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Tax and Savings in Spain

By Barry Davys
This article is published on: 28th March 2018

This is an introduction to the differences between the UK and Spanish tax systems and an introduction to a European ISA equivalent. It has been produced to help answer two regularly asked questions. : “What is the difference in taxation between Spain and in the UK?” – followed by “Is there a tax free savings account in Spain similar to an ISA?”.

For those of you not from the UK, I hope that the Spanish part of the table below will still be useful in allowing you to compare it with your home country tax situation.

Tax UK Spain
Tax Year Dates  6th April – 5th April  1st January – 31st December
Tax Free Personal Allowance £12,570 pa for incomes upto £100,000 Under 65 years old: €5,550. 65 to 74 years old: €6,700. 75 years and older: €8,100
Capital Gains Tax Allowance £3,000 Nil except for people over 65 selling their main residence. Subject to conditions
Capital Gains Tax rates 18% / 24% Nil except for people over 65 selling their main residence. Subject to conditions
Tax Free interest Basic Rate taxpayer £1,000 pa, Higher Rate tax payer £500 pa. additional rate taxpayer £0 Nil
Tax free dividends £500 pa Nil allowance. Taxed at same rate as Capital Gains Tax
ISA Contribution Limit £20,000 pa Nil
Pension Contributions limits upto £60,000 pa depending on salary upto €1,500 pa for individual pensions but up to €10,500 for matched employee/company contributions. Self employed maximum pension contribution is €5,750
Inheritance Tax Allowance £325,000 per person plus upto £125,000 for the main residence. The allowance can be passed to the spouse if the allowance has not been used by the deceased. Estates over £2Million have the home allowance reduced. Each Autonomous Community in Spain has the ability to set their own rates of inheritance tax
Wealth Tax allowance At time of writing there is no Wealth Tax in the UK Spanish tax residents are taxed on their Worldwide net assets. A general allowance of €700,000 is given before Wealth Tax is due. However, individual Autonomous Communities can set their own rate, such as Catalonia at €500,000. There can be an additional main residence allowance of upto €300,000 if certain conditions are met.

Wealth Tax in Spain

In the UK there is not currently any Wealth Tax. There is in Spain and the rates and method of calculation are set by the autonomous communities. In Catalunya the rate is banded, starting at 0.21% and rising to 2.75%.

Inheritance Tax in Spain

In the UK, the estate of the deceased person is taxed as a whole, whilst in Spain, the person receiving the bequest is taxed based just on the amount they personally receive from the estate. The allowances and method of taxation also differ. The rates of inheritance tax in Barcelona and the Costa Brava are the same but will be very different if you live in Andalucia. For more information, please see Inheritance Tax in Catalunya as an example.

However, if you prefer to speak with an experienced adviser who lives in Catalunya please click ‘Inheritance tax help‘

Tax Free Savings in Spain

In the UK, since January 1987 with the introduction of Personal Equity Plans (PEPS), we have been used to having tax free savings. Peps are now called ISAs and the allowance is now £20,000 per annum. If you live in Spain and have an ISA please note it is taxable in Spain. The fact that it is tax free in the UK does not transfer to Spain and you should look at the alternative below.

Spain does not have an ISA system as such but there is a similar investment, sometimes known as the “European ISA”. It is tax free whilst invested and has a very beneficial low taxation basis, especially if you require income from your investment. It is a little more restrictive than the UK ISA but is still worthwhile.

The two big advantages are that there is no limit and it is portable to other countries. If you would like to invest 10,000,000 euros in one year in the “European ISA” you can do! Unlike a UK ISA, the European ISA can go with you if you move country (not to all countries). If you return to the UK, the tax will be proportional to the amount of time you have been in the UK against the time you have had the European ISA. So if you have a Euro ISA for 10 years in total and have moved back to the UK for the last two years of the 10 years, the tax will be reduced. Specifically, the tax will be calculated and multiplied by 2/10ths. An 80% tax saving!

*Sources: https://www.gov.uk/government/organisations/hm-revenue-customs
http://www.agenciatributaria.es/

If you would like more information on Inheritance Tax, Wealth Tax or the European ISA, please contact me on barry.davys@spectrum-ifa.com or telephone on +34 645 257 525. If you have UK ISAs, I will also be happy to advise you on how to make these tax efficient in Spain.

     

     

     

     

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    Article by Barry Davys

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      The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.