Tax and Wills in Spain

The tax system in Spain has recently been made a lot more 'user friendly' and the many of the rates have been reduced, especially for low incomes, however, it is still extremely complicated. However, it is not a problem most residents hire the services of a 'Gestor' for a small fee per annum, who will ensure that all relevant taxes and fees are paid.

It is vital to be aware that when you stay in Spain for 183 days or more in one calendar year, you automatically become legally liable for Spanish income tax, whether you are a formal resident or not.

If you take out 'residency', you will become liable on your 'total worldwide earnings', but however there are double taxation relief regulations which prevent you being taxed both in your country of origin and Spain. (Pensioners will not have to pay tax on any income which has already been taxed in their country of origin).

Any income earned in Spain is also liable to be taxed even if you are not a resident and spend less than 183 days in Spain, such as income from work or rental income on property in Spain .

What is the NIE (Número de Identificación de Extranjero)?

All foreigners with financial dealings in Spain must apply for an NIE (Número de Identificación de Estranjero) tax and identification number at the police station. You will need the NIE to open a Spanish bank account, arrange credit terms, use the National Health Service and for all tax matters.

What taxes will I be liable for?

There is a 7% tax on resale and new properties. For staged payments on a project build, the tax is paid on each staged payment.

Liability to yearly taxes due to the ownership of real estate in Spain

As a non-resident owner of property in Spain, you are liable for Spanish taxes. Taxes are classed as either Municipal or State.

Municipal taxes include: Tax for the collection of rubbish (Recogida Domiciliaria de Basura). This is often included in your Community Fees.

Municipal taxes are paid annually to the Town Hall. These vary depending on the area in which you purchase your property. Each Town Hall has its own period for voluntary payment, favouring prompt payers with certain discounts.

State Taxes include:
Wealth Tax - this is paid annually on the 31st of December and is calculated by percentage value of the property.

Property value is taken as the highest of the following:
• Purchase Price
• Cadastral Value
• Value checked by the taxation authorities.

Income Tax for Residents This is calculated according to two criteria:
• If the property is used only by its owner
• If the property is rented to a third party

In the first case, the income on which the tax is applied is a legal income and is presumed to have been yielded to the benefit to the owner of the property. This is calculated at 2% of the cadastral value of the property. The tax paid is 25% of this amount.

This supposed or legal rent is only paid on dwellings, not on plots or commercial premises. If the property is let to a third party, the rate is 25% on the net rent, as declared by the landlord.

Property Purchase Tax

All property purchases in Spain (with previous owners) are subject to 7% VAT (IVA) and 1% stamp duty and commercial properties and plots of land are subject to a higher rate of 16% and 1% stamp duty and a local tax.

Property Owners Tax (Rates)

Residents and non-residents alike are liable for property tax 'Impuesto Sobre Bienes Inmuebles' (IBA) which is similar to UK rates, which go towards local public services. The tax is calculated on the rateable value of your of your property. Property income tax is a flat 25% for non-residents and at the standard rate for residents.

If you own a second home, 2% of the value of your second home will be added to your total tax burden and if not a resident this tax will be paid on your first home.

Capital Gains Tax

Non-residents pay 35% on capital gains from the sale of property and as a resident you would also be liable for tax on top of this. There are some tax breaks, which can lesser the burden, such as reinvesting in another property as your principal residence, which would bring relief on the sum invested.

The remainder of the profit will taxed as a capital gain and as part of your income but the maximum percentage cannot exceed 20%. A non-resident vendor is required to lodge 5% of the purchase price with the Hacienda (Agencia Estatal de Administración Tributaria, but still called "Hacienda") to ensure that he pays his capital gains tax.

Wealth Tax

There is also a tax (patrimonial) on both residents and non-residents of 0.2% of the property (after deducting liabilities).

It is recommended to consult a tax advisor such as an 'asesor fiscal' or a 'gestor' which will cost from 60€ upwards depending on your case.

Inheritance Tax

Under Spanish tax laws both residents and non-residents are liable to be taxed on inheritance and gift tax (Impuesto Sobre Sucesiones y Donaciones) on any money bequeathed.

Should I make a Spanish Will?

Regulations regarding foreign wills in Spain can become problematic for heirs therefore it is easier to make a Spanish will for your assets in the UK . Otherwise you would be tied to the Spanish law of compulsory heirs. Spanish inheritance will be liable on your estate. Inheritance tax is due after the first 16,000€ for each inheritor and there are exemptions in place for minors and immediate family under 21 years of age.

If you have officially resided in Spain for three years or more and leave your property to your spouse or child (who is also resident, there is a possible 95% reduction in the inheritance tax burden.

Is it possible to obtain a mortgage through a Spanish bank?

When purchasing a property in Spain you can either arrange UK mortgage through a bank or building society, or take out a Spanish mortgage (fixed or variable rate). Most Spanish banks are happy to offer mortgages of up to 80% to residents and a lower rate of 60%-70% to non-residents. You will need to supply proof of your monthly income and outgoings, such as loan repayments, existing mortgage payments etc. The documentation required differs from each bank and there are various mortgage brokers with offices in Spain who specialise in finding the most suitable offer.

The usual terms are 10 to 15 years but it is also possible to arrange a longer repayment period of over 10 to 35 years. When doing your sums, it is necessary to take into account that fees and expenses will total approximately 10% of the purchase price and must be added onto the cost of the property. The bank will most likely charge an arrangement fee, which could range between 0.5% and 2.5% and a valuation of the property is obligatory. Arranging a mortgage outside Spain for a Spanish property could have impact on you liabilities or allowances.

Further Sources of Information
Spanish Ministry of the Treasury booklet, called Taxation Regulations for Foreigners. (Publication F-9).

Please Note, Any information provided here is for Guidance only and should not be used as a Substitute for professional Legal and Financial advice.