The taxman wants some of your Spanish rental income

If you live in Britain but own a home abroad which you rent out you can’t fail to have seen the recent headlines like this one:

Taxman pursues Britons hiding holiday rent on overseas homes

Apparently the Revenue have set up a special unit to go after “the rich” (defined as those paying 50% tax i.e. earning over £150,000 pa) and one of their tasks is to recover £560 million in unpaid tax on foreign rental income.

With the stern promise that there is “no hiding place for tax cheats” they will look at things like land registers and letting adverts to catch people earning income from their properties but not declaring it.

I don’t know how worried I would be if I was renting out my holiday home and hadn’t declared the tax. These kind of campaigns have been launched before and you sometimes get the impression its more about the publicity and scary newspaper headlines than anything of real substance.

It also wasn’t abundantly clear whether the campaign is purely about the holiday homes of “the rich” or whether it is anyone with a holiday home that is under threat.

By coincidence I got a reminder of how brutal the Spanish taxman can be when it comes to foreigners (and locals to be fair) when it comes to undeclared rental income. I got an email from someone asking what they could do about €6,000 that the Spanish tax office (la Agencia Tributaria) had taken from his bank account, with no warning or even a letter to say they had done it.

It turned out he had two holiday homes and he let out one through an agency for several years without declaring a cent for tax purposes, not even completing the non resident tax return which surely every Spanish property owner knows about by now (if you don't see this post 'Tis the Season to Pay Spanish Taxes).

We have to assume that the rental agency were asked for their records by the hungry Spanish tax wolves. I have some sympathy for the guy but then again a lot of people do things properly and pay their taxes, so why should the non-payers get away with it?

If you want to be one of those who declare their income then here is a link to an article on our main website which explains what to do:

UK and Spanish tax implications of renting out a holiday home in Spain

‘Tis the season to pay Spanish taxes

A rather dull topic this week but an important one for anyone with property in Spain, because the deadline is looming for declaring non resident taxes. All Spanish income tax declarations for non residents (modelo 210) have to be in by 31st December. The tax is collected either directly from the taxpayer’s bank account on the last day of the year or it can be paid in cash at the bank, with the completed modelo 210.

Resident property owners don’t have to pay this tax but it is worth noting that the Spanish tax office will not consider you a resident unless you have registered as such and filed at least one tax return (even if it is a “nil” return with no tax paid).

Also be aware that the system for non resident property owners who rent out their Spanish homes has changed. As in previous years the annual modelo 210 is not appropriate if you actually earn rental income – you are supposed to file quarterly form 215s. The change is that this year, for the first time, expenses “exclusively relating to the rental” can be claimed against the gross income. Rates (IBI), agents’ fees and advertising costs would fit under this category.

Back to the modelos 210 which non resident property owners have to declare if they don’t rent out. Full chapter and verse on the tax can be found on our website which has a special page (Spanish Tax Form 210) explaining all about it and giving details of our service where we will do it all for you for 30€.

Alternatively you can do it yourself - it is not a particularly complicated form to fill in and you can download it from the Agencia Tributaria’s website here. Remember that you have to register first before you declare (modelo 30). You pay it at the bank, but you will need to fix Agencia Tributaria identification stickers on the form before the bank will accept it. These stickers can be obtained from the Agencia Tributaria offices simply by showing your NIE (once you are registered with them).

The advantage of our service is that you can do it all online / by email even if you are not in Spain, and that includes the registration process. We even allow clients to settle our bill in pounds to a UK bank account.

Avoiding income tax in Spain - part 3

Keeping the tax man's hands off your money is a preoccupation almost as old as money itself (I am sure taxes were proposed soon after money's invention). I have written before about avoiding income tax in Spain both in general terms - part 1- and by going offshore - part 2. Today I want to touch upon two important and substantial tax savings available to us foreign residents of Spain. They are both entirely above board and sound very enticing but are not quite as attractive as they seem when you dig a little deeper.

Tax saving no 1: Application to be taxed as a non-resident ("Beckham's Law")

As I am sure all you well-informed readers know, a Spanish resident tax payer has to declare all their worldwide income. But there is an exception for foreigners newly tax resident in Spain: they can apply to be treated as non-residents for tax purposes i.e. only have to declare Spanish income and once more at the low rate of 24% (the top rate for residents is 43%). This is what David Beckham did when playing for Madrid, hence the nickname for the law. If your application is successful then you can take advantage of this attractive option for 5 years. There are conditions (see this good explanation here) but it is great on the face of it; certainly foreign footballers have benefited greatly.

Reservations: Two really. One is that you have to read the small print in the conditions which will make a lot of people ineligible, particularly the stipulation that you have to have moved to Spain to begin an employment contract with a Spanish entity and perform most of your duties in Spain. Secondly non-residents don't get the tax allowances and exemptions that residents get so although the rate is lower you may lose out in total because of the lost allowances (depends how much you earn and what sort of allowances you are entitled to).

Tax saving no 2. : €60.000 overseas earnings tax free

Another eye-catching tax allowance which applies if you are resident in Spain but go abroad to work e.g. doing contracts back in the UK or elsewhere in Europe. The problem here is very fundamental: you need to have paid the tax in the country where you worked so it isn't tax free as such although could be very useful if you often work in a country with low income taxes.

Conclusion: depending on your circumstances there are often allowances and benefits available so it's worth getting a tax adviser to look at your Spanish tax position when your tax situation changes. On that self-serving note I will leave you with a link to Advoco's tax services page:

http://www.advoco.es/home/22-latest/35-spanish-tax-advice.html

Non resident tax payers might also be interested in a recent article of mine called "Making sense of Spanish tax form 210"