021

10.05.21

The UK tends to rely on income and inheritance taxes to generate revenue, but countries such as Spain and France, also apply wealth tax (Impuesto sobre el patrimonio). This is an asset tax and can be on cash, real estate, pension funds, shares, investment bonds, ISAs, and even cars. Portugal also has a wealth tax but this relates solely to immoveable property.

Spain eliminated wealth tax in 2008 but then “temporarily” reintroduced it in 2011 and it has been here ever since.

Each autonomous region sets their own allowances and rates after initial direction by central government. The Spanish State’s allowance is €700,000 plus up to €300,000 for one’s main residence. This is per taxpayer. It is important to note here that a property only becomes a main residence after 3 years of continuous habitation. There are a number of exceptions to this rule.

The State’s rates of wealth tax are as follows:

Lower Band Limit (€) Upper Band Limit (€) Tax rate (%)
Nil 167,129 0.2
167,129 334,253 0.3
334,253 668,500 0.5
668,500 1,337,000 0.9
1,337,000 2,673,999 1.3
2,673,999 5,347,998 1.7
5,347,998 10,695,996 2.1
Over 10,695,996 2.5

Wealth tax in Valencia has changed over the years. In 2019, it was announced that the tax-free allowance was being reduced to €600,000. With effect from 2021, the allowance is being reduced further to €500,000. This means that more and more people will become subject to wealth tax.

In addition to the reduction in allowances for 2021, Valencia has higher wealth tax rates than the State’s own rate, as follows:

Lower Band Limit (€) Upper Band Limit (€) Tax rate (%)
Nil 167,129 0.25
167,129 334,253 0.37
334,253 668,500 0.62
668,500 1,337,000 1.12
1,337,000 2,673,999 1.62
2,673,999 5,347,998 2.12
5,347,998 10,695,996 2.62
Over 10,695,996 3.50
spanish tax

Example:
If a couple have assets totalling €2.5 million, including a main residence worth €600,000, the individual annual wealth tax bill based on the State allowance and rates could be around €600. Using the Valencia allowance and rates, the tax bill could be almost €1,800. To clarify, this is per person and payable each year.

Depending on one’s income, and if one is a resident in Spain, the amount due can be reduced. The wealth tax due cannot exceed 60% of one’s taxable base (e.g., annual pension income, savings, etc.) when adding the wealth tax to personal income tax liabilities with a minimum payment of 20% of the wealth tax due. It is important to make certain that all of one’s assets are eligible for this rule.

Property Rental Income in Spain

By Jeremy Ferguson - Topics: Spain, tax advice, Tax in Spain
This article is published on: 23rd April 2021

23.04.21

For a Spanish Resident, property rental income can be incredibly tax efficient

It is commonplace to overhear conversations or see comments on social media where people are talking about how high taxes are in Spain compared to the UK.
By my reckoning, for the average person income tax and other taxes aren’t that much different between the two countries.

What you very rarely hear people talk about though, are some of the quite frankly amazing tax breaks available here. I use the word ‘breaks’ a little tongue in cheek, but if you are a Spanish resident, the tax treatment of residential rental income is a good example of why I choose to use those words.

Many people move here from the UK keeping what was their main family home there, and deciding to rent it out on a long term basis. It is surprising how many people have no idea what a tax efficient source of income that can prove to be.

Many expenses, as well as mortgage interest, are allowable deductions. Furthermore a 60% reduction is then applied to the final taxable amount. Even lesser known is the fact there is a further annual depreciation allowance of 3% of the rebuild cost, but if this figure is not known, then this is reduced to 1.5% of the property value.

property investment Spain

As examples are normally the best way to explain how this works in practice, let’s look at one:
A couple own a UK property, which they bought for £500,000 , still owing £150,000 on the mortgage. They rent this when they move to Spain for £2,500 per month.

So their overall situation will look like this:

  • £30,000 gross annual rental income
  • £500,000 original purchase cost
  • £3,600 annual rental agent and  property management fees
  • £2,500 annual repairs and other property expenses, including legal and accountancy
  • £2,250 mortgage interest for the year
  • The property was let out throughout the year

SPANISH TAX CALCULATIONS

Tax calculations
Gross rent 30,000
Less:
Loan interest (1) 2,250
Rental agent 3,600
Repairs and other costs 2,500
Depreciation at 1.5% (3) 7,500
Total deductions 15,850
Net rental income 14,150
Deduction available for residential rental income at 60% (4) 8,490
Net taxable income subject to the general tax regime 5,660

This therefore means the taxable income due is based on a figure of just £5,560 at the clients highest marginal rate of income tax.

So let’s assume the client’s tax rate is 30.9% (which would be typical for a couple with healthy pension income); they would be paying £1748.94 in total for the rental income they received.

So if property rental income is an important source of income for you, then Spain really is an attractive place to be living. The same allowances will apply if you have a portfolio of buy to let properties in the UK rented on a long term basis.

Investment income, if coming from an appropriate investment, can also be extremely tax efficient in Spain, so if you would like to know more about how your specific circumstances might benefit, then please contact me to discuss in more detail.

I would like to thank Spence Clarke and Co, Chartered Accountants in Marbella for providing the figures in the above example, and for their ongoing support to many of our clients.

Taxes in Spain after BREXIT

By John Hayward - Topics: BREXIT, Living in Spain After BREXIT, Spain, Tax in Spain
This article is published on: 12th April 2021

12.04.21

The Times They Are a-Changin’ (Bob Dylan:1964)

With the first three months of the year having seemingly whizzed by, I feel that there is a more positive feeling (generally) compared to a few months ago. More and more people are (slowly) receiving a vaccination of one brand or another. At the same time, we feel disappointed and worried that this could be a short reprieve if people lose their patience. We have witnessed crowds acting as if there is nothing out there to worry about. We may well see wave after wave of Covid-19 as the months and years go by. The main thing is to control it and, hopefully, an annual vaccination will be the least of our concerns.

Away from Covid-19, over the coming days and weeks I will be sharing my experiences relating to the concerns of others and their taxes in Spain, France, the UK, and even the USA. This information will cover income tax, capital gains tax, wealth tax, and inheritance tax in Spain and their link with taxes in other countries. I will also explain how I have helped people solve the bank charges problem, how I was able to find pension funds that the person didn´t know they had, and how I have happy clients whose investments have produced increases at a time when a lot of people have believed that the investment world is in dire straits (Perhaps relying a little too much on certain news channels and newspapers).

brexit

Since Brexit, there have been quite a few changes in Spain and I am certain that there are more to come. This has been a pretty steep learning/development curve and, as so often happens in Spain, opinion is rife. Knowledge, however, seems to be in short supply. It is quite frightening how many different answers you can get for the same question. Over the last few months, I have been studying the Spanish Tax Office’s information, steering clear of blog sites. At the same time, I have had meetings with my economista on various tax matters. Familiarity of investments outside Spain is lacking by many lawyers and accountants in Spain. It is for people like me and my colleagues to educate and liaise with clients and also with the professionals themselves.

With most countries having a focus on higher taxes or lower allowances in order to pay for the welcome support provided over the last year or so, and the likely consequence of higher inflation, it has become even more important to have savings and investments in the most tax efficient structures.

SIGN UP TO MY EZINE TO RECEIVE INFORMATION ON LIVING IN SPAIN AS AN EXPAT AFTER BREXIT

John Haywood Spectrum IFA Spain

Spanish CGT on UK Principal Residences

By John Lansley - Topics: Captial Gains, Spain, Tax in Spain, UK property
This article is published on: 25th March 2021

25.03.21

New residents in Spain wanting to sell their home in the UK, face a small but perhaps very costly change due to Brexit. John Lansley explains.

Like the UK, Spain has a favourable tax regime concerning your home – your principal residence. Here, any gain arising on selling your home can escape tax as long as you use the sale proceeds to purchase a new main residence. If you sell a property for €500,000 and then reinvest €250,000 in a new home, releasing monies for other purposes or simply downsizing, then only half of the gain attracts this exemption and the other half faces a tax liability.

Those over the age of 65 who sell their home enjoy full exemption, whether or not the proceeds are used to buy a replacement.

One little-known feature is that the rules apply to a property anywhere in the EU or EEA, which has been your only or main residence. Therefore, if you move to Spain from another EU/EEA country, selling your old home and using the proceeds to buy a new one in Spain will enjoy exemption, as described above.

However, while this exemption previously applied to those moving to Spain from the UK, Brexit has meant that the UK is in neither the EU nor the EEA, and therefore the sale of your home in the UK, when you have become tax resident in Spain, will expose the full amount of the gain to Spanish Capital Gains Tax.

property investment Spain

So, even if you want to use the proceeds, in full or in part, to purchase a new home in Spain, doing so after your arrival will result in a potentially very large Spanish tax bill, which could reduce quite substantially the amount you have available.

What are the Capital Gains Tax rates in Spain?

  • Up to €6,000 19%
  • €6,001 – €50,000 21%
  • €50,001 – €200,000 23%
  • Over €200,000 26%

If, for example, you are selling a UK property for the equivalent of €500,000, which you bought for the equivalent of €200,000, doing so now you are resident in Spain would produce a tax bill of €70,880, whereas selling before the end of 2020 (and of course reinvesting the proceeds in a new home in Spain) would have meant a zero tax bill.

What is the answer?
The best course will probably be to sell your UK home before arriving in Spain, but check that it does indeed qualify for the full principal residence exemption in the UK first. Selling UK property is usually more predictable than property in other countries, but it shows very clearly that timing can be extremely important. Any delay in exchanging contracts (the operative date) until after you arrive in Spain could prove very expensive.

The desire to tie together the sale of one home with the purchase of a replacement is something we’re used to doing in the UK, but in this case it would appear more sensible to sell your UK property, rent temporarily in either the UK or Spain, and only then purchase your new home in Spain.

moving-to-spain

Residence in Spain
Since Brexit, moving to Spain has become much more difficult. Working here, or coming here to retire, necessitates much more than it used to, and Spain’s Golden and Non-Lucrative Visa schemes will have to be utilised. The Golden Visa requires the purchase of property valued at more than €500,000, so any unexpected Spanish Capital Gains Tax bills might threaten your ability to do this.

Similarly, the Non-Lucrative Visa requires you to demonstrate your ability to support yourself. If your capital is severely depleted due to an unwanted tax bill, that might prove more difficult.

As always, it pays to seek professional advice, and we will be happy to help you make sense of these rules and apply them to your own circumstances.

I’m moving to Spain – When should I take financial advice?

By David Hattersley - Topics: Moving to Spain, Spain, tax advice, Tax Efficient Savings, Tax in Spain
This article is published on: 17th March 2021

17.03.21

Brexit removed the previous rules pertaining to “Freedom of movement, goods and services within the EU”. Those who now wish to move to Spain from the UK, making it their home as retirees or working here, newer and tougher rules apply.

Distance working has added a new dynamic, in particular for those in the technology sector who see that this is as an opportunity to work and live in a nicer environment. Speaking to a qualified financial adviser who is regulated here,in Spain is sometimes an afterthought . However, talking to an adviser before you embark on the journey can help avoid some of the issues which expatriates can find themselves encountering. Financial planning is complex, whichever new country one moves to, so a brief summary can help prepare for the future “devil in the detail” elements. Forewarned is forearmed and helps avoid basic pitfalls.

It makes sense to “disinvest” all UK held assets prior to becoming Spanish Tax resident. Timing and deferral is the key to planning a strategy. Note that due to Brexit, UK advisers are no longer allowed to offer continuity of advice Spain for those that become tax resident in Spain.

There are a number of rules regarding Spanish tax residence, which are briefly detailed below. You will be deemed tax resident in Spain in any one of the following cases:

1. Number days in Spain not to exceed 183 days and may include time spent in any EU member country,
2. Centre of Economic interest i.e. source of earnings is in Spain,
3. Spouse and minor children living in Spain.

moving-to-spain

With regards to your assets, without going into too much detail, the following will apply.

UK property: Disposal once tax resident will be subject to Spanish capital gains tax, even if it was one’s primary UK residence. If retained it will be subject to reporting on Modello 720, a record listing overseas assets. A 20% increase in value will mean a new Modello 720 report. Income derived from letting the property will be subject to Spanish “investment” tax.

UK Pensions: A Pension Comencement Lump Sum is tax free in the UK, it is liable to tax in Spain. So if nearing 55 wait till you take it and then become Spanish Tax resident.

ISAs: An ISA offers tax free growth or income in the UK. They are not tax free in Spain, but there is a Spanish equivalent.

Unit Trust, Shares, Investment & Insurance Bonds, NSI bonds etc: There are some tax breaks in UK but none in Spain.

Inheritance Tax: The UK rules apply to the residual estate whereas Spain applies it to the beneficiary. There is a strong possibility of being taxed twice as estate rules & beneficiary rules are not covered by double taxation agreements.Based on “domicile” there is a different law for bequests & inheritance in Spain. Also, unlike the UK, it has a the variety of laws for each autonomous area,affecting in particular the potential impact of Spanish succession tax. It makes sense to deal with a regulated adviser who is based in or near to an autonomous area you will be living in e.g. Madrid ,Andalucia, Murcia, Valencia.

Having a “ partner “ relationship as opposed to being married, brings its financial own risks in Spain, and arrangements must be considered.

Are you moving to Spain?

Spanish Property: Some people come to Spain with plans of using their new Spanish property to retire to now or eventually. If it is the latter, the property maybe used to produce rental income either via summer rentals or long term rentals, but in this case there will be tax considerations.

Investing an hour of two of your time before you make the move to Spain can provide peace of mind and financial comfort when planning your new adventure. I can provide “Your guide to tax in Spain” that goes into greater detail. Whether you want to send the guide or speak to me directly, please call or email me on the contacts below & I will be glad to help you. We do not charge for reviews, reports or recommendations we provide.

A Spanish regulated adviser can ensure you are financially prepared for your move, in terms of any investments, savings and taxes which can become due on both income and windfalls you may be expecting after your move.

Please note, we are not accountants or lawyers, but we do work hand in hand with these professionals, and can be the “first port of call”.

Cryptocurrency Taxes in Spain

By Chris Burke - Topics: Cryptocurrency, Spain, Tax in Spain
This article is published on: 10th March 2021

10.03.21

As new investment types become more popular, people generally get in touch with me about them. That is certainly the case with cryptocurrencies such as Bitcoin, and that now large investment firms are starting to invest (Blackrock for example), more people feel comfortable in also investing, or researching whether they should.

Many years ago, due to the technology (or lack of) available, it usually took some time, even a decade or so, for new companies and investments to become well known, sustainable or very successful. Now, with the exponential growth of technology, automation and social media, companies can go from almost zero to mega over a period of months or years. As you may have seen recently in the news with the commodity silver and the company GameStop, technology has become so powerful that groups of people communicating on social media can even ‘manipulate’ investment prices themselves, whether this be a good or bad thing. However, this also creates careful considerations when contemplating investing in these hyped assets.

Cryptocurrency Taxes in Spain

You need to be very aware that these relatively young and very popular assets show an incredible amount of volatility, and therefore risk. This in itself is not a problem, just as long as you understand it. Investing in anything like this, and I would put cryptocurrency and Tesla or the like into that bracket, as fantastically as they can go up, they can also come down. So the golden rule to consider is, do not invest any monies you are not prepared to lose. Imagine you are walking in to a casino and have a figure in mind that you are going to gamble with; after it is gone you are prepared to walk away without it. That amount can be whatever you like, but you have to understand you can make an amazing profit if things go your way, or, you could lose almost all of it. As long as you are aware and accept this, then you are comfortable to invest in it.

I meet more and more people who have invested in these areas and then require help in taking their sometimes life changing gain to having it managed at a much lower risk level, consolidating and securing that gain. They have made their money, there is no need to keep the risk level that high, cash some if not all ‘out’ and use your ‘winnings’ to permanently change your life. For example, if you went to the casino and won a life changing amount of money, say €250,000, would you return the following week and carrying on gambling it? At what point would you ‘cash in your chips’ and take the reward? The probability still stays at 50/50 each day whether you win or lose, so, until you have ‘cashed in’ your chips, your high-risk level is still there. By de-risking, you are guaranteeing some of that gain and reducing your exposure.

tax in spain

What about taxes on cryptocurrency?
In October last year, the Spanish government brought in greater controls for this kind of investment. In real terms, this means if you buy, sell, transfer, exchange or use to buy something with it they want to know. However, there is only a taxable event when you dispose of this type of investment.

In terms of the tax to pay, this would come under savings tax in Spain (or capital gains tax as it is also known). These rates are currently:

From 0 to €6000 you pay 19% in tax
From €6001 to €50000 you pay 21% in tax
From €50001 to €200,000 you pay 23% in tax
From €200,001 +  you pay 26% in tax

This is only on the gain/profit you have made, not the amount you sell.

Key considerations to take into account
Cryptocurrency is also applicable under wealth tax in Spain, should the region you are tax resident in be applicable to this.

If your cryptocurrency investment should incur a loss, these can be offset against any gains you have over the next 4 years, so that is something important to bear in mind.

Buying using cryptocurrency
If you sell cryptocurrency and buy another investment type having made a profit, then this would be taxed as a gain at the above rates. If you use Bitcoin to make purchases for products or services, then 21% IVA (VAT) tax would also be applicable.

If you do not make the relevant declarations or pay the necessary taxes, large penalties and fines will apply, so you must make sure you not only do this, but perform it correctly.

If you would like help in looking into investing in Bitcoin or other cryptocurrencies, would like help declaring these correctly, or would like to take your already gained profit as tax efficiently as possible and have it managed professionally, don’t hesitate to get in touch.

How to avoid Spanish taxes on your UK property and investments

By John Hayward - Topics: Moving to Spain, Spain, Tax in Spain, tax tips, UK investments, UK property
This article is published on: 30th July 2020

30.07.20
Tax in Spain and the UK

Being tax resident in Spain is not your choice
once you have made the initial decision to move to Spain.

Generally, once you have spent 183 days (not necessarily consecutive) in Spain, you are deemed to be tax resident and have to declare income and assets to the Spanish tax office. The tax year in Spain runs from 1st January to 31st December. Unlike the UK, which works on a part tax year basis when someone leaves the UK, in Spain you are either tax resident for the whole year or you are not.

As soon as you know that you will be taking the step to eventually become tax resident in Spain, it is extremely important to make certain that you have arranged your investments and property(ies) in a way that isn´t going to open you up to unnecessary Spanish taxes.

A lot of people will be looking to become resident in Spain before Brexit on 31st December 2020, in case the process becomes more complicated after. However, for those who are worried that applying for a residence card will automatically make them tax resident, let me dispel this fear. It does not. Therefore, you have the opportunity to apply for a residence card whilst taking action to protect your assets free from Spanish tax for 2020, becoming tax resident in Spain in 2021.

UK Property & Tax in Spain

As a tax resident in Spain, a person has to declare all of their overseas assets (over certain levels) as well as the income from these assets. Anything sold, such as a property or investments (ISAs, shares, bonds, etc.), and even a lump sum from a pension which would be tax free in the UK, will be taxable in Spain and this is where there is a potential tax nightmare.

Our advice is usually to sell before becoming tax resident in Spain, if selling is feasible and practical. If you are eligible to take a tax free lump sum, do so before becoming tax resident in Spain. ISAs are also taxable in Spain and although there are ways to legally avoid taxes whilst holding this type of investment, things can become very complicated.

property investment Spain

Let me make this clearer with examples of someone who has a UK property and sells it after becoming tax resident in Spain.

Example 1 – Property Purchase 1986

  • You move to Spain and become a permanent resident, and thus a tax resident, in Spain.
  • You own a property in the UK which has been your primary residence since you bought it in 1986.
  • As you have now moved to Spain, it is now a secondary property.
  • You bought it for £48,000. You are selling it for £600,000. As this is no longer your primary residence, Spanish capital gains tax is due on the sale.
  • Even with indexation (which only applies to pre-1994 purchases), the tax bill is over €50,000.

Example 2 – Property Purchase 2004

    • You bought a property in the UK in 2004 for £150,000 and are selling it now for £250,000.
    • The Spanish capital gains tax on the sale would be over €20,000.
    • Unlike the UK, there are no capital gains tax allowances in Spain.

The same principle applies to shares, investment bonds, and ISAs.
You have to pay Spanish capital gains tax on the difference between what you paid for them and what you sell them for, again with some indexation for pre-1994 purchases.

Spanish Inheritance Tax

Plan early: Before you move to Spain to help avoid Spanish Tax

You need to draw a line under your asset values now so that you can take advantage of the more beneficial capital gains and property tax rules in the UK and start afresh in Spain without the fear of unavoidable Spanish taxes in the future.

Contact me today to find out how we can help you make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.