We first published this article in February last year.  At that time Brexit had finally just ‘been done’, and the transition period begun.  Through 2019 and 2020 unprecedented numbers of British nationals formally registered as resident in Spain to secure their residency rights under the Withdrawal Agreement.  The numbers of residency applications spiked in the last months of 2020.  Immigration reported receiving many thousands of last minute applications in December alone.

This year we’ve been receiving a lot of queries this year 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.

So we’ve refreshed and republished this article, and it will hopefully provide answers to most general questions that you may have about tax in Spain, if you’ve recently taken up residency in Spain.

Understanding and planning fiscal residency and Spanish tax is of course important.  Tax in Spain is very different to the UK, and its important to understand and plan this part of the transition to full-time Spanish residency.

Here we provide an overview of the tax related requirements and key points that most need to consider when becoming resident in Spain.

Tax related requirements once you’ve taken up residency in Spain

There are lots of things to consider when taking up residency in Spain, and where tax is concerned, the starting point is understanding all the differences Spanish resident status brings with it.

You are generally liable to pay taxes in the country in which you reside.  This means that once you have taken up residency in Spain, you will be subject to Spanish taxation.  The obligation to pay taxes in Spain arises when you meet the residency measure based on the 183 day rule.  This responsibility applies regardless of whether you have registered as a resident or not.

When do you become resident for tax purposes in Spain?

Tax obligations arise for the fiscal year in which you become resident in Spain, not from the date your became resident.  New residents in Spain need to be mindful that the Spanish tax authorities apply the default assumption that an individual who has obtained residency, (formally registered as a resident), in Spain, has done so because they are switching their habitual residence from the country that they were living in, to Spain.

Depending on your circumstances, this means that you could be deemed to be fiscally resident in Spain despite not having lived in Spain for 183 days of the year.  For example if in September 2020 you sold your home in the UK, bought a home in Spain, moved over and obtained residency, under the habitual residence rule you will be deemed to be Spanish tax resident in 2020.  This is because the fact that you now only have a home in Spain overrides the 183 day rule.  You cannot claim habitual residence in the UK in 2020 as you no longer have a permanent home there.

On the other hand, if you moved to Spain and obtained residency, however have kept a permanent home in the UK, you could claim that your habitual residence did not change in 2020, applying the 183 day rule, as you spent more time in your home in the UK than you did your home in Spain.  If in 2021 you spend more than 183 days at your home in Spain, then you will become resident for tax purposes in 2021.

What do you need to do after becoming a Spanish resident?

Individual circumstances are of course all different.  It’s therefore important to know the key things that apply and need to be done in your own personal situation.

Generally speaking, when you change residence from one country to another, in most cases there is, or should be an element of financial and tax planning.

Basic planning begins with knowing the taxes that will apply, the returns that need to be done, and when.   Then it’s a case of getting a clear picture of how these will apply in your situation, and the implications so you can plan accordingly.

The following is a summary of the Spanish key tax dates and when they apply according to when you became resident.

Spanish Tax Return Deadlines

Non resident property tax Modelo 210 – 31^st December following year (e.g. 2020 must be submitted by end of 2021)

Overseas assets declaration Modelo 720 – 31^st March the year after becoming resident

Income tax return Modelo 100 – 30^th June the year after becoming resident

Tax Return and Declarations Guide for Change of Residency 2019 and 2020

New Residents 2019

If you took up residency and became resident for tax purposes in Spain in 2019, assuming that you were in receipt of income, you should have completed a personal tax return in June 2020.  If you owned assets outside of Spain, of value €50k or more, should also have submitted an overseas assets declaration (Modelo 720) in March 2020,.

Anyone who took up residency in the second half of 2019 who can claim that their habitual residence did not change, assuming they spent 183 days of more in Spain in 2020, then 2020 was their first fiscal year in Spain.  If they were an owner of a property owner in Spain 2019, a non resident property tax return should have been completed before the end of December 2020.  If applicable, the Modelo 720 should have been done in March 2021.

New Residents 2020

Anyone who moved to Spain in the first half of 2020, will be deemed tax resident in Spain for 2020.  If they owned a property in Spain in 2019 then they should have completed their last non resident property tax return in 2020.  The Overseas Assets declaration, Modelo 720, was due by the end of March 2021 and income tax returns by end of June 2021.

If you took up residency in the second half of 2020, and are able to show that your habitual residence didn’t change based on the 183 day rule, then this year, 2021, is your first fiscal year in Spain.  Where applicable, you will need to complete a non resident property tax return for 2020 before the end of this year.  The Overseas Assets Declaration can be completed this year if applicable, however it’s due by March 31st 2022, and income tax returns are due by 30th June 2022.

Anyone in this scenario, should be taking advantage of the fact that there is still time to plan for, and fully understand their tax position as a Spanish resident.

What are the differences between UK taxation and tax in Spain?

Tax in Spain has a general reputation of being excessive compared to the UK.  This is not surprising if for example you compare income tax.  The basic income tax allowance in Spain is €5,550 vs £12,500 in the UK, and the tax rate rises to 30% as soon as your taxable income reaches €20,200.  These are clearly negative differences.

There are however also many positive differences.  For example, in a family with 4 children, the parents get an addition €19,100 tax allowance between them  Rental income from a residential property also has a substantial 60% reduction applied before it is taxed, and the top rate of tax on dividends in Spain is 23% versus 38.1% in the UK.

We aren’t going to list every difference in this article, and the above examples illustrate that the differences aren’t necessarily all negative.  How it works out for each individual taking up residency in Spain, depends on their situation and how they plan and prepare for their transition to being a Spanish tax payer.

Planning for tax in Spain before taking up residency

Contrary to perception Spanish taxation is often not as bad as many thought, or were lead to believe that it would be.  The reality is that if you become resident in Spain, you are liable to pay tax in Spain.

Rather than avoid the matter as many do, anyone who’s just moved over, taken residency this year or is planning to, should be considering the fiscal aspects of their transition and getting ready for Spanish taxation.

By taking time to plan, it is possible to minimise potential Spanish tax exposure, limit it, or at very least fully understand it.

We recommend anyone moving to Spain to follow these 5 steps:

Simple Steps to Successfully becoming a Spanish Tax Resident

• Learn about the tax system – what needs to be done and when
• Understand how the Spanish tax regime differs in your situation and what tax you will have to pay
• Find out what tax treatment applies to assets you own and tax breaks that you currently enjoy
• Make changes in your financial set up to minimise, limit or avoid Spanish tax
• Get professional advice on financial or tax matters in both the UK and Spain

Spanish Residency Financial & Tax Consultation

If you are not sure about your tax position, have questions about tax in Spain, or would like assistance with any of the steps above, we can provide you with an initial review of your situation and at no cost.  We’ll highlight key tax points relating to tax, your situation and answer your general questions.

You may need further help understanding how tax in Spain affects you, or planning to limit how much it does.  In which case our team of financial and tax consultants specialised in change of residency planning between UK and Spain, are here to help.

Request Your Spanish Tax Consultation

Phone/WhatsApp (+34) 951 77 55 44 / (+44) 033 000 10 777

Read more about Tax in Spain

Read more about Overseas Assets Declaration in Spain

This information is provided for informational purposes only and we do not warrant it’s accuracy or completeness.  It is not intended to provide advice, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making financial or tax related decisions.

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:

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.

As of January 1st 2018, significant changes to the inheritance tax allowance in Andalucia, came into effect. These changes affect both expats who reside in the region, and non-residents who own assets such as holiday homes here.

The generous move by the regional Government of Andalucia raises the inheritance tax allowance to 1 million euros, where the heirs receiving the assets of a deceased direct family member, are classified as falling into Kinships Groups I and II, i.e. spouses, children, grandchildren and parents.  For this group of beneficiaries, there will be no inheritance tax (Impuesto sobre Sucesiones y Donaciones), when the sum of the assets received does not exceed this new 1 million threshold.

In 2012, legislation, (LEY 7/2012, de 29 octubre, de prevención y lucha contra el fraude fiscal), was passed in Spain requiring Spanish residents to make an overseas assets declaration, notifying the authorities of the worldwide assets that they own or control.

Failure to make an overseas assets declaration, or submission of an inaccurate one, can result in costly penalties. Unreported overseas assets that are later discovered by the authorities, may be treated as undeclared income on which tax should have been paid. The fines and penalties for such can amount to more than 150% of the undeclared asset value.

Whilst the law is aimed at deliberate high level tax evaders, the fact it allows penalties to be imposed simply for non-declaration of overseas assets, means that expats and other foreigners living in Spain, who are likely to have such assets, really need to understand the implications of this law, make their declaration correctly, so as not to fall foul of this rather intrusive legislation.

The overseas assets declaration is an information gathering exercise, and not a tax return, so someone making or considering an overseas assets declaration should be aware that they are not declaring assets so that they can be directly taxed. They should however be mindful that declaration of certain types of assets, may make the authorities aware of sources of income or capital gains for example, that could be deemed to be subject to tax in Spain. It is also important therefore, to make sure that assets are organised efficiently in order to avoid paying additional tax or amounts unnecessarily.

An overseas assets declaration is made by completing a form known as ‘Modelo 720’. The deadline for submitting the form is the 31st of March.  Generally speaking the declaration only needs to be made once, as subsequent declarations are only necessary if assets have been acquired, or disposed of, or if existing declared assets have increased in value above a given amount.

The legal requirement to make an overseas assets declaration in Spain and the potentially high penalties for not doing so, brought a massive change for both foreign and Spanish nationals resident in Spain. Some have even made the decision to leave the country as a result – these were  primarily those whom the law is aimed at – individuals for whom making the declaration would implicate them in tax avoidance or indeed evasion.

Whilst this law and reporting requirement might seem intrusive, it is in reality only a small move by the authorities, in their steps to counter the country’s rampant tax evasion. For British expats, in particular retirees, Spain can actually be tax efficient. If you have concerns relating to the overseas assets declaration, we recommend that you consult a relevant and suitably qualified professional.