Financial Advisors in Spain

SPANISH TAXATION

Before reading this article, we think it is worth noting that advice from a Spanish accountant and solicitor should be used for an appraisal of individual circumstances. We offer this information to give a brief overview of taxation.

Resident Taxes in Spain;

Once you are in possession of your residents Permit “Residencia”, your tax situation changes from that of a non-resident property owner to one of a Spanish resident now making an annual Income tax declaration on world-wide income.

These declarations have to be presented in June having been completed by the end of May.
The fiscal year is a calendar year, January to December.

New arrivals will of course need to provide two returns in the first resident year, one in the UK (April to April), and the Spanish declaration in June.

The tax is based on world-wide income. This includes, pension, annuities, interest, salary, gains or losses in stockholdings (shares and bonds), rental income in Spain or elsewhere.

Income from the following is excluded;
UK Crown Service – Armed Forces – Local Government – Fire Service – Police Service – Teaching (not all posts qualify).
Note: NHS positions do not qualify as Crown Service.

Crown Service and other categories aside, should tax be paid on income at source in the UK, you should apply for form FD9 from the tax office in the UK.
This stops tax deduction in the UK and avoids any double taxation (Spain and the UK).

Please remember that although Europe is becoming very united in many ways, we have differing tax systems, methodology and rates.

The Income tax rate in Spain varies dependent on income, as in all moderm tax systems
Spain uses a personal allowance similar to the UK, but at a different rate.

Extra allowances apply for the over 65s and other circumstances such as dependants, disabilities etc.

Important note;

We have tried to give important but basic guidance in these notes.
No action should be taken or these notes relied upon as a substitute for personal financial or legal advice.

We take no responsibility for the guidance and information given herein as the preceding notes are for information purpose only, and not intended as a substitute for professional advice

 

INHERITANCE TAX (IHT) IN SPAIN

IHT is often referred to as a voluntary tax.
This is because there are a number of legitimate ways to avoid the ravages of IHT. There are particular difficulties in Spain which will be highlighted in these notes.

It is impossible to offer a comprehensive guide which would be applicable to everyone’s circumstances and so we offer a summary of the tax here.

The rises in Spanish estate values primarily as a result of rising property prices in recent times, have caused people to think seriously about making provisions to reduce this burden.

This is a real concern in Spain for residents who are married.
Unlike the UK where IHT is imposed upon the value of the estate, in Spain IHT is imposed upon the beneficiary. Significantly, upon the spouse as well as children and more remote inheritors.

Impuesto Sobre Sucesiones y Donaciones, often referred to as GHT, is the Spanish name for Inheritance Tax but for the purpose of this account, we will refer to the tax as IHT.

The rate for the tax rises through 16 different bands.

Once the base rate has been established, then other factors are applied.

The surcharge applied increases the more distant to relationship the deceased is to the inheritor. Unrelated wealthy heirs have been known to pay a rate of IHT in excess of 80%!

In the case of a Spanish resident heir, all the assets will be subject to Spanish IHT.
For non-resident heirs, only assets situated in Spain will be subject to the tax. For non–residents, these assets could typically include property, bank accounts and cars.

The key point to remember is that the assets situated in Spain (or deemed to be situated in Spain), are taxed in Spain.

The difficulties faced by widows and widowers should not be understated.
For those who are property “rich” and “cash poor” this can become a real problem on death of the spouse.
In the UK, no IHT is imposed on death of the first spouse if assets are passed to the surviving spouse…not so in Spain.

There is a dispensation which whilst potentially valuable is little used.
If on death, a person has spent three years plus prior to death as a tax resident of Spain, and the surviving spouse spends at least a further ten years in Spain after the death of the spouse, then a 95% deduction is allowable.
The dwelling house must not be sold in the ten year period.

The autonomous region of Valencia has recently introduced a more favourable regime in respect of death duties. More information available on request.

A sobering thought is that after payment of IHT on death of a spouse, then the estate when passed on to other beneficiaries on death of the second spouse will be taxed again !

Important note;

We have tried to give important but basic guidance in these notes.
No action should be taken or these notes relied upon as a substitute for personal financial or legal advice.

We take no responsibility for the guidance and information given herein as the preceding notes are for information purpose only, and not intended as a substitute for professional advice.