Whether you are thinking of moving to Spain or already living here, tax is a major part of your financial life that needs to be considered and planned for carefully.
Viewing posts categorised under: Tax in Spain
Tax tips for living in Spain 2023
By Barry Davys - Topics: Spain, Tax in Spain, tax tips
This article is published on: 3rd April 2023
03.04.23
1. In the UK, probably the best savings vehicle is an Individual Savings Account (ISA). This is because the income and capital growth is free of income tax and capital gains tax. It is, however, a UK tax scheme and is not recognised in Spain. Selling your ISA whilst you are still a UK tax resident can save you paying tax in Spain both on an ongoing basis and when you sell. There are also options where you can replace the ISA investments with very similar ones in Spain in a tax efficient manner once you have sold your ISA.
2. If you can, take your 25% tax free lump sum from your pension before you come to Spain. Again this is a UK based tax rule and it does not exist in Spain. You may be able to take part of a pension without tax in Spain, but there are rules and conditions. In the UK it is a clear rule and we recommend taking advantage of it. Like the ISA it is possible to reinvest the money with similar investments as you had in your pension on arrival in Spain.
3. You can pay into a UK private pension for up to five years on leaving the UK and continue to receive tax relief on the contributions. You will need to start the pension before you leave the UK. The limit is a maximum of £3,600 per annum but you only pay £2,880. The government will pay your pension company the difference to make it up to £3,600. A husband and wife paying into a pension for five years would qualify for a UK Government “top up” of £7,200. At the end of five years they would have a pension pot of £36,000 which will remain free of income tax and capital gains tax in Spain, until you start taking money from the pot.
4. Do you need to top up your National Insurance Contributions to improve your UK state pension? It is easier to do this before you leave the UK.
5. The sale of a main residence in the UK is free of capital gains tax. In Spain, the rules are different and you may have to pay capital gains tax on the change in value between the purchase price and the selling price of your home. As an example, a £200,000 gain (not at all uncommon if you have had your house for 10 years) could mean a tax bill of £44,800.
6. If you and your family are considering inheritance tax planning, consider making or receiving gifts before you leave the UK. These gifts can be potentially exempt from UK inheritance tax. In Spain, they would be subject to gift tax.
Once you are living in Spain
7. Are you eligible for the “Beckham Law”? This is a law that was introduced to encourage skilled workers to Spain. The tax rate is set at just 24% for your employment income for a period of five complete Spanish tax years. This is the part of the scheme that you will see most heavily promoted.
However, the scheme also allows you to receive capital gains and investment income from outside of Spain without paying Spanish tax. Careful structuring of your affairs can lead to a plethora of planning opportunities. Perhaps the biggest opportunity is selling your UK business and paying 0% tax on the sale. For further information please email barry.davys@spectrum-ifa.com
8. If you are approaching retirement or retiring to Spain, it is possible to save tax on the income you receive by planning the source of your income. As a brief example, pension income is generally taxed as employment income and taxed at your highest rate. Drawing funds from an investment can result in tax as little as 2%. From another source there can be 0% tax. To benefit from this planning it is important to have an adviser who understands your situation and requirements at the same time as having a clear understanding of how investments are taxed in Spain.
9. Different investments attract different tax treatments in Spain in the same way as they do in other countries. There are investments in Spain that are taxed more than others. Try to use the lower tax ones where the investment matches your requirements. You can benefit from many years without paying income tax and capital gains tax.
10. In Spain, inheritance tax is based on taxing the person receiving the inheritance rather than taxing the estate of the person who has died. If inheritance tax is a concern, with the right advice you can build a plan which manages the amount of tax due. The bedrock of the plan should be that you are not left short of money in later life. Your plan should then match your personal requirements. Some planning is simple and straightforward, so it is worthwhile looking at inheritance planning before events overtake you.
11. Are you considering returning to the UK? It is also worthwhile thinking about the possibility of an unplanned return to the UK if one partner were to die, for ill health or ill health of a family member in the UK such as a parent. If a return to the UK is a possibility, make sure you have the type of investment which will not tax you in the UK for the time you have spent in Spain.
Am I tax resident in Spain?
By Barry Davys - Topics: Spain, Tax in Spain
This article is published on: 24th January 2023
24.01.23
Case Study Spanish Tax Resident Couple
Husband 60, wife 60, married, with 2 children who are financially independent and living in the UK
👉 Pensions: £930k
👉 Investments £60k
👉 Cash Spain €60k
👉 House €1.25 M
👉 Wills – UK & Spain
👉 Cash UK £184k
Challenges
Build Understanding of Pension Situation
- Pensions will break UK Lifetime Allowance Rule even as Spanish Resident
- Difficulty estimating pension as coming from four different pension schemes
- When can I retire
- No overall investment strategy for pensions
- How to minimize tax on pensions
Better returns on Non Pension monies
- Bank accounts earning only 0.15%
Forward Planning including Inheritance tax
- Would Mrs X have enough to maintain property if current pensions provided only 50% pension on husband’s death?
- What would be the Spanish Inheritance tax if one partner died?
- How would this Inheritance tax be paid?
- How is inheritance tax applied in Spain and UK?
- How can the UK and Spanish inheritance tax liability be managed?
What we did
- Completed a full financial review of present financial standing
- Undertook a cash flow forecast to establish if widow’s pension was sufficient, how to pay inheritance tax on first death and how long their money will last
- Provided a Transfer Value Analysis report by our qualified pension expert – a Fellow of the Chartered Insurance Institute
- As a pension was a defined benefit pension, a secondary full report provided by a FCA regulated adviser with full UK pensions permissions in line with UK, FCA rules
- Consolidated pensions to improve tax efficiency, improve widow’s pension and manage in line with their other assets
- Built investment strategy to improve return on their investments and cash
- Clarified how inheritance tax works in Spain and UK and gave an estimate of tax due
- Built an inheritance tax strategy, including sufficient money available to pay tax in Spain on first death
- Minimised Spanish Tax paperwork and liaised with Spanish Tax adviser
- Produced Family inheritance tax strategy document so whole family knew the strategy without disclosing amounts held by the parents
- Wrote to UK HMRC for confirmation that the family home in Spain will qualify for the Main Residence Nil Rate Band
- Identified a UK inheritance Tax saving on a UK life assurance policy
- Carried out regular reviews over 6 years (so far) to update investment and inheritance tax strategies and to adapt to changes to the law
The RESULTS
✅ Clarity for clients and children on Inheritance Tax
✅ Improved return on bank accounts to 3.5% pa giving an improvement of 4,200 pa
✅ Removed pensions from UK Lifetime Allowance rules
✅ By providing documentary evidence from UK HMRC for Main Residence Nil Rate Band confirmed an inheritance tax saving of up to £140,000
✅ Improved widows pension by £7,000 pa
✅ Kept clients compliant with changing tax rules
✅ Answered the financial question “Am I going to be OK?” with a “Yes”
If you are a resident in Spain, or are planning to become a resident and would like any information on tax, pension transfers, investment planning or general financial planning you can contact me on:
barry.davys@spectrum-ifa.com or direct on 0034 645 257 525
More Spanish residents to pay wealth tax
By John Hayward - Topics: Spain, Tax in Spain, Wealth Tax
This article is published on: 19th January 2023
19.01.23
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.
Spanish Tax on Personal Pensions
By John Hayward - Topics: Pensions in Spain, Retire in Spain, Spain, Tax in Spain, Tax on Pensions
This article is published on: 1st June 2022
01.06.22
Further to the recent article written by my colleague Charles Hutchinson regarding temporary annuities and their taxation of annuities in Spain, I am expanding on the tax treatment of personal pensions generally.
Depending on the type of retirement income that you are receiving, it will either be taxed as regular income, “work” income as the Spanish call it, or savings (passive) income with a different set of tax rates being applying to each type. It is generally understood that the income from pension plans that received tax relief (effectively where the contributions were deducted from income before tax was calculated) will be treated as work income.
The word “annuity” is used in a general sense in the UK as the regular payment which comes from a pension scheme. It is possible to convert a personal pension fund to an annuity, with a view to guaranteeing a fixed income for life albeit waiving the right to the capital value of the pension pot. Whether or not it is advisable to purchase an annuity is another matter. This will depend on personal circumstances.
As far as Spain is concerned, an annuity is a form of income that attracts favourable tax treatment. An annuity in Spain is either temporary or for the whole of life. The annuity is purchased. It is not income drawn from an existing pension fund unless that fund is encashed to buy the annuity. At that point though there is the possibility of a large tax bill on the encashment.
The key points here are that:
- Not all pension income is treated the same way for tax
- Declaring work income as an annuity is not correct and, if reported intentionally in this manner, it is possible that it will be treated as fraud. The Spanish tax office is making a special effort right now to check on this. They can go back at least 4 years with their investigations
- Care should be taken when accessing retirement income to make certain that, not only is it being declared in a lawful way, but also that you do not leave yourself open to a nasty and unexpected tax bill
Contact me today for more information on how we can help you to protect your assets from unnecessary taxation and make more from your money, protecting your income streams against inflation and low interest rates, to talk about Spanish Tax on Personal Pensions or for any other financial and tax planning information contact me at:
john.hayward@spectrum-ifa.com or call (+34) 618 204 731 (WhatsApp).
Spanish Tax Guide 2022
By John Hayward - Topics: Spain, Tax in Spain
This article is published on: 24th May 2022
24.05.22
Over the past year or so, with Covid-19 restrictions being lifted and impact of Brexit becoming clearer, we have received many enquiries regarding taxation in Spain, not only from people who are looking to move to Spain but also from those who already live in Spain, in some cases for many years. There are areas of tax that are complex, not helped by the fact that you might receive different opinions on the same tax subject.
In countries such as England, Wales, and the United States of America, there is a Common Law code. Established in England in medieval times, it is based mainly on case law. A decision made many years ago could still apply today. This is a system which has allowed us to get used procedures which have been in place for a long time. This is not necessarily the case in Spain.
Spain, like other countries in Europe, have a Civil Law code. Within this system, rules can be updated regularly. As flexible as this system is, unless you are completely up to date with the latest rules, which may only have been recently altered, it makes it extremely difficult to know how exactly you should be declaring your income and gains in Spain.
Please click on the link below to download our latest Spanish tax guide which is designed to give you a better understanding of the different Spanish taxes, to whom they apply, and when they need to be paid. Spain is made up of autonomous regions and so there can be different rules and tax rates that apply.
However, the general principles are the same or similar throughout the Spain. You will be subject to at least one of these.
- Income Tax
- Inheritance Tax
- Gift Tax
- Wealth Tax
- Capital Gains Tax
If you have any questions, please get in contact. If we do not know the answer to your tax questions, we know someone that does.
Removing Confusion on Spain and UK Tax Situation Especially Pensions
By Barry Davys - Topics: Moving to Spain, Pensions in Spain, Spain, Tax in Spain, UK Pensions
This article is published on: 23rd May 2022
23.05.22
It is clear from calls and messages to me from people seeking advice there is much confusion regarding taxation when we live in Spain and have income or capital gains in the UK. Sometimes, these calls happen when people have received a letter from the Agencia Tributaria (Hacienda).
My wish is to clarify the situation so that there are no back taxes, fines nor interest to pay in Spain.
This framework will clarify the position and I include specifics regarding pensions. Tax can be, well taxing, so this framework is to help with understanding the overall situation, not to provide specific advice for your situation.
Who’s this for?
This article is for all British people who live in Spain.
Overview
A framework to help explain how do we pay tax on pensions from the UK when living in Spain?
Why to read this article?
This article is written in response to a very sad situation where a pensioner here has been hit by fines, back tax and interest from four years ago because of a mis-understanding on how to organise his tax on his UK pension. It is likely that further fines will follow for other years. The total amount of fines and interest could amount to €21,000
Your commitment
Taking the time to read the article and requesting an initial telephone or Zoom meeting below, if you want help for your specific situation.
Your Tax Framework
Top of the framework is to understand that when we have taxable events in more than one country, the country of our residency is the “controlling tax authority”. They have the final say on what tax must be paid.
If you live in Spain more than 183 days in a calendar year your controlling tax authority is Spain. It does not matter if you also pay tax in the UK.
How this works is as follows:
- Declare your worldwide gross income and capital gains on our La Renta (M100) Remember it is a self assessment form and so it is our responsibility to do so
- At the end of the La Renta form is a box for entering tax paid in a country with a double taxation agreement with Spain. Put the tax paid in this box or insist your gestor does so. Even post Brexit the double taxation agreement is still in force
- UK pensions gross income all have to be reported in Spain
If you live outside the UK and provide a certificate of tax residency in Spain you can claim dividends, bank interest and even private pensions without paying UK tax (because you will pay tax in Spain).
Pensions, however, are a great source of confusion. The UK retains the right to tax state pensions, military pensions, civil service pensions and a number of others. Previously these did not have to be reported in Spain. They do now!
Tips on pension tax
- On private pensions and most company pensions ask the provider to pay you gross
- If you have a UK pension where it is automatically taxed or is a state pension, record all tax paid in the UK and get proof of payment from the pension provider
- Report the gross figures in Spain
- Your state pension is paid weekly, not 12 monthly so remember to include all payments in the calendar year
- Ensure that any tax paid is listed in the La Renta box for countries with double taxation agreements. Result – no double taxation
- If the tax paid is missed off this box, try to make a Refund of Tax using UK HMRC form R43 and or form R40. It may be possible depending on your circumstances
- One word of warning. Do not use companies offering to reclaim your tax for you. They are expensive, some may be improper and you can easily send the form yourself
In my profession as a financial adviser for international people living in Spain I have a clear understanding of tax rules and recommend that you employ a good local tax adviser. This article is not tax advice as it may not reflect your personal circumstances. It is merely a framework to help with your understanding. I hope this article provides more clarity on the issue and helps when you do go to a tax adviser.
Wealth Tax in Catalonia
By Chris Burke - Topics: Catalonia, Spain, Tax in Spain, Wealth Tax
This article is published on: 7th April 2022
07.04.22
How to reduce it and know how it works
Catalonia is a great place to live for so many reasons. However, like the majority of places in the world, there are taxes to pay too. Although nobody likes to pay taxes, there is a societal need for them. They help fund the public health system, providing care for our families and for ourselves in later life, schools, so our children can receive a formal education and roads, so we can safely and effectively travel. However, in spite of this there are ways in which we can organise our taxes in an efficient manner to ensure that we are paying no more than the amount that we need to pay.
The Wealth Tax (known as ‘El Impuesto de Patrimonio’ in Spanish) is an example of a tax which is an additional tax in Catalonia that many people deem to perhaps be unfair. I mean, why should you pay tax just because you have done well in life, or your parents have and passed this wealth onto you? In summary, it is a tax that you pay on your net wealth (assets owned minus liabilities). The tax is paid on the assets that you hold which fall over a certain threshold. The threshold in Catalonia is €500,000 whilst the threshold throughout the rest of Spain is €700,000. There is a €300,000 exemption for your main residence, meaning that you will not pay tax on your main residence if it is valued under this amount. If your main residence is worth more, you can deduct €300,000 from the valuation and you will only be liable to wealth tax on the excess amount.
Here is a list of the assets that are and aren’t liable to Wealth Tax in Catalonia:
| Assets that Wealth Tax is applicable to |
Assets that Wealth Tax is not applicable to |
| Real estate | Household contents (except for Art) |
| Savings | Shareholdings in family companies |
| Shares | Commercial Assets |
| Cars | Intellectual Property and Pension Rights |
| Boats | |
| Jewellery | |
| Art |
Source: Balcell’s Group
The rate of wealth tax depends on the amount by which you are over the threshold. The general rule is that it ranges from 0.20% to 2.50% in Spain. However, in Catalonia the rate is slightly higher, ranging from 0.21% to 2.75%. You are required to declare your wealth as part of your annual declaration (in Spanish, ‘Declaración de la Renta’) on form 714 at the end of the calendar year, making any payment by 30th June the following year. The below tables display the Wealth Tax rates for Spain as a whole and the variation of the wealth tax to pay depending on the autonomous community (Communidad Autonomo) in which you reside. However, this is an overview to what is a complex calculation, so if you require personalised information, please get in contact with Chris.
| Settlement basis up to (euros) | Fee (Euros) | Other net base up to (euros) | Applicable Rate % |
| 0.00 | 0.00 | 167,129.45 | 0.20% |
| 167,129.45 | 334.26 | 167,123.43 | 0.30% |
| 334,252.88 | 835.63 | 334,246.87 | 0.50% |
| 668,499.75 | 2,506.86 | 668,499.76 | 0.90% |
| 1,336,999.51 | 8,523.36 | 1,336,999.50 | 1.30% |
| 2,673,999.01 | 25,904.35 | 2,673,999.02 | 1.70% |
| 5,347,998.03 | 71,362.33 | 5,347,998.03 | 2.10% |
| 10,695,996.06 | 183,670.29 | Thereafter | 2.50% |
Source: Balcell’s Group
| Autonomous Community | Wealth Tax % Variation |
| Catalonia | Between 0.21% and 2.75% |
| Asturias | Between 0.22% and 3% |
| Region of Murcia | Between 0.24% and 3% |
| Adalusia | Between 0.24% and 3.03% |
| Community of Valencia | Between 0.25% and 3.12% |
| Balearics | Between 0.28% and 3.45% |
| Extremadura | Between 0.30% and 3.75% |
Source: Balcell’s Group
There are ways in which you can mitigate the wealth tax you are required to pay, as noted in the above table, some assets are exempt. Therefore, if you transfer your wealth into these assets then they will not be included as part of your wealth tax calculation. For example, you may not be liable to wealth tax on assets that you transfer to shareholdings in family businesses or certain household or commercial assets.
However, this is not a straightforward process and certain criteria must be met. For example, if you transfer your capital to a ‘family business’, then there are strict regulations on what constitutes a family business, which assets qualify and how you do this. And if you were to utilise your capital to purchase household contents, certain items such as art are not exempt.
Another way to mitigate wealth tax is by relocating. There are a few countries in Europe in which you would not have to pay the wealth tax such as Sweden, Luxembourg, Denmark, Germany and Austria or France. In the UK, they are considering implementing a wealth tax. If you prefer to stay in Spain, then residents of Madrid are exempt from wealth tax so it may be beneficial relocating there.
Finally, you can effectively double your wealth tax exemption threshold by getting married! The wealth tax exemption threshold will then be increased as everyone person is entitled to it. This also counts for the main residence allowance; therefore you may not be liable on wealth tax on your main residence up to €600,000.
Being efficient with your monies/assets from a tax perspective is almost as important as making your money grow. If you would like to seek specialist advice, Chris Burke is able to review your pensions, investments and other assets and evaluate your current tax liabilities, with the potential to make them more tax effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or make a direct virtual appointment here.
Disclaimer: Spectrum IFA do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Spanish tax on UK property
By John Hayward - Topics: Spain, Tax, Tax Declarations, Tax in Spain, UK property
This article is published on: 29th March 2022
29.03.22
In February I wrote about the impact on investments with Russia’s invasion of Ukraine and inflation rearing its ugly head. For the last month or so, the movement of global stock markets has attracted comparisons to a violin player’s arm joint and the undergarments of a professional lady. This is possibly the future for investments for a while although there appears to be more positive than negative movement (at the time of writing in case there has been a sudden catastrophe).
In the meantime, away from the uncertainty of how much a tank of fuel will cost in 6 months’ time, I want to mention something regarding Spanish tax on UK property.
31st March 2022. The end of the declaration period for everyone’s favourite, the Modelo 720. Although this is not a tax declaration, it does highlight assets and how these might be taxed in the future, whether this be capital gains tax, wealth tax, inheritance tax, or income tax. Focusing on the latter, I believe that it is generally not appreciated that a tax resident in Spain has to pay income tax on a UK property, even if it is not rented out.
It is (fairly) well known that, if you are a not tax resident in Spain, and you own a property in Spain, and you receive rental income, you have to pay Non-Resident Income Tax (NRIT) or Non-Resident Imputed Income Tax (NRIIT) if you do not receive rental income, perhaps both depending on how much of the tax year (1st January to 31st December) it is rented out. Imputed rent is a fictional amount of rent that the Spanish tax office decides is what you are receiving based on the cadastral value. It works the other way around. That is, if you are a tax resident in Spain with a UK property, and you do not rent it out, you still have to pay tax on the imputed rent.
How is the tax calculated? UK properties do not have a thing called a cadastral value. Some have said on the (not always reliable) worldwide web that it would be the rateable value that would be used. The actual rule is that, if there is no cadastral value, the tax is based on 50% of the original purchase price with the application of a rate of 1.1%. That gives you the imputed rent. It is this figure that would be used for income tax purposes.
For some people, this may not introduce a problem, especially when considering the double tax treaty between the UK and Spain. It is the fact that those who should have been declaring this “income” have not been and my message could prompt a chat with their tax agent. The Spanish tax office is regularly sweeping up what they (or their computer) see as outstanding items, often up to 4 years old in line with Spain’s statute of limitations.
Contact me today for more information on how we can help you to protect your assets from unnecessary taxation and 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.
How to reduce your taxes in Spain (legitimately!)
By Chris Burke - Topics: Spain, tax advice, Tax in Spain, Tax Relief, tax tips
This article is published on: 28th January 2022
28.01.22
Taxes are present all over the world. Just because tax rates may seem high here in Spain or because the system may seem complex, it doesn’t mean that you don’t have to pay them! It’s important that you gain an understanding as early as possible on how the system works. By doing so, you may be able to take vital action early which could potentially save you large sums of money by the time your tax bill comes around. In this article, I’m going to provide an overview of the tax situation in Spain whilst offering tips on how to reduce your tax bill legitimately.
First and foremost, it must be said that you do not have the option to choose whether or not to be a tax resident in Spain. Just because the taxes may be cheaper in the UK or the US or wherever you are from, or because you understand the tax system in your home country and not here, it doesn’t mean that you can elect to pay your taxes there. Ultimately, it boils down to if you live in Spain and if so, how many days of the year you spend here. Once you have spent 183 days in Spain in a tax year, which runs from 1st January to 31st December, you are then obliged to declare all of your income and assets and pay tax. These 183 days do not have to be consecutive. For example, in the tax year you could spend 170 days here before then leaving, coming back for a week and then leaving and coming back for another week, taking your total amount of days spent in Spain to 184.
Just because you have a residency card does not mean that you automatically become a tax resident immediately. For example, if your NIE or TIE application gets accepted and you decide to move to Spain in August 2022, and spend 5 months or less living in the country in 2022, in that tax year you will not be liable to tax. Therefore, you would have a few months to assess and take action to protect your assets from Spanish tax before becoming tax resident in the following year.
As a result, it can be highly beneficial if you are planning to move to Spain that you take action early. For example, if you decide to move to Spain in August 2022 and therefore do not become tax resident in Spain in that year, then you can dispose of your assets in that year free of tax in Spain. Therefore, you could sell your property or shares avoiding capital gains tax here and instead pay capital gains tax in your home country. Furthermore, there is no capital gains allowance in Spain. In the UK in 21/22, and 22/23, there is £12,300 capital gains allowance meaning that you will not pay tax on any capital gain up to this amount (which rises to £24,600 if you are married, joint own the asset and combine your allowance with your partner’s).
Example 1
- August 2022 – Bill moves to Spain
- August 2023 – Having been living in Spain for over 183 days in 2023, Bill sells his house in the UK. As he is now a Spanish tax resident, and this is not his primary residence, he is now required to pay capital gains tax in Spain (supposing he has made a gain on his property)
Example 2
- August 2022 – Bill moves to Spain
- September 2022 – Having been living in Spain for one month in 2022, Bill sells his house in the UK. As he is not yet a Spanish tax resident, he is not required to pay capital gains tax in Spain and he may benefit from the £12,300 tax free UK Capital Gains Allowance. The first £12,300 of profit made from selling his property may be tax free, depending on other factors such as if he has already used up his capital gains allowance for the year
Alongside the normal income and capital gains taxes, Spain also imposes an annual wealth tax. This wealth tax, although only paid by individuals who own over €700,000 (€500,000 in Catalonia) in worldwide assets, can result in a discouraging annual tax bill. The wealth tax, into which I will go into in more detail in a future article, is only payable at between 0.2% and 2.5% on assets over the annual allowance (€700,000 or €500,000 in Catalonia). There is a way to avoid, or at least mitigate this wealth tax. Following the previous example, if you decide to move to Spain in August 2022, and therefore not spend the required 183 days in Spain which you need to spend to become a tax resident, then you may be able to avoid the wealth tax in Spain by gifting your assets. However, this can prove to be a complicated process so it is recommended that you speak to us directly prior to doing this.
As the tax system in Spain may be different to your home country, financial products and ‘tax wrappers’ that are tax free there may not be tax free in Spain. Taking the UK as an example: ISAs are tax-free wrappers in which any gains or dividends on assets held in this wrapper are not subject to UK tax. However, you need to declare your UK ISA if you are a tax resident in Spain and any gains within this ISA, although it would not be subject to UK tax, would be subject to tax in Spain. Furthermore, in the UK you can draw the initial 25% from your pension tax free. In Spain, the same withdrawal would be taxable, although there is another tax exemption for this who contributed to their pension prior to 2007. For this reason, it’s very important to strategically plan ahead and our advice is straightforward: make the most of your tax-free allowances whilst they are available.
There are various ways in which you can restructure your assets in order to take advantage of tax planning opportunities here in Spain. For example, you can utilise Spanish tax-effective investment arrangements such as the Spanish Compliant Investment Bond (similar to a UK ISA) which will significantly reduce your tax bill compared to holding the same investment outside of this wrapper. You could also transfer your pension to Spain and adjust how you take income from it.
Everyone’s circumstances are different, but the above points go to show that the way you hold, dispose and take income from your assets can make a large difference to how much tax you pay in Spain. However, it many cases it is not as straightforward as it seems and it could be highly beneficial to seek specialist advice as early as possible to reduce future tax liabilities.
If you would like to seek specialist advice, Chris Burke is able to review your pensions, investments and other assets and evaluate your current tax liabilities, with the potential to make them more tax effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or make a direct virtual appointment here.
Minimising exposure to tax in Spain
By Charles Hutchinson - Topics: Costa del Sol, Spain, Tax in Spain
This article is published on: 29th September 2021
29.09.21
Probably the most burning issue here on the Costa del Sol for expatriates is minimising exposure to Spanish taxes. Everywhere I go to meet and discuss matters with both clients and prospective clients, this same subject always arises. Over the years I have noticed that this subject has caused so much unhappiness with some people. And it is mostly with men, rarely with women.
The unhappiness stems from the conflict between the heart and the pocket. The heart says I want to live here, revel in this micro climate, enjoy my golf, wine and dine with my friends and basically enjoy a healthy outdoor life. My pocket says I don’t want and will not pay these taxes – particularly wealth tax. Wealth tax is alien to North European nationals, whose countries by and large do not impose this tax.
The result for some is that they are sentenced to be constantly wandering the world, on the move from one jurisdiction to another throughout the tax year, always ensuring they are not there long enough to be caught in the tax net. This can also result in stress, instability, the feeling of not belonging anywhere and some cases the cause of divorce. Women on the other hand just want to live where they will be happy, where they have access to their social circle, to their children and grandchildren, either close by or at the end of an easy inexpensive short flight. For them, the tax issue is secondary.
One only has this life once and so why not take the course of most happiness for you and your family and accept the fact there are two sure things in life – death and taxes (to quote Benjamin Franklin)? You cannot take your money with you when you depart this orb, but you can certainly minimise your taxes whilst here and leave your money to your beneficiaries with either very little inheritance tax or none at all.
Thus, it is best to confront the tax implications head on to see what is entailed and what your potential liability is. Apart from wealth and inheritance tax, there are two other mainstream taxes in Spain – capital gains tax and income tax. These too can be mitigated and often eliminated with careful tax planning. Investment income can be sheltered from tax as well as capital gains if steps are taken early enough, particularly if you are coming to live here from another jurisdiction. Here in Andalucia, inheritance tax has for all intents and purposes been eliminated. Wealth tax carries generous allowances (particularly in the case of shared assets). There is even talk of once more eliminating wealth tax altogether but we will have to wait and see.
Of course, tax and investments are intertwined so it is important to have a good financial adviser on board. Spectrum has been advising thousands of their clients for many years with the assistance of locally qualified tax experts on the subject of taxation, which you can see in the many other articles on this website.
If you would like to talk to me more about this subject and the points raised, please contact me as per below and I would be happy to discuss this further.