Spanish Property Owners Tax Liabilities Spain and UK

[Papillon]

Over the years I have heard many owners express their opinions concerning tax liabilities both in UK and in Spain.

“I pay tax for my Spanish property in UK as that is where I live and where I bank my income so I have no need to pay Spanish Taxes”

And

“I bought my apartment for cash and don’t rent out so I have no tax liability”

To

“I’ve never paid bin and sewerage charges as I am not here much during the year”


We may laugh at such misconceptions but it is quite understandable when we read there is so much confusion, lack of information and of course, for many of us, a language barrier.

So what I would like to do is to try explain the maze of tax legislation from a layman’s point of view, I am not a tax expert, accountant or someone who gives financial advice so please read with this in mind.

So let’s start at the beginning.

Municipal Property Tax (IBI).

Council Tax or Rates to most of us but to the Spanish it is Municipal Property Tax (IBI). This is a charge made by local government for sewage and bins and is split into two parts.

The tax is based on the Cadastral Value (rateable value) of your property and can vary from region to region. Just as with council tax in UK you are legally obliged to pay this and if you don’t then you will find a large bill when you come to sell your property.

This is the easiest tax to pay, just pop along to the council offices in Pollenca not far from the town centre square. (If anyone has the address and directions let me know and I will edit).

They are very friendly and will let you know how much you owe (2 years for me) and will set up a direct debit to take the annual charge in October. For a property of €110,000 cadastral value you will pay about €500 annually.

Before you leave the office make sure you get an IBI receipt because that is where your “Valor Cadastral” will be printed. Also try to find out when your property was valued as those assessed before 1st January 1994 and those after will have implications that I will explain later.

 

[Papillon]

Non Resident Tax with Imputed Income (IRNR)

This is the Non Resident Tax based on the deemed rental (imputed) of your property for a calendar year. You have until 31st Dec to file a Modelo 210 for the previous year and may vary slightly depending on the tax rate at the time.

Despite solicitors and others telling you otherwise it is a very simple tax to calculate and pay, the Agencia Tributaria have even produced a self assessment work template and instructions for completing and filing all in English.

Before we look at the forms lets just see how to calculate the tax base rate or “imputed income”

Tax base is 2% of the cadastral value of the property (found on the IBI receipt), or 1.1% if the cadastral value if it has been revised since 1st January 1994.

So first calculate the base rate for tax

Then apply the appropriate tax rate: 24.75% (temporarily increased for 2012 & 2013)

You can now see why it’s worth getting the info from the council offices before you leave.

So using the 1.1“% rate as and example

Cadastral value of property = 200,000 Euros

Base = .011 x €200,000 = €2,200

Tax = 24.75% x €2,200 = €544.50 (for 2012 & 2013)

So if there is more than one owner of the property you will divide the Base by the number of owners and submit a Form 210 each.

These are the instructions from the Tributaria website.

They are worth reading but can be a little confusing so print a copy off for reference.

https://www.agenciatributaria.gob.es/static_files/AEAT_Sede/Ayuda/GF00/en_Instr_210.pdf

So let’s move onto the self assessment template that is again provided in English.

https://www2.agenciatributaria.gob.es/es13/h/ie02100b.html?idi=en

Ensure you have the latest version of “Adobe”. Note neither link will work on iPad.

You may have an AEAT Applet security warning appear with this question,

“Do you want to run Application?”

If So

Tick “accept” then “run”

You may have to do this twice.

Starting at the top left.

1. NIF your personal number, this will generate a bar code on the final copy.
2. Names surname first.
3. Capacity, tick “S” Taxpayer.
4. Period, select “Annually”
5. Accrual year “2012”. Remember filing for end of last tax year.
6. Accrual date 31.12.2012 Again up till the end of previous year.
7. Income type “02” This generates box "210 I" to declare Individual Taxable Base
8. Currency keys “Euros”

Taxpayer Details

9. NIF
10. F/J select “F”
11. Names again
12. Ignore NIF in the country of residence
13. Date of Birth
14. Place
15. Country Code, UK as always near bottom.
16. Tax residence country code same as previous

Home address

17. Self explanatory, No need for additional information, email, telephone and fax nos.

Ignore Taxpayers representative.

Location of Property

18. Write full address in “Street name” ignore the rest of the boxes.
19. Continue with Post Code
20. Province - from drop down Illes Balears
21. Municipal Name - from drop down Pollenca
22. Taxable base (Imputed Income).011 x cadastral value or .02 x cadastral value

This is now divided by the number of co-owners to find the individual tax base rate

Final assessment. (Box numbers in brackets)

23. Tax rate 24.75% for 2012/2013

24. (22) Full amount due. The individual tax base rate amount calculated in 22 above x .2475 for each co-owner. Remember each person has to file a separate form.

25. (24) (28) (31) same as box (22)

26. Receipt No from your previous form 210. (I don’t think this is required)


So that’s it, hit “Validate and generate PDF” and either see the print out of filing instructions and the 3 orange form 210 completed in English.

Or

Copy errors into Google translate (errors are in Spanish) find out what you left out and try again.

No need to take form 210 personally to Spanish bank, just scan and email the appropriate copy and they will do it for you.

 

[Papillon]

Non Resident Tax with Actual Income (IRNR)

Once again this is very simple, exactly the same as before except

4. Period. Select as you see fit. You are supposed to file rental income quarterly but if you file annually you will just be charged interest (I believe)
5. Accrual year will be the tax year you are in.
6. Accrual date is the date ending the period selected.
7. Income type now will be 01

Selecting “01” income type will now generate 2 a new boxes

a.”Payer / Withholder / Issuer / Property purchaser”. Remember only one of the co-owners pays tax so important to think about double taxation liabilities with HMRC.

b.”210 R Income” Complete the “actual income boxes”

Box 05 Full income
Box 07 Expenses.
Box 08 Taxable base. (Actual taxable income).

Transfer this figure (08) to box (22) than calculate as before using applicable tax rate in box (21)

A quick word about expenses.

Until 2012 no expenses were allowed to offset income and the tax rate was 35% and very few actually declared an income. After EU intervention the law was changed and saw the rate drop to 24% before rising to 24,75% for 2912 / 2013.
The EU ruling states that mortgage tax interest and all outgoings concerned with the services for the apartment can be offset against tax. Community tax, IBI, insurance gas, water, electricity etc can be offset on a pro rata basis.
With luck you could probably reduce your tax liability to about 20%.

Remember if you are paying tax on rental income you do not pay tax on imputed income as well.

So once the form 210 is completed continue as before and print in English. I have never done it so it will be interesting to get feedback over time.



HMRC.

This is the position regarding double taxation.

DT17553 - Double Taxation Relief Manual: Guidance by country: Spain: Income from property

The first paragraph basically says there is no tax liability for imputed rental income.

The second paragraph makes it clear you have a responsibility to declare your gross earnings from Spanish Property but you will be credited with Spanish tax paid against your UK liability.

In fact this works out well as any Spanish tax would have been declared and paid over a year previously so you would have all form 210 receipts.

Of course in the UK we have more generous allowances so the tax liability would be minimal.

If the Spanish tax is paid by the partner or spouse with the lowest income taxed at the basic rate of 20%, then there may be no liability as 24.75% has already been paid, however there can be no rebate of the 4.75% surplus tax paid in Spain.

Obviously anyone in a higher tax bracket would have to pay the additional tax.

So that’s it, I have tried to bring everything together under one roof, I am sure I have made the odd mistake but this is really the first attempt so any corrections or input will be welcomed and I will edit accordingly.

So that’s it a layman’s version of your tax responsibilities, you can either pay a solicitor to do them or try it for free yourself.

Papillon

 

[eleanor]

Papillon thank you so much for taking the time and effort to post this. This will be very helpful to many and a good guide to have for reference. Thank you

 

[pollensa]

Thanks very much for taking the trouble to clarify this for everybody. As you say, it does astonish me too when people object to paying tax on income from Rentals (regardless of whether the rental itself is legal )

When we purchased our property (over 12 years ago now!), both the Community Taxes, imputed income tax & wealth tax (in force at the time) was all set up by our solicitor & we are very grateful for that. I know you can do it all yourself but we are happy to pay a nominal sum for our tax to be dealt with each year. It also allows us to contact our solicitor informally on other matters if we need to do so.

We were also advised early on to draw up Spanish Wills, which unlike in the UK, are actually registered. These will need revisiting at some stage along with inheritance issues but that's another issue entirely & much, much more complicated.

 

[Papillon]

Pollensa it's important to understand that the tax template produces a pdf file that can be printed forwarded to your bank for payment.

Edit. When you click to print out your form you will also be filing your tax return and there will be a charge for using this service, something I only found out about today. You will have the option of paying online by bank transfer or through bank as normal transaction.

 

[eleanor]

Inheritence tax is associated with this thread and certainly it is complicated.

There was a company talking about this in Talk of The North. It was quite a shock to read that tax is paid by the spouse on half the property. From how I understood it. It seems this tax has to be paid within six months or that word 'fines' comes in again plus interest. The joke is unless i read wrong, you can not sell the property until the tax is paid! There are ways around this it seems. You can put the property into a UK limited company name so the property belongs to the company and the company has share holders. Once again total madness and I have to question if I have got this wrong as it seems so unreal.

 

[Papillon]

Thanks eleanor, lots of good guidance given on the net about inheritance tax but if you C&P this headline there is an interesting article on the subject from last year.

Expats in Spain 'owed £400 million in overpaid inheritance tax'

 

[El Gordo]

Non Resident Tax with Actual Income (IRNR)

.............................Remember if you are paying tax on rental income you do not pay tax on imputed income as well....................Papillon

Hmmm Is there any advantage of renting out for a short time and paying income tax, rather than paying imputed tax?

Hmmm Note to myself to start charging the family for coming out!!

Maybe not?!

 

[Papillon]

Good idea but it appears you don't pay both taxes by virtue of the fact you are only paying tax on income above the imputed.
As always taxation is never an easy subject.