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.
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 the opportunities available in Spain to reduce tax liabilities for yourself and your heirs.
This article summarises the key taxes affecting residents of Comunidad Valenciana and those owning property here.
The income tax rates we pay are a combination of state and regional rates. While there is no change to the state part, Comunidad Valenciana has changed its rates to reduce the regional portion for taxpayers with lower incomes and increase it for those who earn over €50,000 a year. The combined table for 2017 is:
|Taxable base (€)
||Tax on band (€)
|0 – 12,450
|12,450 – 17,000
|17,000 – 20,200
|20,200 – 30,000
|30,000 – 35,200
|35,200 – 50,000
|50,000 – 60,000
|60,000 – 65,000
|65,000 – 80,000
|80,000 – 120,000
The above rates only apply to general income (employment, pension, rental income, notional rental income, etc).
The 2017 rates for savings income (interest, dividends, income derived from life assurance contracts, purchased annuity income and capital gains on the sale or transfer of assets) are:
|0 – 6,000
|6,000 – 50,000
Non-residents who earn income in Spain pay tax at fixed rates of 19% if they are EU/EEA residents or 24% if resident elsewhere. For rental income, EU/EEA residents can deduct allowable expenses and so are taxed on net income. Everyone else is taxed on gross income.
Wealth tax is possibly the most unpopular tax among Spanish wealthier residents and property owners. Effectively ‘abolished’ in 2008, it was reinstated in 2011 and been kept in place since. As part of measures to increase tax revenue, wealth tax has been extended again for 2017.
Spanish residents pay this tax on the net value of their worldwide assets as at 31st December. Non-residents are liable on Spanish assets only. In Comunidad Valenciana, rates rise progressively from 0.25% to 3.12%. There is however an individual allowance of €600,000, plus up to €300,000 if you own your main home.
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 Spanish assets. The state did not make any changes, but there are reforms at local level which make inheritances and gifts more expensive, tax wise, particularly gifts.
From January 2017, civil partners (known locally as ‘uniones de hecho’) are now recognised with same rights for succession and gift tax purposes as married couples in Comunidad Valenciana. They therefore now fall under Group II for inheritances and lifetime gifts if they are registered and meet the corresponding requirements.
The former 75% tax relief for Group II beneficiaries on inheritances has been reduced to 50%. Group I beneficiaries continue to benefit from a 75% relief.
Additionally, there are changes to lifetime gifts as follows –
- The former 75% relief on lifetime gifts for relatives is no longer available.
- The €100,000 personal reduction for group II relatives is now only available where the pre-existing wealth of the donee is less than €600,000 (previously it was €2,000,000).
- The same new threshold applies for group I beneficiaries; however the personal reduction can be up to €156,000 depending on the beneficiary’s age.
- The benefits for family business are now limited to small size family run companies.
UK nationals need estate planning to cover both Spanish succession tax and UK inheritance tax.
Do not forget that Modelo 720 needs to be submitted by 31st March 2017, reporting the non-Spanish assets worth over €50,000 you owned at 31st December 2016 if you were resident in Spain. If you previously submitted this form, you only need to report again if the value of an asset increased by over €20,000; you sold an asset, closed an account or obtained new assets.
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 start to collect data in 2017, ready to exchange it in 2018.
If you live in Spain and have, for example, investments in the Isle of Man, bank accounts in Switzerland or pension funds in the UK, the Spanish local tax authorities will automatically 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.
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 Comunidad Valenciana for forty 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 financial 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.