Since the introduction of legislation in 2012, (LEY 7/2012, de 29 octubre, de prevención y lucha contra el fraude fiscal), Spain has required all Spanish residents to make an overseas assets declaration, notifying the authorities of the worldwide assets that they own or control.
Under the Law, failure to make an overseas assets declaration, or submission of an inaccurate one, would result in costly penalties. Unreported overseas assets that were later discovered by the authorities, were treated as undeclared income on which tax should have been paid. The fines and penalties for such could amount to more than 150% of the undeclared asset value.
Whilst the law was aimed at deliberate high level tax evaders, the fact it allowed penalties to be imposed simply for non-declaration of overseas assets, meant that expats and other foreigners living in Spain, who are likely to have such assets, could fall foul of this rather intrusive legislation.
Indeed many received harsh penalties, simply for making the declaration late or making a mistake on the form, despite having legitimately acquired their overseas assets BEFORE taking up residency in Spain
European Court of Justice Ruling on the Overseas Assets Declaration Law
We first published this article at the back in 2020 when ‘Brexit’ had just been agreed an the transition period just begun. Through 2019 and 2020, we saw unprecedented numbers of British nationals registering as resident in Spain to secure their residency rights under the Withdrawal Agreement.
In early 2021 the numbers dropped dramatically as the reality of Brexit hit, however as the year progressed they picked up again as people continued with their plans to live in Spain albeit now under the conditions for nationals of third countries.
Throughout 2021 we received a lot of queries relating to Spanish residency and tax in Spain. For many it seems, the main priority was getting residency with the consideration of tax, put to one side on in some cases completely overlooked. However in the last few months we been getting a lot of enquiries from people planning to move to Spain, who want to understand and plan their tax position before making the move.
We’ve refreshed and republished the article, and we hope that it will provide answers to most general questions that you may have about tax in Spain, if you’ve recently taken up residency or are planning to.
We wrote an article recently detailing that many British nationals living in Spain and other EU countries, have received letters from their UK banks telling them that their accounts will be closed at the end of 2020. This due to no Brexit trade deal having been agreed.
That article explained the impact of no Brexit trade deal on financial services providers in the UK. After 31st December 2020, these service providers will not legally be able to carry on providing services to their expat clients who reside in Spain or other EU countries.
The Brexit transition period ends at the end of the year, and with it the financial services licence EU ‘passporting’ rights which allow UK firms to provide financial services in EU countries.
As a result many providers, including Financial Advisers, are withdrawing their services as advisers where their client is a UK national living in the EU. It is only a small minority of financial service providers that have taken the necessary steps to establish themselves in the EU so they can continue providing their services.
It is therefore quite likely that from 2021, most expats living in Spain or other EU countries will not be able to receive advice or services from their UK Financial Adviser. Clients and advisers alike who are affected by this, should be acting now to make alternative financial arrangements.
ISA’s are very tax efficient ways to save or invest, as you pay no tax on savings interest, (not that you get any these days), and virtually no tax on investment returns. They are therefore usually the first type of saving or investment account that people will have. For this reason, and the fact that there is a generous annual allowance to save into them, you like many other may have built up sizeable amounts in ISA’s.
You may also have reached, or be approaching retirement, and relying on this tax efficient ISA nest egg, to provide extra income to supplement your pension. For some, an ISA may even be their ‘pension’.
ISA’s and moving to Spain
So if you’re moving, or have moved to Spain, can you keep your ISA? The short answer is yes. According to gov.uk:
If you open an Individual Savings Account (ISA) in the UK and then move abroad, you can’t put money into it after the tax year that you move (unless you’re a Crown employee working overseas or their spouse or civil partner).
You must tell your ISA provider as soon as you stop being a UK resident.
However, you can keep your ISA open and you’ll still get UK tax relief on money and investments held in it.
You can pay into your ISA again if you return and become a UK resident
Great – you can keep your ISA, and continue to benefit from it’s tax efficiency! Well not exactly. When you move from the UK to Spain, you also move from the UK tax system to Spain’s tax system. So you will continue to get UK tax relief, however your ISA will (or should), get Spanish tax treatment.
The UK press and expat papers in Spain have all carried articles warning that thousands of Brits living in the EU will have their UK bank accounts closed by the end of the year.
In the UK the The Daily Mail, The Guardian, The Times and The Daily Telegraph to name a few, have all detailed how banks including Lloyds, Barclays and even the Queen’s bankers Coutts, will be closing expat accounts and withdrawing services. The reason for this is the UK’s failure to agree a post-Brexit trade deal to allow cross border Financial Services to continue.
Banks are having to make decisions as to which EU countries to pull out of and which to continue operating in.
Lloyds Bank confirmed to The Sunday Times that it will be withdrawing services from Holland, Slovakia, Germany, Ireland, Italy and Portugal – a move that will affect 13,000 British customers.
The bank, which is Britain’s biggest banking group, started writing to its customers living in these countries since August, telling them that their UK bank accounts would be shut on December 31.
Barclays also confirmed that its banking and credit-card customers living in the EU had started receiving letters.
Why Are UK Banks Closing Accounts & Withdrawing Services for Brits Living in the EU?
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.
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:
Modelo 720 is the form which has to be completed by Spanish residents to declare overseas assets to the Tax Authorities. The requirement applies to anyone who lives in Spain, who owns, or is beneficiary to overseas assets worth €50,000 or more.
The Modelo 720 overseas assets reporting requirement, was introduced to clamp down on tax fraud being committed by Spanish residents who have acquired, or intend to acquire, assets, and or hide wealth outside of Spain in order to evade paying tax. You can read more about this in our article – Overseas Assets Declaration.
The TIE, Tarjeta de Indentidad de Extranjero, is the Spanish identification card for citizens from third countries (non-EU) who reside in Spain. Since July 2020 British UK nationals moving to Spain have also had to apply for this card, as the UK is no longer in the EU.
If you already have a Spanish residency certificate, you do not have to apply for the TIE, but you can voluntarily exchange your certificate for the card.
Both the Spanish and UK Government websites and their Consulate pages confirm that the green residency certificate, A4 and credit card sized remain valid for UK nationals and prove the holders residency and retained rights under the withdrawal agreement, having settled in Spain before the UK left the EU. However considering the issues some have encountered during the recent Covid19 travel restrictions, e.g. multiple incidences of authorities and airlines not understanding the rules and denying certificate holders entry to Spain, it is advisable to get the TIE.
Aside from this the card is a full bio-metric national ID card, therefore so much more useful than the paper certificate. The card also has the words ARTICULO 50 TUE, a reference to note that the holder was resident in Spain before the end of the transition period and has retained rights.
The Residency Certificate TIE Exchange Application Process
The application process is relatively straight forward, and appointments are readily available in most areas at the Foreigners Offices and National Police Stations.
You need to have a pre-booked appointment.
You can make an appointment through the following link:
*Completed EX23 application form
*Your existing EU residency Card and a copy
*Passport and a copy ( a copy of your passport and the application is acceptable if you are in the process of renewing it)
*Small passport (carnet size) photo 32mmx28mm
*Recent padron (if you have changed address since you obtained your residency certificate)
*Modelo 790 form with 12 euros tax paid and stamped at the bank
When you present your application your fingerprints will be taken, and if everything else is in order, you will be given confirmation of your processed application and told to make an appointment to go back and collect your card in 5 to 6 weeks. You may have to wait longer.
If you currently have a temporary residency certificate, your new TIE will be valid for 5 years. You can apply to get a permanent one, either when you reach the 5 year anniversary of the date you got your residency certificate, or at the 5 year expiry of your TIE.
If you currently have a permanent residency certificate (with the word ‘permanente’), your new card will be issued for 10 years and thereafter is automatically renewable. If you have held a temporary residency certificate for more than 5 years (but didn’t upgrade it to permanent), you may also be issued with a 10 year permanent TIE.
The TIE for British UK Nationals
The new Withdrawal Agreement TIE ‘tarjeta de idenitidad de extranjeros’ for British UK Nationals
Need a Hand With Your Residency Certificate TIE Exchange Application?
QROPS – Qualifying Recognised Overseas Pension Scheme.
A QROPS, or Qualifying Recognised Overseas Pension Scheme, is an overseas pension scheme that HM Revenue & Customs (HMRC) recognises as eligible to receive transfers from registered UK pension schemes.
To gain qualifying status, the scheme must meet the requirements set by UK law, and have notified HM Revenue and Customs (HMRC) that they meet the conditions to be a Recognised Overseas Pension Scheme, (ROPS). To find out if a pension is a recognised by HMRC, you can check their ‘ROPS’, list.
QROPS were born as part of UK legislation on 6 April 2006. The legislation itself was as a direct result of EU human rights requirements, i.e. it had been challenged that an individual living in the EU who had a UK pension, was not able to move it to a scheme in the country in which they reside or any other EU country for that matter, which was contrary to the rights afforded by the EU founding principles of freedom – movement of people, capital, goods, and provision of services.
We help people move to and settle in Spain. As Spanish residency and relocation specialists, we will assist with all aspects of planning and making your move to Spain.
Once you're here, we take care of all your needs to ensure a smooth and hassle free transition into Spain.
Centro Commercial Cala SolBoulevard de la Cala - Local B5 1st Floor, La Cala de Mijas - 29650, Malaga, SpainCIF B93599264
Tel: ES (+34) 951 255 877 Tel: UK +44 (0) 33 0001 0777