SPANISH TAXATION
– A SUMMARY GUIDE FOR TAX RESIDENTS
At the request of many of our clients, seemingly
somewhat previously confused as to their standing viz the various types of
taxation here in Spain, it seems logical that this same confusion exists in the
wider populace and that therefore a simplified summary is called for!
So here is that summary!
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We have 3 areas of service;
i)
Tax
ii)
Mortgages
iii)
Financial Services (Investments, Protection, Pensions)
I mention this because even Mortgages and Financial
Services have tax implications and, therefore, as a consequence, most client
enquiries into ourselves, irrespective of the key driver, require input on taxation
to some degree. Therefore, the guide that follows has an impact on the
majority, rather than the minority, of the tax resident population.
Note that certain FS products and Tax
services require action by duly regulated firms and, where necessary, Rose FP
will introduce you to an associate firm.
(1)
INCOME
TAX
As a Spanish
tax resident you are liable to pay income tax on your worldwide income in
The Spanish
tax year runs from 01 January to 31 December.
The dates for
declaring Spanish income tax are from 01 May to June 30.
You do not
have to file a declaration if your income is less than 8,000 euros a year. The
only condition on this limit is that no more than 1,600 euros of this income is
from investments. If your income is less than 8,000 euros but it all comes from
investments rather than work or pension, you have to complete a return.
The 8,000 euro
limit includes total worldwide income of husband and wife.
Savings income
is taxed at 18 % (irrelevant as to
whether the income has been generated in one year or in less than one year).
Income from all other sources not included in the
savings category, are taxed on a scale system ranging from a 24% to 43%.
Deduction from total income
From total
income an individual can deduct –
(i)
The total amount of payments into the Spanish Social
Security system during a year
(ii)
A personal or family minimum exemption from tax
Allowance per
individual
-
Less of 65 years old - 5.151 €
-
More than 65 years old - 6.069 €
-
More than 75 years old - 7.191 €
Allowance per
child living with you
-
First descendent – 1.836
€
-
Second descendent - 2.000 €
-
Third descendent - 3.600 €
-
Fourth and following descendents - 4.080 €
-
If they are less than 3 years old - 2.200 €
Allowance per
parent living with you
-
Over 65 years old - 918 €
-
Over 75 years old - 2.040 €
(iii) An individual can claim mortgage payments
relief of 15% of the money paid per
year with a maximum of 9.015€ if the
property is your residential property
(iv)
Earnings from employment, including pension income,
attracts a work allowance based on a sliding scale system ranging from 2,600
euros to 4,000 euros
(2) CAPITAL GAINS TAX
Capital
gains obtained from the sale of property are subject to CGT and will be
calculated taking into account the difference between the sales price of the
property and the amount that you declared having purchased it for (the purchase
escritura value).
The
purchase value will consist of the escritura value of the property, plus any
expenses and taxes inherent in the purchase. Inflation factor rates will be
applied to this value. Such rates are annually fixed by
To
apply a rate other than the unit, you should have made the investment at least
one year prior to the selling date.
The
property transfer value will be the real amount of the sale less any expenses
and taxes inherent in the sale that have been borne by the seller (the amount
to be declared on the new escritura). The difference between the transfer value
and the purchase value is the capital gain subject to tax.
The
tax rate will be 18%.
If
you have made improvements to your property (you must have IVA receipts to
prove cost), calculations must be made as if there were two capital gains, and
a different reduction and inflation factor rates must be applied according to
the different periods.
(3)
WEALTH TAX
There are 2 elements of taxation that are generally classified as
‘Wealth Tax’ and they are returned at the same time and on the same form.
1) Patrimonio is
calculated at 0.2%, up to €167,129.45 and on a sliding scale thereafter based
on the highest of the three following values;
i) Valor Catastral (rateable
value)
ii) Any revised value imposed by
the tax authorities
iii) Escritura value
2) Renta (Income Tax) is
calculated at 24% of 2% of the valor catastral (1.1% if it has been revised
since 1st January 1994 or 2% if not). This is effectively a tax on assumed
rental income (whether it is so or not).
The simplified Form 214 can only be used if just one property is owned and a
separate declaration has to be made in respect of each person named in the
title deed with the base upon which the taxes are calculated divided by the
number of owners. The taxes can be paid at any time during the year following
that in which they become due at any bank.
If more than one property with a different referencia catastral is owned (even
if it is just a lock-up or a garage) the declarations have to be effected on
Form 714 for the Patrimonio and Form 210 for the Renta and the declaration has
to be made from the 1st May to 30th June in the year following that for which
the taxes are due. It is still individual declarations for each owner. All of
the properties may be listed on one form 714 for the Patrimonio but a separate
form has to be submitted for each property in respect of the Renta.
If you rent out your property you should pay separate taxes on these rentals
pro rata according to the number of days that it is rented.
If you use the figures as instructed AEAT (Hacienda) cannot challenge your
declaration just because the valores catastrales have not been revised. This is
taken dealt with by using a multiplier of 2% if there has been no revision
since 1994 and 1.1% if there has.
Example Calculation
1) Escritura Value € 100,000
X
0.2%
€
200 Sub Total 1)
2) Catastral Value €
50,000
X
1.1 Multiplier
55,000
X
0.2%
€
110 Sub Total 2)
3) Total
to pay € 310
NOTE. With effect from 1st January 2008 the
Patrimonio element has been abolished.
The Renta element of the tax (Income Tax) will remain
with no change yet proposed.
(4) INHERITANCE
TAX (Andalucia)
Spanish ‘succession tax’ does not operate in
the same way as UK Inheritance Tax. It is a ‘transfer tax’, and applies to the transfer of all assets held in
the deceased estate to other parties.
Spain's ‘Ley de Sucesiones’ provides
no large exemption from tax when property is passed to third parties, even if
they are the spouse or other family members. The law provides a total exemption
from taxes only for legacies under €15,956.87.
However,
the exemption applies to each inheritor,
not to the total estate ie each inheritor receives an exemption of €15,956.87.
So, if you
have a property worth €200,000, your half equals an estate valued at €100,000,
and you leave it to your spouse, they will receive an inheritance worth
€100,000, from which an exemption of €15,956.87 can be deducted. This gives a
taxable base of €84,043.13.
But, if you
have a property worth €200,000, your half equals an estate valued at €100,000,
and you leave it to your spouse and three children, each will receive an
inheritance worth €25,000, from which an exemption of €15,956.87 per inheritor
can be deducted. This gives a taxable base per inheritor of €9,043.13.
In
addition, an inheritor under the age of 21 can have an exemption of up to
€48,000. For each year younger than 21, he deducts €4,000 more, until he
arrives at the maximum at the age of 13.
This
exemption applies to bequests between parents, children, spouses and brothers
and sisters. For uncles, cousins and nephews, the exemption is cut by half. For
more distant relatives, or those not related at all, there is no exemption.
REDUCTION
IN TAX BASE
Official tax residents of
(i) You must have held an official
residence permit (and be tax registered) for at least three years.
(ii) The property you transmit must be your
principal residence and you must have lived in it for at least three years.
(iii) The inheritor must undertake not to sell
the property for 10 years. If they do, they are subject to tax.
This reduction
applies up to a maximum of €125,000.
That
is, if your inheritance is a property worth €200,000, you can reduce this total
by 99.9%, taking off €125,000 (the maximum reduction available).
So, if your
family home in
This
reduction is also available for a principal
dwelling left to a brother or sister over 65 years of age who has been
living with the deceased for the previous two years.
The
reduction does not apply to any other property, such as car or a yacht or
shares in companies, only to the principle residence itself.
The
inheritor, in turn, must keep the property for at least 10 years. If he or she
attempts to sell it, there will be tax due on the original inheritance.
Non-residents cannot take advantage of this
reduction.
SETTING TAX VALUES
(1) REAL ESTATE
Property is
valued either at market price or at
the valor catastral,( the rated value), or at the value set by Hacienda for purposes of
wealth tax, whichever is greater. So, in almost all cases, you will find that
the declared sales price on your title deed, or today's market value, will be
the value used. That is, if you bought your flat 20 years ago for €60,000, and
it is worth €150,000 on the market today,
Hacienda
has its own office of valuation and is perfectly aware of the market price of
real estate. They will not fine you, but they will charge you the extra tax if
you under declare the value of the deceased’s assets for IHT.
(2) PERSONAL EFFECTS
The
furniture, clothing, personal possessions of the deceased are called the ajuar.
For tax purposes they are routinely valued at 3% of the price of the property.
(3) AUTOMOBILES
These are
included separately in the estate, as are yachts or airplanes, which will be
valued separately.
(4) STOCKS AND SHARES
Stocks and
shares in companies and other investments are valued at their price on the day
of the person's death.
(5)
BANK ACCOUNTS
The balance on the day of death is added to the estate.
(6)
LIFE INSURANCE
The amount added to the deceased estate depends on the inheritor’s
relationship to the deceased -
(i) spouse, 50% is added, (ii) children, total amount is added. Both
receive a reduction of €9,000.
TAX PAYABLE
For spouses
and direct line relatives Inheritance tax is calculated on a sliding scale,
ranging from 7.5% to 34%. The actual
tax rate and amount of tax payable will depend on the taxable base.
More
distant relatives or non-relatives pay more IHT, and wealthy inheritors pay
even more. There is a scale which provides multiplying coefficients for the
degree of relationship and also the amount of existing wealth of the inheritor.
The basic tax rates are multiplied by the coefficients to calculate the tax
payable.
MAM Updated
12-02-09