The start of a new year is always a good time to review your tax planning, to check that it is up to date and that you are using all the opportunities available in Spain to reduce tax liabilities for yourself and your heirs. It is even more important this year since there are a number of changes for Spanish taxation in 2015.
The start of a new year is always a good time to review your tax planning, to check that it is up to date and that you are using all the opportunities available in Spain to reduce tax liabilities for yourself and your heirs.
It is even more important this year since there are a number of changes for Spanish taxation in 2015.
The “Regulation on Personal Income Tax” has been amended for 2015. The government explains that it lowers tax for all taxpayers, but does more for those on low and medium incomes, and those with large families or who care for someone with a disability.
There are now five tax bands for general income, as opposed to seven, and the tax rates have been modified. Last year the starting tax rate was 24.7% for income up to €17,700. In 2015 it is 20% for income up to €12,450. The top rate is now 47% compared to 52% last year, but the income threshold for this rate has dropped from €300,000 to €60,000. Last year income between €53,400 and €120,000 was taxed at 47%, so there is little improvement here.
The savings income rates and thresholds are also a little lower. The rates are now 20% for income up to €6,000, then 22% for income up to €50,000 and 24% after that.
For non-residents who earn income in Spain, the tax rate is reduced from 24.75% to 24%, but for EU/EEA (European Economic Area) residents it falls to 20%.
While this is obviously welcome news after the tax rates over recent years (Spain had the third highest marginal tax rate in Europe!), if you have savings and investments you still need to protect your income and gains from tax. With the right tax planning Spain can be very tax efficient for retired expatriates, so contact the tax specialists at Blevins Franks to find out how much tax you can save.
Update: In July 2015 the Spanish government reduced the income tax rates further for fiscal year 2015. Click here to read our article.
Capital gains tax
All capital gains are now taxed at the savings tax rates, even those arising on assets held for less than a year (previously taxed at the scale rates for general income).
If you own assets (property or shares) acquired before 31st December 1994, you need to be aware that the time apportioned capital gains tax relief on such assets has been removed from January 2015.
Instead each taxpayer will be entitled to a cumulative lifetime allowance of €400,000 to apply to the sales proceeds of pre-December 1994 assets. Therefore, if you sell assets which you bought before 1995 and are now worth over €400,000, you could have a much higher tax bill.
When wealth tax was reinstated in 2011, it was meant to apply for 2011 and 2012. However it keeps being extended, and remains in place for 2015.
Spanish residents pay wealth tax on the value of their worldwide assets as at 31st December. Rates rise progressively from 0.2% to 2.5% (3.03% in Andalucía). There are however reductions available, ranging from €700,000 to €2million, depending on whether you own your home and if you are single or a married couple.
This is a tough tax for wealthy residents, so much so that some consider leaving Spain because of it. Blevins Franks may well be able to help you reduce this liability, rather than having to move, so contact us for personal advice.
Following the European Court of Justice ruling that Spanish succession tax was discriminatory, the Spanish tax authorities have now issued new regulations with significant changes to the way Spain’s autonomous community rules apply on inheritances and lifetime gifts.
From January 2015, if you are resident in Spain when you die, beneficiaries resident in an EU or EEA state can apply the local regional rules of the regional community you live in. If you receive an inheritance of Spanish assets from someone resident outside Spain, but in an EU/EEA state, you have the right to apply the regional rules of the autonomous community where the highest value of assets is located. If the assets are outside Spain you can apply the rules of your local community.
This is welcome news, since for many people the local regional rules tend to be more beneficial than the state ones.
Blevins Franks advise on succession tax planning, as well as UK inheritance tax for UK nationals, and how to reduce the liabilities for your heirs.
A new “exit tax” has been introduced from January 2015. It applies to taxpayers (residents of Spain for five of the last ten fiscal years) who lose their Spanish tax residence and hold shares or equity interests in any type of entity of mutual investment institution, whose market value exceeds €4,000,000 or €1,000,000 if the taxpayer holds a 25% interest in the entity. This applies to unrealised gains, so even if you do not sell the investments.
Payment may be deferred in certain cases, such as if the transfer is to a jurisdiction with which Spain exchanges tax information. If the individual moves to another EU/EEA country, the gain need only be declared if they sell the shares within 10 years or if they move out of the EU/EEA.
If you hold shares or investments worth close to or more than the values above, contact Blevins Franks for advice on how to structure the capital so that your investments fall outside this exit tax regime, so you need not be concerned by it should you leave Spain.
As always, you need to make sure that you correctly declare all your assets, both on your income and wealth tax returns, and on Form 720. With the new automatic exchange of information, the tax authorities will be able to spot any discrepancies or omissions.
Nonetheless, with specialist advice you can often reduce tax on your savings, investments, pensions and assets. Blevins Franks have decades of experience advising British expatriates and in-depth knowledge of Spanish taxation. We specialise in reducing tax on invested capital, pensions, wealth and inheritance, and have saved our clients a substantial amount of tax over the years.
Click here for personalised tax planning
18 December 2014
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.