You need to review your tax planning from time to time, to check that it is up to date with tax reforms and that you’re using all the available opportunities to reduce your tax liabilities.
If you live in Mallorca or Menorca it is important to review your tax planning from time to time, to check that it is up to date with Spanish tax reforms over recent years as well as international developments that may affect you. You also want to make sure you are using all the opportunities available in Spain to reduce tax liabilities for yourself and your heirs.
This article summarises the key taxes affecting people living in the Balearic Islands and those owning property here.
Income taxes
The scale rates of income tax in Spain are made up of state and regional rates, and each Autonomous Community can amend their local rates.
So far, there have not been any changes at either state or local level for 2017, so the rates in the Balearics remain the same as last year as follows:
| Taxable base (€) |
Total tax rate |
Tax payable on band (€) |
| 0 – 10,000 |
19.00% |
1,900 |
| 10,000 – 12,450 |
21.25% |
521 |
| 12,450 – 18,000 |
23.75% |
1,318 |
| 18,000 – 20,200 |
26.75% |
589 |
| 20,200 – 30,000 |
29.75% |
2,916 |
| 30,000 – 35,200 |
32.75% |
1,703 |
| 35,200 – 48,000 |
36.25% |
4,640 |
| 48,000 – 60,000 |
37.75% |
4,530 |
| 60,000 – 70,000 |
41.75% |
4,175 |
| 70,000 – 90,000 |
44.50% |
8,900 |
| 90,000 – 120,000 |
45.50% |
13,650 |
| 120,000 – 175,000 |
46.50% |
25,575 |
| 175,000 onwards |
|
47.50% |
The above rates only apply to general income (employment, self-employment, pension, rental income, etc) for Spanish residents.
The 2017 rates for savings income are:
| Income (€) |
Tax rate |
| 0 – 6,000 |
19% |
| 6,000 – 50,000 |
21% |
| Over 50,000 |
23% |
Savings income covers interest, dividends, income derived from life assurance contracts, purchased annuity income and capital gains on the sale or transfer of assets.
Non-residents who earn income in Spain pay tax at fixed rates of 19% if they are EU or EEA residents or 24% if resident elsewhere. When it comes to rental income, EU/EEA residents can deduct allowable expenses and so are taxed on the net rental income. Non-EU/EEA residents are taxed on total gross income.
Wealth tax
Wealth tax is possibly the most unpopular tax among Mallorca and Menorca’s wealthier residents and property owners. The tax was ‘abolished’ in 2008, though in reality the legislation was kept in place and a 100% exemption was applied. This exemption was cancelled for 2011-2012 and since then wealth tax has been extended year after year, including for 2017.
Spanish residents pay wealth tax on the net value of their worldwide assets as at 31st December. Non-residents are liable on Spanish assets only. In Islas Baleares, rates rise progressively from 0.28% to 3.45%. There are however reductions available, ranging from €700,000 to €1 million for local residents, depending on whether you own your Spanish main home or not.
This can be a tough tax for wealthy residents. If you are affected seek specialist advice on how you may be able to reduce it, particularly on your investment capital where the way you hold assets can make a considerable difference.
Succession and gift tax
Spanish succession and gift tax affects everyone living here or owning local property or other Spanish assets.
Tax is paid by each recipient and spouses are not exempt. Allowances under the state rules for inheritances are just €15,956 for spouses, descendants over 21 and ascendants, €7,993 for other close relatives and nil for everyone else. Additionally, there is a 95% reduction against the value of the main home (with a maximum of €122,606 per inheritor) when it is inherited by a spouse or descendant and kept for at least 10 years.
Under state rules, tax is applied at progressive rates from 7.65% to 34%. Multipliers, depending on the relationship and the recipient’s net worth, mean the tax can rise to 82% in some extreme cases.
In the Balearics, the allowance for spouses, descendants over 21 and ascendants (group II) increases to €25,000. Additionally, they only pay 1% tax on inheritances under €700,000. Above this amount the tax rate ranges from 8% to 20% for these beneficiaries. Higher rates apply for other beneficiaries. Children under 21 have higher allowances and 99% relief on inheritances. The main home reduction in this region is 100% with a maximum of €180,000 if certain requirements are met. Additionally, there are several reductions and reliefs available for close relatives for gift tax purposes in this region.
UK nationals need estate planning to cover both Spanish succession tax and UK inheritance tax.
Modelo 720
Do not forget that Modelo 720 needs to be submitted by 31st March each year, reporting the non-Spanish assets you owned at 31st December the previous year if you were resident in Spain. You need to declare all overseas assets worth over €50,000 within the three categories that are reportable: accounts held in financial institutions, real estate and other investments (e.g. shares, securities, life insurance policies, etc. If you have submitted this form before, you only need to report again if the value of an asset increased by more than €20,000, or you sold an asset, closed an account, or obtained a new assets exceeding the thresholds indicated above for each category.
Automatic exchange of information
The global automatic exchange of information regime, implemented under the Common Reporting Standard, is now in force. This year the Spanish tax authorities will receive information on all its taxpayers’ overseas financial assets from 54 jurisdictions. A further 47 countries will start to collect data in 2017, ready to exchange it in 2018.
The loss of financial privacy affects us all. If we live in one country and have assets in another, our information will be shared between countries. Our local tax authority will automatically receive information on the financial assets we own overseas, without asking for it, regardless of whether they have any questions about our tax affairs. If you live in Mallorca or Menorca, and have, for example, investments in the Isle of Man, or bank accounts in Switzerland, or pension funds in the UK, the Spanish tax authorities will receive information on these assets.
Cross-border tax planning is complex. You need to ensure you are declaring income and paying tax in the right country, and are only using legitimate tax planning arrangements.
Tax planning
With specialist advice you can often use compliant arrangements to reduce tax on your savings, investments, pensions and assets. Blevins Franks has been advising UK nationals in Spain on their tax and wealth management for over 40 years, and has had an office in the Balearics for 20 years. We have in-depth knowledge of Spanish taxation and how to use tax regime to your advantage – with the right tax planning Spain can be very tax efficient for retired expatriates.
Any questions? Ask our advisers for help.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
