Tax for residents
For many British and other foreign expats, tax is probably the key concern before moving their business or their lives to Spain. This is because they might have heard about its complexity, changes across geography and different treatment for nationals and foreigners. In fact, if you have a second home under the Sun you might qualify as a resident. Plus, you can also qualify if your dependent partner or family live in Spain; your main business is conducted in Spain; or you spend more than half of the year in the country. Of course, all of these conditions can and should be examined by a professional, like those working at Del Canto Chambers.
What Are the Key Taxes Paid by Residents in Spain?
While the UK tax year runs from April to April, the Spanish tax year follows the calendar year. Thanks to the 2006 double tax treaty, you should only be concerned by one of the timelines, as you can only pay tax in one of the countries. For expat residents, it is also important to disclose foreign assets (property, shares, instruments like pensions or life insurance) if those exceed EUR 50,000. There are some instruments you can employ to bring those assets into the country and limit their exposure to taxation.
The key tax paid by all residents in Spain is income tax. This income tax is applied to both income and savings. Regarding income, this includes wages, pensions, rent and that derived from gambling and other related gains. At the same time, taxable savings include dividends, income from insurance and other instruments, capital gains and overall interests from savings. After your self-assessment and by adding up these figures, authorities produce two baselines to which a particular rate is applied; depending on income. Non-residents, on the other hand, usually pay 24% from wages and other income; and 19% from savings.
Because of the challenges involved in defining your status, the possibility of having issues with the UK government and the ongoing Brexit process, it is advisable that you check with legal professionals experienced in both systems. At Del Canto Chambers, there are lawyers that can operate across both jurisdictions who are closely following the latest developments in international tax law. As a result, they can offer you the best possible advice for you, your family and your business when moving in or out of Spain.
What Are the Usual Rates Across Different Income Levels in Spain?
At the time of writing, the following were the general income tax rates in the country. As with other duties and matters, however, conditions change dramatically depending on the physical location. Some Autonomous Communities have lower tax rates or offer exemptions and deductions from certain activities. They change regularly, so rather than trusting online information it might be better to contact a qualified tax professional.
For anyone earning less than EUR 12,450.00, there is no need to pay income tax. However, starting at this number and at the thresholds of 20,200.00, 35,200.00 and 60,000.00 rates respectively go up to 24%, 30%, 37% and a maximum of 45%. Income derived from investments, savings and capital gains is, up to EUR 6,000, at 19%; between EUR 6,000 and EUR 50,000, at 21%; and at 23% for any gains exceeding that quantity. Again, these rates must be checked beforehand by professionals who are aware of the differences across the country, such as Del Canto Chambers lawyers, geographically spread across Spain’s key jurisdictions.
Do I Have to Pay Spanish Tax on My British Pension?
The short answer is: yes, in the case of most public pensions. However, before you leave the UK, you must let HRMC know about your change in residency status. This requires a specific form provided by Spanish Tax Authorities. The more time it takes you to provide this information, the more you will be paying British authorities at PAYE rates. Of course, if you are receiving a pension or any sort of State funding from Spanish authorities as a tax resident, you will also have to pay tax on this income. Only certain UK Government pensions are not taxable in Spain.
It should be noted that UK pension cash extracted as a lump sum is taxable as income derived from savings. At the same time, income from private pensions is also taxed as savings, which means that you will be charged a substantial amount, depending on your location. Certailny, you do not have to pay tax on profits from sales of British property; however, you will have to do so from gains in property and other transfers in Spain under its Capital Gains Tax. As a result, it might be better to study your options, timelines and scheduled payments before you make any decision. Moreover, certain complex vehicles like Qualifying Recognised Overseas Pension Schemes (QROPS) have been created to facilitate the transfer of pensions to another country. Make sure you fully understand them to make the most of your life’s savings.
What If My Residency Status Changes, or I Wish to Change it?
First, you should really clarify what your tax residence is. While there is some general advice above, cases can be very particular and full of problems and exceptions. For example, there have been cases of British expats returning to the UK for a short while who re-acquired tax status in the country. Again, residency rules are strictly established through international treaties. As a result, you cannot really “plan” you status. However, you can prevent unexpected costs, or the hassle of reclaiming against double taxation, with the right legal advice.
Make sure that, in that case, you are ready to confront the challenges of tax litigation across two jurisdictions. Some expats have ignored legal advice at their peril. In recent years, tax authorities across countries have increased their exchange of key information. Most nations where British expats reside (Portugal, Spain and France) have strengthened their tax inspection bodies and made fines more severe for those found to have broken the rules. Of course, ignoring these issues might grant you a more relaxing lifestyle in the country of your choice, for a short while. But, in the long run, it is better to rely on lawyers like those at Del Canto Chambers, who will be able to advise you or your company on the best next steps.
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