This field, complicated enough to navigate in the UK, becomes even more complex in cross border contexts by the fact that both the Spanish and UK tax authorities tax their individuals worldwide. Our team can assist you to minimize your tax liability whilst being sure to avoid falling foul of tax avoidance and evasion laws. By making use of the Double Taxation Agreement signed by the United Kingdom and the Kingdom of Spain on the 14th March 2013, we can ensure that you only pay what you actually owe to either one or the other country. We have our own team of accountants and financial advisors who also regularly work closely with our client’s accounting and finance teams to resolve individual issues or ensure optimum financial strategy.
Services we offer:
Our experienced tax team can support you with:
- Accounting treatments across sectors of law and across national boundaries.
- Payroll, National Insurance, Personal Tax and Corporate Tax
- Personal financial planning in Spain
- Pension arrangements
Spanish non-residents tax (“Impuesto de la Renta de No Residentes” – IRNR)
Usually, residents (whether they are companies or individuals) pay taxes in the country where they are tax residents. However, according to the current international Double Treaty Agreement signed by UK and Spain, any income obtained in Spain (i.e. working for a UK company from Spain or receiving income from a Spanish property) might be subject to tax in Spain regardless the fact that you are a Spanish non-tax resident.
It should be mentioned that those who are British tax residents, and therefore non-european tax residents, who own a property in Spain which is rented out, must pay a tax rate of 24% on the income that they receive from that rent.
Also, they are not able to deduct costs from the amount to be paid, such as: Interest on mortgage loans, insurance, housing maintenance and repair costs.
Before Brexit, as they were european-tax residents, they paid a tax rate of 19% and they were able to deduct those costs from the amount to be paid.
Council tax, garbage tax, water supply tax
As in the UK, the owner of a Spanish property will be liable to pay a Spanish tax similar to Council Tax. This tax, known as Impuesto sobre Bienes Inmuebles de naturaleza Urbana – IBIU, is based on the cadastral value of the property and not on the number of individuals that live in as in the UK. Please note that the cadastral can be much lower than the market’s value (it can even be less than a 50% of the market’s value). This tax is raised annually and can be paid in one or more instalments (the deadlines depend on the local Town Hall).
Other taxes such as garbage tax, water supply tax may or may not be due, depending on the local Town Hall's rules.
Spanish Inheritance Tax (Impuesto de Sucesiones y Donaciones – (ISD))
The beneficiary of an estate by way of inheritance governed by Spanish law is likely to be liable to pay Inheritance Tax in Spain. Good planning can however minimise this considerably by way of, for example, making a gift in the UK during the testator’s life.
In UK, when an estate is to be wound up, the first step to be taken is to cancel all of its debts. Thereafter, the estate can be distributed between the beneficiaries. In Spain, however, the heirs are the ones who are responsible for paying all the debts in proportion to the share they individually inherit.
In addition, the Spanish Inheritance Tax is a transferred tax to the Autonomous Communities. This means that on one hand, there is a central regulation which affects the whole country of Spain and sets the common rules and the tax rates and reliefs and on the other hand, the Autonomous Communities can improve the central regulation rates and reliefs which mean that the effective tax rates vary substantially between autonomous regions.
Spanish Inheritance tax payments should be made within six months of the death of the deceased (although it is possible to apply for an extension of a further 6 months). Any non-payment or late payment of Spanish Inheritance tax can result in penalties and interest being levied against the heir, so it is vital to seek sound legal advice to ensure that all beneficiaries’ obligations are met. I.e.: if the beneficiary inherits a Spanish property and does not pay the Spanish Inheritance tax, the Spanish tax authorities can set the outstanding payment against the property and ultimately embargo it to execute payment of the debt. Since this is done through a privileged procedure, it can be carried out surprisingly quickly.
Please see our advice on Wills and Estate Administration for further information, or contact us directly for advice specific to your situation.
Wealth Tax (Impuesto sobre el patrimonio (IP))
A wealth tax has been recently introduced which applies to individuals, whether they are Spanish residents or non-residents, owning assets over a certain threshold. Please note that companies are not liable for this tax. However, note that if a company obtains profits from real estate, these will be taxed by the Spanish Corporate Tax or Impuesto de Sociedades.
According to article 21 of the Double Taxation treaty between the UK/Spain, non-Spanish residents who are UK residents owning real estate located in Spain will be taxed by the country where the property is located. Thus, if the real estate is located in Spain it might be subject to Spanish wealth tax.
In general terms, the owner of real estate located in Spain will have to submit Spanish wealth tax returns, provided that by 31st December either:
- The combined valuation of the real estate located in Spain exceeds 2,000,000 Euros (regardless whether tax liability has to be paid), OR
- Regardless the value of the real estate located in Spain, there is tax liability to be paid after the tax calculations.
The tax liability will be determined by applying a sliding scale on the taxable base for those immovable assets with a combined total value in excess of 700,000 Euros (general allowance). Although further allowances may apply depending on the circumstances.
To calculate the liability, the higher value of the following three criteria will be taken into account:
- Cadastral value
- Price of purchase
- Valuation determined by the Spanish Tax Authorities (if any)
Wealth tax is payable on an annual basis.
If you need any tax planning or advice, we have a dedicated team on hand to assist you.
If you would like more information, please do not hesitate to contact us.
