With such economic change in the past few years and the swift increase in globalisation though the recent decades, we may not be aware or able to keep on track of all the tax laws and fiscal changes that happen in each country and the repercussions they can have by owning a property or having a family member located in that country. Marbella Unique Properties is pleased to explain below the tax reforms that will have an indirect impact on UK expatriates.
Don’t get caught out by new Spanish tax laws
British expatriates living in Spain need to be informed to keep up with the new Spanish tax laws.
There are a series of changes that you need to be made aware of and are listed below under the following points:
- A new double taxation treaty
- New disclosure rules
- New tax bands
Before delving deeper into the new reforms, you should clarify whether you are a resident for tax purposes. This applies to expatriates and homeowners. You are considered a Spanish resident if you spend more than 183 days (approximately six months, not necessarily consecutive days) in Spain, per calendar year.
But you are also considered a Spanish resident if your “centre of vital interests” is in Spain. For example, if your husband or wife lives in Spain and you are not legally separated.
“The concept of “centre of vital interests” was introduced to prevent fraud when individuals kept their entire life in Spain, but made sure they remained under the 183-day barrier,” explains Jason Porter, Director of Business Development for Blevins Franks.
Double taxation
The UK and Spain have had a Double Taxation Convention for some time, but the new treaty came into force in June with new rules covering income tax and other taxes.
The new treaty is especially relevant for individuals and companies that are tax residents in Spain, but who receive an income from the UK, as well as those who divide their time between the two, perhaps paying taxes on both. For example, the new treaty could affect the amount of tax paid by certain expatriate pensioners.
Public service pensions paid to retirees of fire-fighters, police, civil servants, armed forces and local authorities are exempt from Spanish tax. Under the new treaty, the amount of the pension remains exempt, but must be included in the calculation of the amount of tax in Spain. This could have the effect of pushing any other income – perhaps from investments and rentals – into a higher tax range, which means that you would have to pay more taxes in Spain.
Rules for disclosure of information
The new Spanish “disclosure” law mean that residents and expatriates living in Spain will have to declare all assets abroad valued at over 50,000€. This includes bank accounts, property and life insurance policies. The tax authorities are now openly sharing information about the taxable assets of citizens to be able to claim the unpaid tax.
For residents who have been declaring their assets already, this should simply be an additional administrative taxation. However, for those who have not been claiming assets until now, there is potential for a significant taxation and fine. People in this situation should seek professional advice as soon as possible.
Possibly, if you have taxes pending and the Spanish Government are aware of them, you would be liable for the debt and they are authorised to take a deposit direcetly from your bank account.
Reduced tax bands
On the up side, there are proposals to simplify and reduce tax bands. Within these proposals, the seven income tax bands would be reduced to five, and the lowest fiscal band would fall to 19pc by 2016 from the current level of 24.75pc. The maximum tax rate for people earning over 300,000€ could fall from 52pc to 45pc.
“The average taxation on revenue is expected to be reduced by 12.5pc – but taxpayers with incomes under 24,000€ will pay 23.5pc less taxes,” says Mr. Porter. The rates and thresholds of savings incomes could also decrease.
Everything isn’t as positive as it may seem. The annual exemption of 1,500€ on dividend income could be eliminated and the deduction of 60pc from the net income per rental of residents could be reduced to 50pc. In addition, indexation, which allows the effect of inflation over time, would no longer apply when a property is sold.
“These proposed changes are not an inevitable conclusion,” Mr. Porter adds. “Even if they are approved, the multiple regions in Spain have the right not to apply them to change the tariffs.” “This really highlights the greater taxation on the individual,” says Mr. Porter.
Please do not hesitate to contact us for more details.
