If you have made the move to Spain and have applied for or have already obtained the elusive certificate of residency, congratulations. Alternatively, maybe you’re one of many people still considering relocating. Whichever category you fall into, the following article – whilst not what anyone in their right mind would consider gripping bedtime reading in the same way as “Pride and Prejudice” – is nevertheless important and concerns everyone’s favourite subject. Taxes. Spanish taxes!
It’s my very detailed outline of all the tax details relevant to British expats.
Before I start, may I remind you that what you are about to read does not constitute tax advice and before making any decisions it is always recommended that you contact an appropriate professional advisor.
Under 65s in Spain get a tax-free allowance of 5,550 euros (compared to the United Kingdom’s 12,500 pounds). This increases to 6,700 euros for over 65s and then again to 8,100 euros for those 75 years of age and over.
Married couples in Spain do have an advantage and can elect to be taxed individually or separately, though it is not always advantageous to be taxed as a couple. The married couples’ allowance is 3,400 euros (1,250 pounds in the UK).
As previously mentioned, there are also a number of additional targeted allowances that you will not find in the UK, notably:
• deductions for children under 25 years old (and living at home) – 2,400 euros for the first child, 2,700 euros for the second, 4,000 euros for the third and for each additional child 4,500 euros;
• allowances aimed at low earners (under about 14,000 euros), people with disabilities or who live with or care for elderly dependents.
So, although at first glance personal allowances are nowhere near as generous as their UK equivalent, Spain does have many more targeted allowances aimed at low earners, carers and families. So, the comparison many people make between headline grabbing personal allowances and reality is – I believe – a little unfair.
I have included a link to the various tax rates in each of the regions at the end of the article.
Property tax is a tax that has the potential to impact on many expats, residents or not. I’m not being controversial when I say that property tax in Spain is considerably more than in the UK.
To begin with Spain has the Impuestos Transmisiones Patrimoniales (or ITP) it’s similar to Stamp Duty in the UK in that it’s a tax applied when purchasing a property. The percentage charged varies according to autonomous region. So for example in Andalucia it’s between 8 percent and 10 percent (variable depending on the purchase price of the property). In Catalunya it’s 10 percent, and in Madrid 6 percent.
TIP – If you are buying a property in Spain it is sensible to add 15 percent onto the purchase price to cover all additional expenses (including the ITP).
On the sale of a property, Capital Gains Tax (CGT) is payable at 23 percent. However, if the property is your main / principal private residence (PPR), has been for at least three years and you use the proceeds to buy another property that subsequently becomes your main residence, then the CGT can be deferred.*
So in that respect if your intention is to buy a property and use it as your main residence, only selling to reinvest in another property, then you shouldn’t really have too many concerns.
*For full tax deferral, you are required to reinvest the whole of the proceeds in a new property. If you only re-invest 50 percent of the proceeds (for example you may wish to downsize) ,then you would only get 50-percent deferral.
TIP: If you are selling a UK property prior to moving to Spain, it’s vitally important that you seek professional advice before doing anything. Timing can be crucial and selling your UK property in the same year that you become tax resident in Spain could be costly and needs to be planned.
The good news is CGT does not apply on your PPR if you are over 65 years old!
Taxation of pensions
Pensions in Spain are taxed in one of two different ways: State and company pensions are taxed as earned income (Schedule E in the UK) whereas most private pensions are treated as investment/savings and consequently taxed as savings plans.
Those pensions paid out as an annuity may be subject to tax under a special “annuity tax regime” at a lower rate, though care does need to be taken and I certainly would not want to rush out to convert your pension to an annuity.
Again, the watchword is as ever take professional advice, particularly if you are in the throes of moving to Spain. One example I can give you is tax-free lump sums in the UK are rarely if ever tax-free lump sums in Spain. so please tread very carefully and seek professional advice.
Employment and self-employment in Spain
In much the same way that tax and national insurance is deducted in the UK under PAYE, if you are employed in Spain, tax and social security is deducted at the source.
Self-Employment however works differently in Spain. First it’s referred to as autonomo and, as in the UK, the tax is based on annual profit. However, there are a couple of things to consider.
Nearly all businesses in Spain are IVA (value-added tax in the UK) registered, so you would certainly need to employ the services of a tax advisor.
In the case of autonomo there is a huge “however.” Anyone who is self-employed in Spain will need to pay a flat monthly fee (if you are familiar with the workings of UK tax you should think of it as the equivalent to Class 2 and Class 4 National Insurance contributions combined). The amount? Initially (for a period of up to two years) someone who is a newly registered will pay about 70 euros per month Again it will vary from region to region.
The full rate will be closer to 300 euros (three hundred) per month that is, I am afraid, regardless of earnings. There has been some suggestion that the monthly flat fee will be replaced at some point in the future by something more akin to a tax based on profits (UK equivalent of the Class 4 National Insurance). However I’m not holding out much hope that this will happen anytime soon.
TIP – If you are autonomo or employed, then the social security contributions that you or your employer will pay will give you access to benefits should the need arise. They are contributions towards the Spanish State Pension and, importantly, they give you and your spouse access to Spanish Healthcare. (Children up to 15 are entitled to free health care regardless.)
And here I’m going to leave self-employment and possibly return to it in a
later article when we look at being self-employed.
Pt. 2 of my deep-dive into Spanish taxes is coming up.
About the author:
Irina Greensitt is from the far eastern town of Khabarovsk in Russia, but has previously been living in the United Kingdom for seven years before moving to Spain in 2014 together with her husband and two young children.
Irina now runs an internet business and lists walking, travel and sailing (passing her skippers exam in 2016) amongst her hobbies.