Needless to say when taking up Spanish residency, understanding tax in Spain and planning for fiscal residency is important. Tax in Spain is very different to the UK, so for anyone making the move, planning this part of the transition to full-time Spanish residency is should be firmly on the agenda.
Here we provide an overview of the tax related requirements and key points that most need to consider when moving in Spain.
Tax related requirements once you’ve taken up residency in Spain
There are lots of things to consider when taking up residency in Spain, and where tax is concerned, the starting point is understanding all the differences Spanish resident status brings with it.
You are generally liable to pay taxes in the country in which you reside. This means that once you have taken up residency in Spain, you will be subject to Spanish taxation. The obligation to pay taxes in Spain arises when you meet the residency measure based on the 183 day rule. This responsibility applies regardless of whether you have registered as a resident or not.
As a resident in Spain you are liable to pay tax on:
- General income
- Interest on savings and investments
- Capital gains on sale of assets
- Wealth (if your total wealth is €700k or more – €1m including allowance for family home)*
- Gifts and inheritance
Spanish residents must also declare assets they own outside of Spain such as:
When do you become resident for tax purposes in Spain?
Tax obligations arise for the fiscal year in which you become resident in Spain, not from the date you got your residency. New residents in Spain need to be mindful that the Spanish tax authorities apply the default assumption that an individual who has obtained residency, (formally registered as a resident), in Spain, has done so because they are switching their habitual residence from the country that they were living in, to Spain.
Depending on your circumstances, this means that you could be deemed to be fiscally resident in Spain despite not having lived in Spain for 183 days of the year. For example if in August 2021 you sold your home in the UK, bought a home in Spain, moved over and obtained residency, under the habitual residence rule you will be deemed to be Spanish tax resident in 2021. This is because the fact that you now only have a home in Spain overrides the 183 day rule. You cannot claim habitual residence in the UK in 2021 as you no longer have a permanent home there, and under the double taxation agreement you wouldn’t be able to claim UK tax residence in the 2021/22 UK tax year as you would not have spent enough days in the UK.
On the other hand, if you moved to Spain and obtained residency, however have kept a permanent home in the UK, you could claim that your habitual residence did not change in 2021, applying the 183 day rule, as you spent more time in your home in the UK than you did your home in Spain. If in 2022 you spend more than 183 days at your home in Spain, then you will become resident for tax purposes in 2022.
What do you need to do after becoming a Spanish resident?
Individual circumstances are of course all different. It’s therefore important to know the key things that apply and need to be done in your own personal situation.
Generally speaking, when you change residence from one country to another, in most cases there is, or should be an element of financial and tax planning.
Basic planning begins with knowing the taxes that will apply, the returns that need to be done, and when. Then it’s a case of getting a clear picture of how these will apply in your situation, and the implications so you can plan accordingly.
The following is a summary of the Spanish key tax dates and when they apply according to when you became resident.
Spanish Tax Return Deadlines
Non resident property tax Modelo 210 – 31st December following year (e.g. 2021 must be submitted by end of 2022)
Overseas assets declaration Modelo 720 – 31st March the year after becoming resident
Income tax return Modelo 100 – 30th June the year after becoming resident
Tax Return and Declarations Guide for Change of Residency 2020 and 2021
New Residents 2021
If you took up residency and became resident for tax purposes in Spain in 2021, assuming that you were in receipt of income, you should have completed a personal tax return in June 2022. If you owned assets outside of Spain, of value €50k or more, you should also have submitted an overseas assets declaration (Modelo 720) in March 2022.
Anyone who took up residency in the second half of 2021 who can claim that their habitual residence did not change, assuming they spent less than 183 days in Spain in 2021, then this year 2022 is their first fiscal year in Spain. If they were an owner of a property owner in Spain 2020, a non resident property tax return should have been completed before the end of December 2021.
New Residents 2022
Anyone who moved to Spain in the first half of this year, will be deemed tax resident in Spain for 2022. If they owned a property in Spain in 2021 then they should complete their last non resident property tax return for 2021 in December this year. If applicable, the Overseas Assets declaration, Modelo 720, was due by the end of March 2021 and income tax returns by end of June 2022.
If you take up residency in the second half of this year, and are able to show that your habitual residence didn’t change based on the 183 day rule, then next year, 2023, will be your first fiscal year in Spain. Where applicable, you will need to complete a non resident property tax return for 2022 before the end of next year. The Overseas Assets Declaration will be due by March 31st 2024, and income tax returns by 30th June 2024.
Anyone in this scenario, should be taking advantage of the fact that there is still time to plan for, and fully understand their tax position as a Spanish resident.
What are the differences between UK taxation and tax in Spain?
Tax in Spain has a general reputation of being excessive compared to the UK. This is not surprising if for example you compare income tax. The basic income tax allowance in Spain is €5,550 (low income €14,000), vs £12,500 in the UK, and the tax rate rises to 30% as soon as your taxable income reaches €20,200. These are clearly negative differences.
There are however also many positive differences. For example, in a family with 4 children, the parents get an addition €19,100 tax allowance between them Rental income from a residential property also has a substantial 60% reduction applied before it is taxed, and the top rate of tax on dividends in Spain is 23% versus 38.1% in the UK.
In some circumstances pensions may also attract less tax in Spain than in the UK. Read more about Taxation of UK Pensions in Spain.
We aren’t going to list every difference in this article, and the above examples illustrate that the differences aren’t necessarily all negative. How it works out for each individual taking up residency in Spain, depends on their situation and how they plan and prepare for their transition to being a Spanish tax payer.
Planning for tax in Spain before taking up residency
Contrary to perception Spanish taxation is often not as bad as many thought, or were lead to believe that it would be. The reality is that if you become resident in Spain, you are liable to pay tax in Spain.
Rather than avoid the matter as many do, anyone who’s just moved over, taken residency this year or is planning to, should be considering the fiscal aspects of their transition and getting ready for Spanish taxation.
By taking time to plan, it is possible to minimise potential Spanish tax exposure, limit it, or at very least fully understand it.
We recommend anyone moving to Spain to follow these 5 steps:
Simple Steps to Successfully becoming a Spanish Tax Resident
- Learn about the tax system – what needs to be done and when
- Understand how the Spanish tax regime differs in your situation and what tax you will have to pay
- Find out what tax treatment applies to assets you own and tax breaks that you currently enjoy
- Make changes in your financial set up to minimise, limit or avoid Spanish tax
- Get professional advice on financial or tax matters in both the UK and Spain
Spanish Residency Financial & Tax Consultation
If you are not sure about your tax position, have questions about tax in Spain, or would like assistance with any of the steps above, we can provide you with an initial review of your situation. We’ll highlight key tax points relating to tax, your situation and answer your general questions.
You may need further help understanding how tax in Spain affects you, or planning to limit how much it does. In which case our team of financial and tax consultants specialised in change of residency planning between UK and Spain, are here to help.
Telephone (+34) 951 77 55 44 – Calls from 033 000 10 777
This information is provided for informational purposes only and we do not warrant it’s accuracy or completeness. It is not intended to provide advice, and should not be relied on for, tax, legal or accounting advice. You should consult your own suitably qualified tax, legal or accounting advisors before making financial or tax related decisions.
*Applies in the autonomous community of Andalucia, differs in some other regions.