For British expats living in Spain or planning an imminent move, the tax system may appear daunting and complex. Arguably more complicated than the UK equivalent, the Spanish tax system needs to be carefully negotiated to ensure you avoid the severe fines and penalties imposed on those who fail to meet their financial obligations.
Spain has long been one of the most popular expat destinations for Britons, offering the idyllic combination of culture, climate and familiarity, the latter of which is aided by the many expat communities that now thrive across the country. Unfortunately, no amount of expat support can help you identify your own specific tax liabilities, which are complicated by the ever-changing Spanish tax rules.
At ExpatRoute, we understand that all tax rules can be complex and intimidating, let alone those that are completely unfamiliar. To help you get to grips with Spanish tax laws, we have taken a closer look at some of the tax rules that have recently been introduced in this ever-popular expat destination. But remember — the frequent updates made to tax law by the Spanish government mean it’s important to get independent advice from a tax expert if you want to ensure you are abiding by all of the tax rules that apply to you.
The tax system in Spain
The tax system in Spain runs from January to December. As is the case in many countries, residents and non-residents will have different tax liabilities, so you will need to understand your resident status before you can understand what tax laws may apply to you. For example, Spanish residents must pay tax on all income gained from around the world. However, there are tax deductions available in certain situations and tax treaties are in place between Spain and a number of other countries across the globe. On the other hand, non-residents have different liabilities and will only have to pay tax in Spain on Spanish income. This applies to income from work, as well as income from assets such as property, which is usually charged at a flat rate.
While this system is not dissimilar to the British tax system, there are more rules in place, which can make things a little more complicated. For instance, taxes in Spain are split between state and regional governments, meaning tax rates can vary from region to region. Whether you are considering income tax, property tax, capital gains tax or any other form of tax, you will need to consider how the tax rules in your particular region apply to you. Local experts will be able to inform you of all the latest rules to be applied to the area where you live or are hoping to buy, so seek independent advice if you feel unsure of your tax obligations.
Recent tax changes in Spain
While we are unable to provide specific advice on the tax that applies to each expat, we have explored some of the most recent changes made to the Spanish tax system to ensure you are not penalised for missing the government’s latest updates.
State income tax
The Spanish General Budget Law for 2021 was published on 31 December 2021 and will apply throughout 2021. This budget does not directly impact on regional rules but it does dictate state rules. Under the new budget, for example, a new income tax band has been introduced that allows the government to tax general earnings above €300,000. The new tax rate for this band is 24.5%, up from 22.5% for the previous band that applies to earnings up to €120,000. It is also worth noting that these taxes are only the state half of the income tax rates — for the top expat region of Andalucia, for example, expats income will be subject to a total tax rate of 48.2%.
Tax on savings
The new budget for 2021 also introduced new laws for savings income, which is taxed separately to general income. Under the new budget, expats living or earning in Spain are liable to pay a 26% rate of tax for income of more than €200,000. For savings of less than €6,000, savings income for 2021 will be taxed at 19%, so those with savings between these figures will be liable to pay tax between 19% and 26%, depending on the amount of savings subject to state tax laws.
Post-Brexit income tax rules
Under the Spanish tax system, third-party nationals are taxed at a higher rate than EU/EEA nationals. This means that UK residents will now pay higher levels of income tax than Spanish residents or expats who are registered residents in another EU country. However, if you become a registered Spanish resident you will no longer be liable to pay these higher levels of tax.
Property rental income
Before Brexit, UK nationals were considered EU citizens under Spanish income tax rules. This meant that expats who were residents in the UK but had Spanish property to rent — such as Spanish holiday homes — would have to pay the same income tax rate as Spanish residents. However, this rate has changed as a result of Britain’s exit from the European Union. Rather than paying a flat rate of 19% income tax on rental income, non-EU citizens are required to pay an incremental rate of up to 24% on rental income, with no allowable expenses.
Capital gains tax
If these changes to Spanish income tax have prompted you to look into selling your Spanish property, don’t forget that asset sales are subject to capital gains tax. Specifically, if you are under the age of 65, you will have to pay Spanish capital gains tax on any income you receive as a result of Spanish property if the profits will be invested in a non-EU country, such as the UK. However, if you are planning on becoming a Spanish resident in the future you may wish to consider keeping hold of your Spanish assets and avoiding purchasing the equivalent assets in the UK. This is due to the fact that Spanish residents are liable to pay capital gains tax in Spain on the sale of property and other assets around the world. As such, a Spanish resident selling UK property will also be charged capital gains tax.
Am I a tax resident in Spain?
To help you find out whether all of these changes will apply to you, you will first need to establish whether or not you are legally considered a tax resident in Spain. While this is another of the rules that is subject to change by the Spanish government, typically you are considered to be a tax resident if one or more of the following apply to you:
- You have spent more than 183 days in Spain within a single calendar year. This applies regardless of whether or not you are formally registered as a tax resident.
- Your primary work activity takes place in Spain. This applies whether you are self-employed or employed in Spain.
- Your dependent family members live in Spain. This could include a spouse or children.
Finding out more
While we hope the information above will help you discover your own tax status in Spain under the latest tax rules, we encourage all expats to seek independent advice to avoid receiving any penalties or fines.