Spanish residents owning high-value overseas assets, such as UK property, have until 31 March to submit the annual Modelo 720 tax form or risk costly penalties.
Long-term residents of Spain will be familiar with Modelo 720 (Form 720), but newer residents may be unclear on what they have to do. The penalties are prohibitive, so you need to get it right. The deadline, as every year, is 31 March.
If you were tax resident in Spain in 2020, you are legally obliged to submit a Modelo 720 declaring the assets you own outside Spain worth over €50,000. This is not a tax return as such; you need to complete it over and above your income and wealth tax returns.
Besides confirming what you have to declare this year, this is a good time to consider whether you are holding your assets in the most tax-efficient vehicles for Spain. If you have investments which were set up with UK taxation in mind, you may be paying more tax in Spain than you need be.
Tax residence rules in Spain
You are considered resident in Spain for tax purposes if any of these apply to you:
- You spend more than 183 days in Spain in a calendar year; or
- Your ‘centre of economic interests’ is in Spain; or
- Your ‘centre of vital interests’ is in Spain (i.e. if your spouse lives here).
There is no split year treatment, you are either resident or not resident for the whole tax year.
Summary of Modelo 720 rules
You have to report all assets in a particular category if the value of your total assets in it amounts to over €50,000.
This only applies to assets located outside Spain. The three reporting categories are:
- Accounts held with financial institutions (banks)
- Investments
- Immovable property
With joint assets, each owner needs to declare the full value (even if your share is less than €50,000) and indicate your percentage of ownership.
In general, you are obliged to report assets if you are the owner, a settlor of a trust, an effective beneficiary from a trust, authorised signatory, or you have the authority to dispose of the asset. This includes assets held by a company, trust or fiduciary.
Assets are valued using the wealth tax rules as at 31 December each year.
For bank accounts you also need to declare the average balance over the last three months of the year.
Investments held in other currencies need to be converted to Euros using the official exchange rate.
Modelo 720 declarations for 2021
For your 2021 form, you declare the assets owned as at the end of 2020.
If you have already submitted Modelo 720 in recent years, you only need to report again if:
- The value of an existing asset grew by more than €20,000; or
- You sold an asset/closed an account; or
- You obtained new assets.
Modelo 720 penalties
There are severe penalties for failing to correctly report all your overseas assets on Modelo 720, so get help from your tax accountant if necessary.
Remember, with global automatic exchange of information under the Common Reporting Standard, omissions and inaccuracies will be uncovered by the Spanish tax office. The penalties are:
- Failing to file Modelo 720 or filing it incorrectly: €5,000 per infraction (minimum €10,000 for each category).
- Voluntary, late submission: €100 per item (minimum €1,500 for each group of assets).
- The undeclared assets can be treated as unrealised capital gains and consequently included in the general base of the income tax return for the earliest year Modelo 720 was established.
- An additional penalty of 150% of the unpaid income tax is levied (unless you have submitted a voluntary disclosure).
Where tax evasion exceeds €120,000 in a tax year it becomes a criminal offence in Spain and can result in a one to four years' prison sentence.
In 2019, the European Commission opened an infringement procedure against Spain with the European Court of Justice over these penalties, which would normally take at least two years to resolve. However, it is only challenging the disproportionate penalty regime, and not the reporting requirement itself.
Effective tax planning for Spain
Many Spanish residents are paying higher taxes as a result of Modelo 720. However, Spain actually remains a tax-efficient country for British retired expatriates if you take specialist advice.
Talk to your local Blevins Franks adviser to establish if you could use other, legitimate arrangements to provide you with tax advantages you are missing out on now. Using compliant tax planning structures can save you tax and provide peace of mind. We can review your assets to make sure they are in the best structures going forward.
Arrange to speak to your local Blevins Franks adviser in Spain
The 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; individuals are advised to seek personalised advice.
