Taxes in Spain
Wealth Tax
It has been recently announced that Wealth Tax is to be re-introduced in Spain for a limited period of time. This is a temporary measure and will be abolished on 1st January 2013. So for tax years 2011 and 2012 (submitted in 2012 and 2013 respectively) you will need to remember to include any Wealth Tax portion in your annual Tax Returns.
It is not all bad news though. With any re-introduction comes changes, and I have attempted to pick out the salient points from the announcement and these are presented below.
1. The new Wealth Tax will be introduced on a gradual scale from 0.2% to 2.5% with the highest percentage being paid by the owners of the largest assets. Please bear in mind that the responsibility for collecting this tax has been transferred to each individual Autonomous Spanish Community (ASC’s or Comunidades Autonomas) who will be free to apply the percentages as they think fit and even to change the percentages if they think it is appropriate.
2. The tax exempt amount has been increased from 108,182.18€ to anything over 700,000€. This means that those persons with total net assets over 700,000€ will pay this tax. Again, please bear in mind that individual ASC’s are free to change the exemption amount should they consider it appropriate. One very important change to note is that the minimum exemption amount of 700,000€ will also apply to Non Resident Tax Payers in Spain. There will no longer be any discrimination between Resident and non-Resident tax payers in this respect. One subtle difference, however, remains. When calculating the Wealth Tax payable for Resident Tax Payers the exemption applies to your worldwide estate and for Non Resident Tax Payers the exemption applies to your assets in Spain.
3.
Residents
There is a further tax exemption for residents of 300,000€ allowable on their main home an example of the tax payable on a 1,300,000€ worldwide estate including assets held in the UK and offshore with a main home value of 400,000€ is as follows:
Main home 400,000€ minus exemption 300,000€ = 100,000€ to be added to other world-wide assets in this case 900,000€. This would then be less the 700,000€ leaving 300,000€ taxable at the regional rate.
Note: if the main home is valued at Less than 300,000€ then the unused allowance cannot be used against other wealth assets.
Non-Residents
Non-residents have a maximum tax free allowance on their assets in Spain of 700,000€ only. No tax is payable on assets outside of Spain. Regional tax rates will apply on all assets in Spain.
Companies
Companies from the UK, Spain and the rest of the world are not subject to the new Wealth Tax.
4. Non- Resident Tax Payers, who are subject to paying the new Wealth Tax, are recommended to submit their annual Tax Return using a Fiscal Representative who acts on their behalf in dealings with the Tax Office. The Fiscal Representative should be appointed in the following situations:
a. When the Non- Resident Tax Payer is operating from any kind of permanent establishment, eg office or shop.
b. When the Non- Resident Tax Payer is requested to do so by the Tax Office due to the amount and/or characteristics of the assets-
c. When a non-resident does not trade in Spain, then they must appoint a fiscal representative. This can be a person or company that is resident of Spain.
The appointed representative can be an individual or company but must be resident in Spain. Failure to comply will be considered to be a serious tax violation, punishable with a fine of 1000€.
Income Tax
Income tax is payable by non Spanish residents on their income in Spain @24.75% no deductions are available, If there is no income then on broad terms 2% of the Catastral value or deed value of the property will be charged @ 24.75% tax. No income tax for Companies. Non residents will require a fiscal representative to submit their tax return and receive any enquiries from the tax office. It is wise to make sure that you have in your possession a copy of the receipted tax return after you have paid, I am finding that many clients are paying their taxes to their fiscal representative and not receiving a receipted tax return ,when we check with the tax office we find that sometimes no tax has been paid over, I am not saying that all advisers would do this but as no regulation is required to be a fiscal representative it is prudent to check that your tax is being paid over.
Plus Valia Tax
This tax is charged by the Town hall on the land on a daily basis for the time that the land has been owned and is payable when any changes are made at land registry.
Capital Gains Tax
This Tax is charged to non residents when a property is sold and is charged at a rate of 21% of the profit on the sale of the property, a tax free period is available if the property was owned before 1997, when there was no CGT, This tax free period is now being eroded each day from January 2007.
UK tax is payable on the sale of Spanish assets at a rate of 28% less the tax free allowance of £10800 per year if not used on another gain, this tax is less the tax payable in Spain,
It should be considered that the UK tax is calculated on the sterling value when purchased and the sterling value when sold, so to give an example a property purchased in 2005 when the exchange rate was 1.5 to the £ on say a 300,000€ property would give a cost value in sterling of £200,000, if the property was sold now for the same money as it was paid for then there would be no tax in Spain but the tax would now be calculated in the UK based on the cost price of £200,000 and the now sale price of 300,000€ at 1.13 =£265,486 showing a profit of £65,486 this would be taxable in the UK at 28% after the deduction of allowances.
Inheritance tax (IHT) (ISD)
This tax is charged to the inheritor on the value of the inheritance were the owner or inheritor are non resident of Spain, residents are charged on local rules by the region but both deceased and inheritor must be resident of the same region.
There are some small tax free allowances depending on the relationship of the inheritor to the deceased, but the tax rates vary between 7.67% and 82% depending on the type of asset IE cash or property, the relationship of the inheritor,the amount of inheritance and the pre existing wealth in Spain of the inheritor if you follow the link below you can obtain a free calculation of your inheritors potential liability.
A UK domiciled person will need to probate the estate in the UK and would need to add the Spanish asset to the other UK assets a £325,000 tax free allowance is available and £650,000 on the second death of a spouse if the first allowance had not been used. the estate is then charged at 40% , no direct relief if allowable for the Spanish tax paid , There is an allowance called unilateral relief but this is subject to many criteria and depends on the value of the Spanish assets against the UK ones. So you should consider that your estate will be taxed in the UK and your inheritors in Spain. No tax is payable by Companies. A UK Will should be made in all cases a Spanish Will is not required by UK domiciled people as it can sometimes be in contradiction of a UK Will and can cause cost and confusion to sort out , only a UK grant of probate or letters of administration are required to transfer a Spanish property.
It should also be considered that a Spanish Will cannot be varied after death as a UK Will can be if it suits the inheritors.
Some advisers say that the inheritors should wait for 4.5 years before probating in Spain as this will save the tax, well the problem here is that in the UK it is required to appoint an executor of the estate and the executor is personally liable to discharge all taxes and debts of the deceased, I cannot see any Executor wishing to carry the personal tax liability of a Spanish debt in these days were international recovery of debt is improving
Resident Tax
I do not intend to confuse readers with Resident taxes at this time
If you need any further information visit our Eye on Spain link in the inheritance tax section Wincham Consultants Ltd
www.eyeonspain.com/spain-magazine/spanish-inheritance-tax-law.aspx