Tax in Spain for Residents and Non-Residents

Understanding tax in Spain is essential, not just if you live here, but also if you own a property in Spain.

The Spanish tax year runs from 1st of January to 31st December.  Residents have to complete their income tax return, declaracion de la renta, by 30th of June the following year, and non-residents have until 31st December.

Spain has a double taxation treaty with the UK, which means you can avoid getting taxed twice on the same income.

Resident or Non-Resident for Tax in Spain?

You are considered to be tax resident in Spain if any of the following apply:

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Planning for Tax in Spain

Changing from UK to Spanish Residency and Understanding Tax in Spain

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

*Allowances are lower in some regions – in Madrid and Andalucia wealth tax is currently waived. 

Large fortune tax is a new national tax on wealth that kicks in on net wealth above €3m.  (Regionally paid wealth tax is applied as a tax credit)

Spanish residents must also declare assets they own outside of Spain such as:

  • Property
  • Investments
  • Savings
  • Pensions
  • Insurance

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 last year 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 last year.  This is because Spain do not split the tax year, so the fact that you now only have a home in Spain overrides the 183 day rule, i.e. you cannot claim habitual residence in the UK if you no longer have a permanent home there.

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 last year applying the 183 day rule, as you spent more time in your home in the UK than you did your home in Spain.  This year as you will spend more than 183 days at your home in Spain, then you will be resident for tax purposes this year.

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. 2023 must be submitted by end of 2024)

Overseas assets declaration Modelo 720 – 31st March the year after becoming tax resident

Income tax return Modelo 100 – 30th June the year after becoming resident

Tax Return and Declarations Guide for Change of Residency

New Residents Last Year

If you took up residency and became resident for tax purposes in Spain last year, assuming that you were in receipt of income, your personal tax return is due in June this year.  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 this year.

Anyone who took up residency in the second half of last year who can claim that their habitual residence did not change, assuming they spent less than 183 days in Spain in the year, then this year is their first fiscal year in Spain.  If they were an owner of a property owner in Spain the previous year, they will complete their last non resident property tax return this year and in June next year their first resident income tax return will be due.

New Residents This Year

Anyone who moved to Spain in the first half of this year, will generally be deemed tax resident in Spain this year.  If applicable, the Overseas Assets declaration, Modelo 720, is due in  March next year and income tax returns by end of June next year.

If you take up residency in the second half of this year, and are able to show that your habitual residence didn’t change, then next year will be your first fiscal year in Spain.  The Overseas Assets Declaration and income tax returns will not be due until the year after next.

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 26% 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.

For most it is certainly not a matter to be avoided.  Anyone who has recently take up residency in Spain or who is planning to, should be considering the fiscal aspects of their move, the possible tax implication what they need to do to be 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.

Spanish Residency Financial & Tax Consultation

Read more about Tax in Spain

Read more about Overseas Assets Declaration in Spain

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. 

Wealth Tax Set To Be Replaced By Large Fortune Tax

Andalucía has become one the top 3 regions in Spain with the least taxes.  On the 21st September 2021, the regional president, Juanma Moreno, announced the scrapping of Wealth Tax in Andalucía.

The tax has accounted for just 0.6% of income for the regional government (€95m annually), and Moreno believes the change will have a very positive impact on increasing revenue by attracting investment.

A large number of the highest wealth tax payers left Andalucía in 2020, resulting in a loss of income of estimated at around €18m (€3.5 million euros in wealth tax and €14 million in personal income tax).

The president is hoping that removing Wealth Tax will encourage people with high income who spend long periods in Andalucía, but are not tax resident, to make it the region their permanent home and pay tax there.

Moreno’s estimate is that the tax reduction will attract 7,000 new residents, the result being that the 0.6% of income lost will be far exceeded, through income tax and other indirect taxes collected.

As wealth tax hasn’t been abolished, the annual tax return still has to be done according if, according to the law, ‘ . . . the value of their assets or rights, determined in accordance with the tax regulations, is greater than €2,000,000 euros.’  However 100% tax relief will be being granted to zero the liability.

New ‘Large Fortune’ Tax Proposed

The good news of Andalucía’s Wealth Tax reform, was shortly muted by news that the Spanish government plans to impose a temporary national ‘tax on large fortunes’.  The tax is yet to be approved by parliament, but is is expected to be implemented for 2023 and 2024 and will affect individuals with net wealth above €3 million.

Since wealth tax is collected by the regional Government, it was confirmed that any wealth tax paid would be offset against any ‘large fortune tax’ bill.  As Andalucía now give 100% wealth tax relief, residents in Andalucia won’t have to pay wealth tax, however if their net assets equal €3 million or more, they would have to pay the ‘large fortune tax’.

The proposed rates are as follows:

  • 0% up to €3 million of net wealth
  • 1.7% between €3 million and €5 million of net wealth
  • 2.1% between €5 million and € million of net wealth
  • 3.5% for a net wealth of over €10 million

According to the information provided by the Spanish Ministry of Finance, the tax on ‘large fortunes’ tax will affect 23,000 taxpayers and raise €1.5 billion in revenue, which will be used to finance policies to support the most vulnerable who are affected by the recent steep rises in cost of living.

Non Residents Property Tax

Aside from Local (IBI), Capital Gains, Wealth and Inheritance Taxes, non residents must pay tax on any income they receive that arises in Spain.  Income tax for non-residents is charged at a fixed rate of 19% if you are a resident in an EU or EEA country  For non-residents from the rest of the world, the rate is 24%.  This includes a non residents property tax.

Non Residents Property Tax on No Income

If you own a property in Spain and earn rental income from it, then this has to be declared.  What some non-resident owners of property in Spain are not aware of, is that they are also required to pay tax, regardless of whether the property is let out or not!

This tax is often referred to as an imputed income tax. Spanish tax legislation for some reason assumes that a non-resident owner derives some sort of benefit from owning property and provides a system to tax it.

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Inheritance Tax Allowance in Andalucia

As of January 1st 2018, significant changes to the inheritance tax allowance in Andalucia, came into effect. These changes affect both expats who reside in the region, and non-residents who own assets such as holiday homes here.

The generous move by the regional Government of Andalucia raises the inheritance tax allowance to 1 million euros, where the heirs receiving the assets of a deceased direct family member, are classified as falling into Kinships Groups I and II, i.e. spouses, children, grandchildren and parents.  For this group of beneficiaries, there will be no inheritance tax (Impuesto sobre Sucesiones y Donaciones), when the sum of the assets received does not exceed this new 1 million threshold.

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