Understanding tax in Spain is essential, not just if you live here, but also if you own 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:
- You have spent more than 183 days in Spain within a single calendar year
- Your main economic activity is in Spain, e.g. you are employed or self employed, run a business or company in Spain
- Your spouse or dependent children live in Spain
It is important to understand whether you are classed as resident for tax purposes in Spain, as Spanish tax residents are required to pay income tax on their worldwide income. Non-residents on the other hand are only required to pay tax on income arising in Spain, e.g. rental income from a Spanish holiday home.
Taxes Which Apply to both Residents & Non-Residents
The following taxes apply to both residents and non residents, albeit with varying application rates, allowances and exemptions.
Property Rental Income Tax
Income from rent is taxed at rate of 19% if you are a resident in an EU country, and 24% if you are not.
If you are resident in Spain, you can offset certain allowable expenses. For example mortgage interest, insurance, other taxes such as IBI and bills like community fees. If the rental income comes from a residential property, you also get a generous 60% reduction on the net rent before tax is calculated.
This tax, ‘Impuesto de Sucesiones y Donaciones’, or ISD for short, applies to gifts, as well as inheritance.
Anyone who inherits, or who is gifted assets or rights in Spain, is liable to pay ISD, whether they reside in Spain or not.
The liabilities are different depending on the inheritors residency status:
A resident has a liability arises under a personal obligation on the basis that they are generally subject to tax in Spain.
Non-residents are liable under a real obligation, where assets or rights inherited/gifted are in Spain, e.g. a house.
This tax is calculated on declared worldwide assets owned. There is a tax-free allowance of €700,000 for both residents and non-residents, (€500,000 in Catalunya) and Spanish residents, get an additional €300,000 allowed for their primary residence in Spain.
The actual rate of tax varies from one autonomous region to the next, and is progressive, typically ranging from 0.2% up to a 2.5% depending on the total value of the worldwide assets. Some regions top rates are higher.
Some assets are exempt from the wealth tax, for example, small owner managed companies and certain types of family businesses and business assets.
There is no Wealth Tax in the regions of Madrid and Andalucia.
Capital Gains Tax
Persons resident in Spain for tax purposes are required to pay capital gains tax on the disposal of any worldwide assets.
Non-residents only pay tax on gains made on the sale of property or assets physically located in Spain.
The same rates apply to interest received on savings, company or share dividends, and income paid from investments.
Rules vary from one autonomous region to the next. For example in Andalucia there is a virtual an exemption on inheritance tax for inheritances passed to immediate family members who are tax resident in Spain or other EU countries.
Tax in Spain for Non-Residents
Aside from Capital Gains, Wealth and Inheritance Taxes, non residents must pay tax on any income 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, and for non-residents from the rest of the world the rate is 24%.
Income Tax on Property
If you own a property in Spain and earn rental income from it, then this has to be declared. What many 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, whether true or not, and provides for system to tax it.
How Is Non-Resident Property Tax Calculated?
The tax is calculated using the cadastral value of the property. The tax base is either 2% or 1.1% if the cadastral value has been revised since 1st January 1994.
- Cadastral value of property (pre 1994) = €300,000
- Base = €6,000
- Tax (EU/EEA resident = 19% x €6,000 = €1,140
For tax purposes couples or joint owners will be treated as separate taxpayers and be required to file separate tax returns. Property tax can therefore be split among co-owners.
Tax in Spain for Residents
For residents, income falls into two main categories for tax purposes – income from:
- General activities of employment, and
- Savings or investments
The total income from each category is classed as the base, after which deductions and allowances can be made.
Tax on general income
Spanish tax residents will be taxed on all worldwide income which is not included as part of the savings income. This includes income from employment (i.e. salary), pension, rent etc.
The Spanish income tax is made up of two parts, a national tax and a regional tax. Typically the split is 50/50, however there may be regional variations.
Income tax rates (in Andalucia):
- First €12,450 (after allowance) = 19%
- €12,451 to €20,200 = 24%
- €20,201 to €35,200 = 30%
- €35,201 to €60,000 = 37%
- €60,000 to €300,000 = 45%
- above €300,000 = 47%
Tax on income from savings
For residents, other income that does not fall into the general income category, savings tax applies. This covers all savings or investments, regardless of where the savings are, and includes:
- Interest from savings
- Dividend payments
- Payments from life assurance policies
- Income from annuities
- Gains made from the disposal or transfer of assets
The rates for tax on income from savings are the same as for Capital Gains:
- up to €6,000 =19%
- from €6,000 to €50,000 = 21%
- €50,000 to €200,000 = 23%
- over €200,000 = 27%
Personal Tax Allowance
If you are a Spanish tax resident you will receive a personal allowance for your Spanish income tax. Unlike in the UK where this personal allowance rises year on year, in recent years, the allowance been reduced in Spain.
Individual – €5,550
65 years and over – €6,700
75 years and over – €8,100
There is an additional €2,000 allowance for pension income, and no obligation to complete a tax return if your earned income is below €14,000 per year.
(Under 25’s living in the household)
First child – €2,400
Second child – €2,700
Third child – €4,000
Fourth & additional children – €4,500
Additional for child under 3 – €2,800
(pensioner mother or father living in the household)
Over 65’s – €1,150
Over 75’s – €2,550
Grade 33%-65% disability – €3000
Grade 33%-65% disability and third-party care required – €6,000
Grade 65%-100% disability – €12,000
Tax on UK Pensions in Spain
The requirement for resident in Spain to pay tax on worldwide income extends to UK pensions.
There are some exceptions, namely work pensions that are paid directly by the UK Government, e.g. Armed Forces, Fire Service, Teachers Pension and son on. Under the double taxation agreement these are only taxable in the UK, which means that if you have one of theses pensions, your will only pay tax in Spain, on any other income that you may have. The double taxation agreement also ensures that you don’t pay tax twice.
UK Self Invested and Personal Pensions
These types of pensions are NOT treated as pensions for tax purposes in Spain, rather they are either taxed as general investments or retirement savings accounts depending on the underlying investments.
The tax regime in Spain, for lower income pensioners and some types of pension income, is in many circumstances more favourable than that in the UK. So apart from the fact that anyone living in Spain should be contributing to the system in Spain, a pensioner living here and paying UK tax on their pension could well find them self paying less tax in Spain.
How Is An Annuity Taxed in Spain?
Payments from annuities are treated as part repayment of the capital used to purchase the annuity and part taxable income. The split between capital and taxable part, depends on the age at which the annuity was purchased.
There are two types of annuities, life annuity which pays out for life, and a temporary which pays out for a fixed period of time.
Life Annuity Taxable Amounts
- Up to age 40 years 40% is taxable
- Age 40 – 49 years = 35%
- Age 50 – 59 years = 28%
- Age 60 – 69 years = 24%
- Age 66 – 69 years = 20 %
- 70 years plus = 8%
Temporary Annuity Taxable Amounts
- For a term up to 5 years 12% is taxable
- Term of 5 – 10 years = 16%
- Term of 10 – 15 years = 20%
- Term of 15 years plus = 25%
Declaring Overseas Assets
Anyone who lives in Spain and who own assets overseas of €50,000 or more, is by law obliged to declare them. Whilst this is not direct reporting for tax purposes, the law behind it is aimed at reducing tax evasion. It’s not specifically aimed at expats, but for obvious reasons, expats are a more likely to have assets overseas and therefore get caught up in the legislation.
Read more about Declaring Overseas Assets
Questions About Tax in Spain
Whilst the above provides a general overview of tax in Spain, it may also raise lots of questions if you are an expat or non-resident property owner in Spain.
When it comes to tax, everyone’s situation is different, and therefore, other than for very basic questions, you should seek answers from a relevant and suitably qualified person who can give you an opinion having reviewed and understood your situation.
Where your financial set up transverses more than one jurisdiction, then you should always make sure that the professionals you speak to are experienced in, and understand both.
If you have recently moved to Spain or are thinking about doing so, and would like to understand your tax position as a Spanish tax resident, we offer a free initial review with a financial and tax specialist.