Understanding Spanish Taxes For UK Expats
It is important to understand your new tax responsibilities when you decide to become resident in Spain.. Yes, even in a new country, you still must pay taxes. There are several similarities to your regular taxes, but here Holborn Assets explain the major points to plan for regarding Spanish taxes so you can prepare in advance and avoid some potentially expensive mistakes.
Written exclusively for Expat Network by Jason Swann of Holborn Assets
What Types of Taxes Does Spain Collect?
Just as in the UK, expats must pay attention to several different types of tax and pay any and all that apply. Here are the major types of taxes to consider.
Income tax is the tax you pay for making any money from employment or self-employment. Just like in the UK, income is taxed on a progressive scale, and we’ll have the details on that scale in a later section.
If you live in Spain for more than 183 days (more than 50% of the year), then you qualify as a Spanish resident and must pay regular income tax as such. Here are some of the other minimums to help you confirm whether you need to pay income tax:
- Employment Income greater than €22,000
- Rental income greater than €1,000 within the tax year
- Capital gains (investment or savings) of more than €1,600
- First year of residency in Spain
Non-residents will usually only be required to pay a flat 24% if coming from the UK or other non-EU country.
Value Added Tax (VAT)
While you will pay this tax whether you’re a resident or not, it’s important to understand the VAT as it is taxed in a few different tiers just like in the UK, but the rates are different.
- Superreducido – This is the lowest VAT tax. It is a 4% charge on essential items such as food, medicine, books, and newspapers.
- Reducido – The second tier is a 10% tax on transportation including toll roads, some municipal necessities such as trash collection, wastewater treatments, and pest control, health products, and some entertainment such as porting and exhibitions.
- General – 21% tax on all other goods and services, including alcohol and sweetened beverages
Depending on where you live in Spain, you could be responsible for between 0.2% and 3.5% in wealth taxes.
For non-residents of Spain, this begins to accumulate on assets above €700,000. For residents of Spain, the wealth tax starting asset value depends on which community you live in Spain, also known as your Comunidad Autonama. For some communities, the wealth tax begins at €500,000. For Madrid, the tax begins at €2,000,000. Be sure to check your local requirements if this might apply to you.
Tax on UK Pension
If you are a non-resident and do not expect to stay more than the requisite 183 days in Spain, the pension taxes would not apply to you.
However, Spanish resident expats are required to fill out a form called the “Certificado de Residencia Fiscal NEN” and send it to the HMRC. This lets both the Spanish government and HM Government know that you will no longer be paying UK income tax on pension payouts.
If you qualify as a Spanish resident, you may still need to pay taxes in the UK as well as in Spain, though it depends on your pension payer and type of payout (lump sum payouts may be taxed in Spain under Savings Income Tax rules).
Capital Gains and Savings Income Tax
Capital gains taxes involve the sale of assets such as stock and savings investments for a profit. These are generally extremely complicated and depend on the type of investment.
For the most part, capital gains taxes follow a scale if the income is from sale of a property or shares.
- 19% for up to €6,000
- 21% for between €6,000 and €50,000
- 23% for between €50,000 and €200,000
- 26% above €200,000
If you own any assets above €50,000 outside of Spain and qualify as a resident, these assets must be declared on your tax return. This includes any assets such as cash, property, shares, or even life insurance.
Property taxes are the way local governments collect tax and maintain the neighborhoods. Each community has different requirements, so be sure to check your community and ensure that you follow the local rules.
Both residents and non-residents are required to pay property taxes, and it is calculated by taking the rental value and multiplying it by a tax rate defined locally.
Will I Need to Pay Both UK and Spanish Taxes?
If you earn income on, for instance, a stock portfolio in the UK, the double tax treaty signed between the UK and Spain allows you to declare this income on your Spanish tax return without having to pay double the taxes.
What Are the Tax Brackets?
For 2021, here are the Spanish tax brackets. Again, these are progressive, so you pay the percentage up to the maximum in each bracket until you reach your taxable income. At that point, you pay the percentage from the lower end of that bracket up to your income and multiply by the tax rate.
- 19% on income up to €12,450
- 24% on income between €12,451 and €20,200
- 30% on income between €20,201 and €35,200
- 37% on income between €35,201 and €60,000
- 45% on income between €60,001 and €300,000
- 47% on income more than €300,000
Are There Any Tax Deductions?
There are standard tax deductions like there are in the UK. A basic personal allowance of €5,550 applies for residents paying tax who are under age 65. For those over 65, a €6,700 deduction applies, and for those over 75, there is a deduction of €8,100.
There are also deductions for children starting with €2,400 for the first child. The deduction increases depending on the number of children up to 4 children (€4,500 deduction for the fourth child).
Are There Penalties for Not Filing Taxes?
As with most countries, the Spanish government will charge a penalty for a late tax return, and there are no tax return extensions granted – all tax returns are due between April 6 and June 30 of each year.
In addition to a €100 fine for a late return (€200 if you received a notice), you will pay interest on any owed taxes starting with 5% for up to three months all the way to 20% if you pay owed taxes over a year late.
How Do Expats File Tax Returns?
If you meet any of the requirements from the first section on income taxes, you’ll need to file a tax return after your first year of residency.
You can file your return online, or you can hire a tax professional to help you. This depends entirely on how complicated your taxes are.
Spanish taxes can be extremely complicated, especially if you’re an expat and just trying to get your bearings on your new home. Luckily, the tax system in Spain is not all that different from that of the UK. It simply helps to understand the system a bit better and know that, in addition to income tax, you’ll need to gather information from your local government on any required property taxes.
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