Spanish property owners face a double tax shock

In among a welter of new taxes that have been introduced by the new conservative-led Spanish government, are a couple which will hit foreign owners of Spanish property:

(1) The non resident tax rate is set to rise to 24.75% from the current 24% level.  That doesn't sound much but it comes on top of the reintroduction of the wealth tax and a big crackdown on holiday home owners who neglect to pay their taxes (see our guide What to do if you get a letter from the Spanish tax office)

(2) IBI or local property taxes are also set to rise across the country by an average of €30 for each of the next two years as the government seeks to let local councils raise about another €1 billion in taxes.  It is supposed to be a temporary measure.

Older properties that haven't been revalued for 10 years will be the worst hit as the tax will go up 10%

If you want to see whether you will get off lightly or suffer then take a look at your last IBI bill and look for the "ano rev" or year of revaluation - if it is 2002 or prior it will be a 10% rise, 2002-6 6%, 2009 or later 4%.  Properties revalued between 2007-8 will see no increase as they were the peak property bubble years and the properties are overvalued any way.

Spanish tax office delivers 300,000 nasty letters

The Spanish tax office began sending out letters headed “comunicacion” to foreign property owners a couple of months ago.  They have been causing a lot of concern to people who don’t understand what they say (they are in Spanish) or do understand but are worried by the implications.

To explain briefly to anyone who hasn’t come across this issue yet, these letters are notifications from Spain’s equivalent of the Revenue (Agencia Tributaria).  In essence they are saying  that they know the recipient owns a property but have not received tax returns from them.  They are not tax demands as such and do not require a response but they do suggest further action will be taken if the property owner receiving the letter really does have tax returns due.

It has been quoted that 300,000 letters have been sent  out.

I won’t go into detail about the matter as there is already some information about them out in the blogosphere and  I have posted a detailed Question and Answer guide on our main website:

What to do if you have received a letter from the Spanish Tax Office

I would like to clear up a couple of specific points which I haven’t read about elsewhere –

The letter claims that help will be available at your local branch of the Agencia Tributaria (Google your nearest).  I don’t know how true that will be in practice but it does open up the possibility of being able to resolve the situation without recourse to a professional i.e. paying a lawyer or accountant to catch up your taxes for you. 

If you want to take a DIY approach to the problem, firstly read up on the tax (our website has several articles on non resident tax – see the Advice page and use the drop down box).  The visit the tax office with all your documentation and see what they have to say.

Also you might wonder why the letter is asking for tax returns from 2007-2010.  There is a technical reason for this – the equivalent of a statute of limitations which prevents the tax office collecting unpaid taxes four years after they were due.  For example 2006 resident taxes were due by 30 June 2007 i.e. more than 4 years ago so not collectable. 

They didn’t ask for 2011 returns because they are not yet due.  2011 resident returns are due next June and non resident returns next December.

Spain targets rich taxpayers

Or does it? Spain's government was reported to be looking at ways of getting more tax from its wealthiest citizens last week. It's looking at ways of getting its budget deficit down to 6% this year. The inspiration is said to have come from France where a 3% tax surcharge was imposed on incomes over €500,000 recently.

One idea being mooted is a return of the wealth tax ("Patrimonio") abolished in 2008. This was an extra tax based on assets like investments and houses rather than income.

Because of reasonably generous tax allowances the tax didn't raise very much money - about €2.1 billion in its final year - and was quite an intrusive and inefficient tax. Its abolition was widely celebrated even though most of the wealth tax was paid by the very wealthy at the top of the pile.

One group that would be badly hit by a return of the wealth tax in its old form would be non resident property owners. Holiday home owners are already obliged to submit a tax return and pay income tax based on the rateable value of their house or apartment (see Spanish Tax Form 210 for details). Up until 2008 they also paid wealth tax which doubled or trebled their liability partly because they were not entitled to the same deductions as residents.

Hopefully it won't come to that. Spanish newspaper La Razon in an article entitled "The government parks taxes on high incomes" is pretty sure plans were discussed but then shelved due to differences of opinion within the governing PSOE. It categorically ruled out the return of the wealth tax or an increase in taxes on very high incomes (Spanish tax rates are already rising to 45% this year) although some other newspapers hedged their bets. Other articles this week have talked about the wealth tax returning but with a much higher threshold for paying it e.g. minimum assets of €600,000 or €1,000,000.

Spanish tax form 210 - All change!

A bit of a technical post this week that will only be of much interest to non resident Spanish taxpayers. The system for paying taxes as a non resident changed on 1st April. The changes are not huge but the bureaucratic fiddling about is likely to cause some confusion.

To recap for those of you who are not familiar with Spanish non resident taxes, the tax system in Spain is a bit different to that in the UK when it comes to foreign property owners. In the UK, and most countries, a foreign property owner would only pay tax if they actually earned income in the country e.g. they rented out the house when they weren't there.

Spain taxes rental income like that but also has a quirky and irritating rule that even foreign property owners who don't rent out their property and have no Spanish income must register for and pay income tax. The tax can vary from 20-30€ up to several hundred € a year depending on the rateable value of the property. There is a full description on our main website - Spanish Tax Form 210.

The tax is still payable and the form for paying is still the same (modelo or form 210) but:

- there is no longer a paper copy of the form available so you can't go to the tax office and get a form to fill in

- you either have to complete the form online or print out a copy from the website and present it at the bank

- where there is NIL tax to pay or a return to the taxpayer then this has to be presented (or posted "certificado") at the Agencia Tributaria office

- it can now be used for whatever income non residents have, the main categories being earned income from Spanish assets (e.g. rent or dividends), capital gains and imputed income from property.

- the modelo 215 which was used for rent in the past has now been replaced by the 210

- returns of tax to a taxpayer can now be made to an overseas account (non-Spanish)

That's about it but it's a new law so as we go through the year and start doing our clients' non resident tax returns then we may learn more about how this is all going to work in practice. I will post any updates here or on the main site here: Changes to Spanish tax form 210

‘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.