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Update applicable for income either deemed (see below) or real from 2012
Changes approved 30 December 2011 change the rate of Non-Residence tax payable from 24% to 24.75% applicable for 2012 and 2013.
After legislative changes in 2008 many non-resident owners of property in
Spain are under the misconception that they can forget about submitting their
annual tax forms!
It would be nice but it is not the case. However the good news is, from 2009 the taxes payable by most ordinary taxpayers will be less than people paid in previous years.
Up until the end of 2007 all non-residents with property in Spain were also liable to pay a “wealth tax” (Patrimonio) which was calculated on the value of their assets in Spain (i.e. property, savings, etc.)
With the introduction of Spanish Law 4/2008 passed on the 23 December 2008, the tax was amended by reducing the taxable base to zero. Is this technically a formal abolition of the Tax? The answer is no. Certainly the effect was that no wealth tax was paid by either residents, (obligación personal) or non-residents, (obligación real) for the tax years 2008 payable 2009, 2009 payable 2010 and 2010 payable 2011.
By reducing the tax to zero in 2008 but not abolishing it, the Spanish Government retained the option to re-introduce the tax which they did on the 16 September 2011.
However this latest about turn will only affect higher-end taxpayers both residents (obligacion personal) and non residents (obligacion real) alike.
Only those with assets of over 700,000 euros (excluding that of their primary residence IF they are fiscally resident) are liable and primary residences with a value of up to 300,000 euros are exempt.
The tax rate will vary between 0.2 and 2.5%, depending on the contributory base after allowances.
Logically if you are fiscally non-resident your primary residence can not be in Tenerife.
The increase in the % of the tax is expected to remain in place for just 2 tax years, 2011 payable 2012 and in 2012 payable 2013
So to reiterate, the Patrimony “wealth tax” is not applicable to all taxpayers. But that does not mean that if you are not liable for Patrimony there are no annual property taxes for Non-Residents to pay.
The “Declaración de la Renta de Non Residentes" or “Non Resident’s annual tax return” must still be made and paid regardless of the amount of assets a taxpayer has!
Taxation, and particularly dual taxation issues are an extremely complicated subject, not least because of laws regarding touristic letting, and I would always advise readers who make financial gain from their property in Spain to get a qualified assessment of their own personal circumstances, either directly from the Spanish “Hacienda”, Spain’s Inland Revenue, or from a tax professional.
However, in general terms since 2010 the earnings from rented property or sub-let property are calculated on 24 per cent (24.75% for income from the 1/1/2012 until at least 2014) of the nett income received from the tenant, excluding IGIC. Even If you DO NOT let out your Spanish property there is still a return to declare and a tax to pay more information here
Changes to Non Residents Income Tax (Property Let Out)
In the Official Gazette (BOE in Spanish) dated 2.03.2010, the Law 2/2010 has introduced a change in the Income Tax Law for Non Residents changing the way they pay Income Tax on properties let in Spain. Up to 2010, non residents tax payers paid 24% ((24.75% for income from the 1/1/2012 until end of 2013) of the gross income on properties let in Spain,they were not allowed to deduct any expenses at all, there were examples when the tax paid could exceed 60% of the actual profit.
The European Union has pressed Spain to change this situation, and with the new Law, you can now deduct all expenses directly connected with the letting of the property: electricity, water, community fees, rubbish collection or local rates, maintenance, cleaning services, interest on mortgage (if applicable), professional fees, exactly in the same way as residents do.
However, it is not always straightforward. If you were letting your property 365 days per year, you could deduct all the expenses, but if you rent only a fraction of a year the expenses have to be pro-rata. For modelo 210 returns on income derived from Spanish property after the 1 January 2011 you will be required to obtain a CERTIFICADO DE RESIDENCIA FISCAL ( A certificate of fiscal residence) from your own tax authority office. This is valid for a period of one year from the date of issue. The certificate must be submitted with your Spanish tax return in order to prove fiscal residence in the UK (or indeedother European state except Spain) Under dual taxation exemptions you may be entitled to deduct the tax paid in Spain from your UK liability.
If the property is only rented out for part of the year, the earnings are calculated as above for the rented period. For the part of the year that it lies empty, the calculation is made as for “Deemed (Rental) Income”: see below.
It is important to point out that holiday letting for short periods of time is subject to very stringent regulations involving the use of an appointed sole letting agent and may only be undertaken on registered Touristic complexes. Income from legal touristic lets also atracts IGIC tax (like VAT) at 7%. Infringement of touristic letting laws is punnished very severely see here and here.
Privately letting your property, which is owned on a residential complex, for lets of 3 months or longer is acceptable and does not attract IGIC although of course Non residents income tax as described above is still payable. You may also be required to provide a certificate of Energy efficiency:
And don't forget the income from letting your foreign property MUST ALSO BE DECLARED IN YOUR OWN COUNTRY (probably the UK if you are reading this) For the UK the form is here http://www.hmrc.gov.uk/forms/sa106.pdf .
Under double impositions agreements Individuals who own property in Spain and who are not resident in Spain pay Spanish income tax in respect of the deemed income value (see below) of their Spanish property. This Spanish tax is not creditable against United Kingdom income tax liability because there is no UK tax payable in respect of the deemed Spanish income.
However where Spanish income tax is payable in respect of actual income from a Spanish property and actual rents are taxed in the United Kingdom the Spanish tax payable may be credited against the UK payable on the Spanish rental income.
If your property is left empty, even though you do not let out your holiday home for gain, Spanish law assumes you have what is called a “Deemed (Rental) Income” which is subject to non-resident Income Tax.
The “Deemed (Rental) Income”, which used to be included on the old Modelo 214 form, is now declared on a Modelo 210 form. In 2011 the format of this form has been changed to be more user friendly, being reduced from 7 pages to 3!
However the authorities are cramming a lot more into those three pages than they used to! The following information is now obligatory for ALL owners:
We offer a service to draw up these Deemed income tax returns at 65 euros per property per year as long as the property is owned by between 1 and 3 people, as a return is required for each owner of the property. If you let out for gain (see above) please contact us to ask for detailed information.
See if your Catastral Value has been updated since 1994 if the answer is yes the coefficient to use is 1.1 if the answer is no then use 2.
Multiply the Catastral Value by 1.1 or 2 (as above) per cent
Take this value and multiply by 24 per cent - (24.75% for income from the 1/1/2012 until end of 2013) that's how much deemed rental income tax you pay.
Example: Catastral Value 150,000 revised since 1994 = yes
x 24% = 396 euros tax payable
The amount you pay is calculated using the “Valor Catastral” (Rateable Value) of your property in Spain. This can be easily ascertained by looking at the receipt for your “Impuestos Sobre Bienes Inmuebles” or IBI, (often referred to by English speakers as “Rates”) - which is paid to your “Ayuntamiento” annually.
This receipt will also tell you whether the rateable value of your property has been revised since 1st January 1994. This is critical because the percentage used to calculate “Deemed (Rental) Income” is higher if your rateable value has not been revised since that date. Tax payable on the “Deemed (Rental) Income” is 24 per cent (24.75% for income from the 1/1/2012 until end of 2013). The deadline for the submission of form Modelo 210 is the 31st December 2012 for income deemed or actually derived in 2011 unless you have more than one property in which case the deadline is the 30th June 2012.
All of the above applies to Non-residents with no permanent establishment but who own a holiday home in Spain
An example of a receipt for “Impuestos Sobre Bienes Inmuebles” or IBI: The format can vary between Ayuntamientos, or whether you get the receipt from your bank rather than paying in cash. But all the information you need will be on there.
If someone owns property in Spain, but is not resident in Spain for tax purposes and has at least one office or premises used for managing the letting business and employs one or more people on a full time contract, then the owner is considered to have income through a permanent establishment in Spain and is subject to different regulations.
I wrote this article with the aim of making non-resident homeowners aware of their legal obligation to submit an annual income tax declaration in Spain; it is not intended to be a crash course on Spanish tax law. As I said that's a complicated subject and peoples's circumstances differ. But what holds true for all, is that no non-resident home owner, whatever their circumstances, is exempt from making a non-residents Income Tax return.Do you know someone who has owned property for years and never made a declaration? Probably. However, if they are caught, and computerised records are making that ever more likely, they are liable to pay the last four year's tax and probably a hefty fine.
But in any case, when that property is eventually sold or passed on as part of an inheritance, the Spanish Tax Agency can and will check their records, which will show the property is owned by a non-resident and that no tax declarations have been received. The taxes will then need to be paid, including any fines imposed, before the property can be legally transferred.
I believe that at the very least it makes sense to clarify what your tax liability is, and if at all possible keep things up to date, rather than looking over your shoulder and waiting for a fine to drop on the mat, or worse still miss a registered letter because you are not in Tenerife all the year and suddenly find amounts garnered from your Spanish bank account.
There are two local property taxes which are both based on the property's
theoretical rental value according to the local land registry, and are adjusted
in line with inflation. The rates of tax will vary from region to region due
to the varying rates of tax imposed by the regional and local governments.
Local property tax ( Impuesto Sobre Bienes Inmuebles (IBI) )
This is the main local property tax affecting owners of properties in Spain
payable yearly to the Town Hall. The amount of the tax is calculated by reference
to the valor catastral (official value of the property) registered in respect
of all properties in Spain . The percentage charged varies from area to area,
and is roughly 0.5% to 1%.
Local mains drainage and refuse collection tax - "basura y alcantarillado"
(Not to be confused with "agua" which in some ayuntamientos is paid to a private water company))
This local tax payable by property owners is related to rubbish collection and drainage. The amount to pay varies from area to area, and should be paid to the local Town Hall every year together with the local property tax mentioned above.
As a non-resident property owner in Spain , you are still liable for income tax, value added tax wealth tax, capital gains tax and inheritance tax.
Remember, if you do not speak Spanish, or you simply can't face grappling with the Spanish Tax Authorities on your own, let The One Stop Problem Shop take the strain and assist you with it, along with the many other forms of bureaucracy you encounter in your daily life in Tenerife
Call us on 922 86 74 78 or email firstname.lastname@example.org
UK And Spain Tax Residence Issues source: Blevins Franks
The UK government published a consultation paper in June 2011 outlining its proposals to introduce a statutory definition of tax residence from 6th April 2012. It is based on the principle that where someone is resident is more than just a question of where they spend their time. While the proposed tests do not completely eliminate day counting, they also impose a requirement to reduce the number of connecting factors to the UK.
There are different rules for “Leavers”, “Arrivers” (individuals who have not been UK tax resident in the previous three UK tax years) and “full time workers abroad” (working under contract/s of employment with a minimum of 35 hours each week). You need to make sure you follow the rules for your specific situation – it is not always as straightforward as you may think.
There are five newly defined connecting factors, which are:
1. Family in UK (spouses/civil partners and children under 18)
2. UK accommodation accessible to you as a place of residence
3. Substantive employment in the UK
4. UK presence in previous years (more than 90 days in either of the previous two tax years)
5. More time in the UK than another single country (this factor only applies to leavers)
Looking at the Leaver category, if you spend less than 10 nights a year in the UK in a tax year you will never be considered UK resident, even if you have connecting factors. If you spend over 182 nights a year in the UK, or if your only home is in the UK and you spend more than 10 days in the UK per year, you will always be considered UK resident regardless of how few other connecting factors you have.
Otherwise, whether or not you are UK tax resident depends on the number of nights you spend there in a UK tax year (ending midnight 5th April) and how many connecting factors you have. As a Leaver, if one connecting factor applies you can spend up to 119 nights in the UK without being UK tax resident; if you have two factors it reduces to 89 nights; if three factors 44 nights and if four or more apply you can only spend nine nights before being deemed UK tax resident.
We welcome these new rules as, if approved, they are much clearer and will provide more certainty. Nonetheless they are still complex and confusing to the non tax specialist and while they are no longer subjective and vague like the current guidance, the rules do remain complex.
You also need to consider the Spanish tax residency rules. Again, these are not based solely on day counting and while you are considered tax resident in Spain if you spend over 183 days a year here, you could also become resident if your “centre of economic interests” (principal assets or source of income) or “centre of vital interests” (spouse/dependant children) is in Spain.
It is possible to fulfil both the UK and Spanish residence criteria simultaneously, in which case the UK/Spain tax treaty has “tie breaker” rules which override both the UK and Spanish domestic residence position. You need to review the terms of the treaty to establish where you are tax resident – there are many cases where a British expatriate could be found to be UK rather than Spanish resident.
Where Are You Better Off Being Tax Resident – The UK Or Spain?
The Spanish tax system is very different from that in the UK and many other countries. Many people who have moved to Spain or are planning to do so inadvertently find it complex and potentially expensive from a tax perspective. In our experience, however, when you understand all the intricacies of the Spanish tax rules, it often makes more economic sense to be tax resident in Spain rather than in the UK.
Many people often do not realise just how much tax they could potentially save by taking advantage of Spanish tax compliant opportunities to protect their assets from the various Spanish taxes.
With the right advice it is often possible to significantly lower income and capital gains tax on your savings and investments. It may also be possible to reduce your wealth tax liability if your taxable wealth is above the threshold.
British expatriates who have retired in Spain may also have the opportunity to move their UK private pensions into QROPS (Qualifying Recognised Overseas Pension Schemes) and considerably improve their tax position.
When it comes to inheritance taxes, in some situations your heirs would pay less tax if you are resident in Spain rather than the UK, but this depends on many factors including the number of beneficiaries. Spanish assets are always liable to Spanish succession tax, but in many Spanish regions the tax could be reduced to virtually nil for your spouse and children if you are habitually resident in that region.
Just how much tax you would save as a Spanish resident depends on your assets and income, but it is certainly worth investigating
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