Press Articles

There is never a dull moment in the world of Spanish Taxation!

Like it or not, Taxation in Spain underpins everything we do here. Whether it is buying your holiday home or moving here permanently, whether you want to release capital from your home in Spain, or in the worst case scenario, you fall off your perch and potentially leave your surviving loved ones with a financial headache, tax plays a major role in making life confusing.
Most major events involve the Notary, and these include:

·Buying a property
·Selling a Property
·Raising more money against your property
·Making a will
·Processing probate of your will

Notaries are there to check that the paperwork is correct, not whether your property is legal. In January 2008, the Notaries were asked to only accept a certificate from the Spanish Tax Office, confirming that the seller (if he/she lives permanently in Spain) is registered as a “tax resident”. Please do not confuse this with “Residencia” certificates: that is a totally different ball game.
In summary, no tax certificate means the Notary will deem that you are not a tax-resident, and will hold back 3% of the sale price, as is standard for non-residents. He may also ask if wealth tax has been paid and can demand back tax up to 5 years maximum, if you have lived permanently in Spain more than this time.

The Good News is that Wealth Tax was abolished from 1^st January 2008, but is still payable for 2007, by non-resident owners and second property owners in Spain. Watch this space, the Hacienda may well replace it with something else.

Being tax-resident for 3 years earns you additional tax breaks:
·Higher allowances against Inheritance Tax (This varies by Province)
·No Capital Gains Tax on sale of your main residence if one of the owners is 65

There are implications too, for joint owners, who are not married, in respect of Inheritance Tax.

Potential property buyers need to be aware of the taxes they must may as part of the transaction, such as I.V.A and mortgage tax, when setting their budget costings.
“Black Money” is a widely used practice in property purchase transactions, this is where the developer/seller declares a lower value than the agreed purchase price, which goes in the official documentation “escritura”. It technically illegal, but is still being used. The idea is to save both buyer and seller tax, BUT a word of warning here.... If the Provincial Government looks into random transactions, which is happening in Valencia, then the new owner can get a demand for tax, if it is deemed that the declared value was too low. I know people, who have had such demands up to 3 years after the sale/purchase went to the Notary. The encumbered owner is always liable for any under-declaring, not the person who sold the property.
As I said at the beginning, there is never a dull moment in the world of Spanish Tax.

Make sure you get the facts from someone who knows

Copyright: David Bates wwwdavidbatesfinancialadviser.net 2008

You have lived in Spain for 6 years, your lawyer told you that you did not need to pay tax, when you bought your house "because you get a pension from the UK". Wrong!!

The Spanish Tax Laws, which have not changed, state CATEGORICALLY that if you spend more than 183 days per calendar year in Spain, you have to register in the Spanish Tax system. "Double taxation agreement" does not mean that you can CHOOSE where you pay your taxes.
There are exceptions, for example if you have worked for the British Government as a civil servant or member of the armed services, you can only be taxed in the UK on that income. If you get a state pension and other private pensions from occupations you may have had after leaving government service,then those incomes must be declared and taxed in Spain

Failure to register can result, not only in fines for non-submission of tax declarations, but the tax itself. The Spanish Tax Authorities presume that if you haven't registered, you are "non-resident" therefore should be paying "wealth tax" (which we believe was abolished in January 2008, though you will still have to pay it for 2007).

This may become a problem, if you are lucky enough to sell your house in the current market place, as the notaries will only accept evidence from the Agencia Tributaria that you are registered as a tax resident. If you cannot prove it, they will not only withhold 3% to cover capital gains tax (from which you would be exempt if you have been a tax resident for 3 years and are over 65), but they will ask if you have paid wealth tax. If your answer is "no" then they will calculate 5 years worth of wealth tax and deduct from your net sale proceeds

Tax residency also gives you higher Succession Tax allowances, once you have been in the system 3 years and in the same house, which must be your main residence for 2 years.
Should you have any doubts as to your tax status, please consult an adviser, who speaks your language and take steps to become "legal".

Copyright: David Bates wwwdavidbatesfinancialadviser.net 2008