Get Your Financial Planning Right!

You will become resident for tax purposes in Spain if:

(a)     You spend more than 183 days in one calendar year, or 

(b)     Your “centre of vital interests” is in Spain, or

(c)     If your spouse lives in Spain

If you are a resident of Spain you will be liable for income, capital gains and succession duty (inheritance tax) on your worldwide assets. 

Income tax

Spanish residents are taxed on their world-wide income.  Capital gains arising in less than 1 year are added to income.  The income tax rates for 2006 are:

Some deductions are available to residents.

You can decide whether to complete an individual tax return or a joint return with your spouse, depending on which results in the smaller tax liability.

Rental income is subject to the income tax rates, but nowadays, if you are Spanish tax resident, only 50% of the net rental income is taxable.  This includes any lettings income from outside Spain.  A non-resident is taxed in Spain on income arising from Spanish property at the rate of 25% on gross income without any deductions of expenses or interest costs

Pensions

State pensions:   If you become Spanish tax resident, your pension income will be liable to Spanish income tax at the above rates. 

Government service pensions:  Your pension will remain liable to UK tax and not Spanish tax.  (This includes pensions from the civil service, local authorities, certain teachers etc, but not the NHS). 

Private Pensions:  The taxation of private pensions in Spain can give rise to some interesting anomalies because of the confusion over the meaning “purchased annuity” in Spain. A purchased annuity is taxed very favourably.  For example, if it commences between the ages 60 to 69, only 25% of it is liable to tax; 75% is tax free.  Seek specific advice.

Capital gains tax 

Taxation of Spanish capital gains is complex, but in general, gains on assets held for more than one year are taxed at 15% if you are Spanish tax resident (gains from assets held for less than one year are treated as income and taxed accordingly).  However, if it is your main home and the proceeds are invested into a new residence, then you will probably be exempt.  No tax is due for anyone over 65 if the property is your main home, regardless of whether you buy a new property.

Spanish non-residents cannot rollover the gain into a new home, and currently have to pay a higher tax rate (35% instead of 15%).

There is specifically no capital gains tax on death.  An inheritance received by a beneficiary is liable to succession tax not capital gains tax in the hands of the beneficiary.

Wealth tax

 Spanish wealth tax is payable by non-residents and residents based on assets held at 31^st December each year.  For resident, it is charged on your net worldwide assets; for non-residents it only applies to assets located within Spain.   Assets liable to wealth tax include property, savings and investments, vehicles, jewellery, arts and antiques, but most other household contents and pension rights are exempt.

Tax rates range from 0.2% for assets under €167,129 to 2.5% for assets over €10,695,996. There are deductions available to residents of €150,253 per person against the main home and then a further general exemption of €108,182. Non-residents have no allowances at all. 

Succession tax 

Inheritance and gifts tax is charged in Spain if the beneficiary is resident in Spain, or if the assets in question are in Spain.  

The state rules are as follows: Succession tax is charged on a sliding scale, with the standard tax rates ranging from 7.65% to 34%. Recipients are divided into four groups.  Group I/II include direct family.  Group III is for siblings and more distant relatives such as nieces, nephews, aunts, uncles, cousins and step-children  and Group IV is for anyone who is not related, including unmarried partners unless registered under pareja de hecho.  Each Group I/II inheritor is given an exemption of €15,957 against the inheritance. For more distant relatives this exemption is reduced to €7,993 and higher rates of tax apply. Non-relatives receive no allowance and the rates of tax are at least twice the standard rates.  Spanish inheritance tax can be increased if the recipient is wealthy.   In effect, the top rate is 81.6%.

As from June 2004, the Spanish Autonomous Communities (Regions) have been given more control over succession tax and there is a growing trend towards relief or the abolition of this tax between direct line relatives and spouses.  The rules therefore vary from region to region and are not necessarily the state rules described above, so you will need to seek specific advice about the area you live in.  In any case the changes still have a long way to go and so far only Andalucia and Murcia have introduced significant new reliefs.

 The above are summaries of complex issues and usually specific advice should be sought.

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