Frequently Asked Tax Questions - Michael Shilan C.P.F.A.

Do I have to submit a Spanish Tax Return? - If you live in Spain for more than 183 days in any calendar year you are considered as resident for tax purposes and if you have a salary, wage or a pension bringing in 11,200 €uros in a year or have investment income of 1,600 €uros per year you are obliged to submit a Spanish Tax Return. If you earn less than this you can still voluntarily submit a tax return.

Why would I submit a tax return if I earned less than 11,200 €uros? - Submitting a tax return ensures that you are recorded as being a tax resident of Spain. When you sell your home you may need a certificate to prove you are tax resident. If you have not submitted a tax return you cannot get the certificate. If you inherit property from your spouse you may not need to pay inheritance tax if you can produce a tax resident’s certificate. Of course you may earn less than 11,200 €uros but be entitled to a tax rebate from the Spanish Tax Office. You cannot receive that rebate unless you claim it by submitting a tax return or submitting a signed “Borrador”.

What is a “Borrador”? and how do I get one? - A Borrador is a draft tax return which has been prepared by the Spanish Tax Office. If you agree with the figures all you have to do is to add your Spanish Identity number and take it to your bank. The Borrador will show if you owe tax or are entitled to a rebate. The Borrador does not include any income that comes from outside Spain i.e. your UK State Pension, Private Company Pensions, non Spanish investment income etc. If you have such income you cannot submit a Borrador because you would not be declaring the truth.

To get a Borrador you can order one on the Internet or go to your local Spanish Tax Office. You will need proof of identity if you go to the Tax Office. If you have submitted a Spanish Tax Return for the previous year you can order one by internet but you will be asked for an amount from a particular box that you have completed on last years return plus your Spanish Identity number

I pay tax in UK so I why should I pay again? - There is a Double Taxation Agreement between Spain and UK so that you do not pay tax twice on the same income.  If you pay tax in UK you normally have to declare that income on your Spanish Tax Return but you receive a credit for any tax paid in UK.

If I am paying tax in UK can I get it back if I pay tax in Spain? - To avoid paying tax in UK you need to get a certificate of tax residence status from the Spanish Tax Office in your area and send it to your Tax Office in UK along with the UK tax form SPA/Individual which can be downloaded off the internet. Ex-government employees (i.e. Civil Servants and Local Government workers) cannot get their pensions exempt from UK but they can get their State Pensions and any other private pensions exempted.

Why does my accountant want to see my P60’s?  - At times the Spanish Tax Office can ask you to present supporting documents for the figures that you have put in your tax return. Your accountant probably wants to ensure that you could present the documents if asked for. You may be claiming that you have paid tax in UK and your accountant should ensure that there is evidence of you having paid tax in UK.

I get my pension in sterling and only bring in my money when I need it so do I only pay tax on what I bring in? - You have to pay tax on what you earn. It does not matter that you do not bring the money into Spain. You should convert your sterling pension into €uros which was on average about 1.22 €uros to the pound during 2008.

I understand the Spanish Government is giving everyone a tax rebate of 400 €uros. How can I get it? -If you are employed by anyone your employer should already have given you your tax rebate through your payslip under the Spanish P.A.Y.E. system. If you are self employed you can deduct it at 100 €uros per quarter from your tax payments on account or like all other people who pay tax on their pensions you can deduct 400 €uros on your Annual Income Tax Return. Once you calculate how much tax you owe on your tax return box 735 allows you to deduct up to 400 €uros.

Most people should be paying less tax on their 2008 Tax Returns than they did in 2007 because of the exchange rate and the 400 €uro tax rebate. An individual over 65 years of age can earn 11,200 €uros from pensions and not pay any tax. Normally the bill at that level of income would have been about 400 €uros but the rebate of 400 €uros wipes that out.

I am a non resident of Spain and someone has told me there is no Wealth Tax now is that right? - The Spanish Government has done away with Wealth Tax from 1 January 2008. Non residents previously paid two taxes – wealth tax and “theoretical” income tax for private use of homes in Spain – both based on property values. Now there is only the “theoretical” income tax to pay.  Instead of using Tax Form 214 contributors now have to use From 210. The “theoretical” income tax is a percentage of the “valor catastral” of the property so your accountant or gestor will need a copy of your rates (IBI) receipt which will show that value plus the property reference number. The Tax Form 210 has to be presented before 31st December 2009 for taxes due in respect to private use of Spanish homes in 2008.  If you rent out your Spanish property to holiday makers or have a long let then different rules apply. You should consult your tax adviser.

Where can I get these tax forms? - All tax forms can be obtained from the Hacienda (Spanish Tax Office). The nearest one to Jávea is in Denia. Some forms can be obtained from the Tabac shops and almost all forms can be downloaded of the internet by going into the Spanish Tax Office web site which is www.agenciatributaria.es

My children do not live in Spain but someone said they should have Spanish identity numbers. Is that true? - It is not strictly true that your children need non resident Spanish Identity numbers referred to as N.I.Es. Anyone who has property in Spain be it a building or a bank balance should have an N.I.E. so if your children were to inherit your assets in Spain after your death they would need identity numbers. It is often considered less stressful to get those numbers now rather that after your death as after your death there is a 6 month time limit applied for presenting inheritance paperwork.

If you are not leaving your estate to your children they would not need identity numbers. You need to be careful about who you leave your  estate to because non-family beneficiaries can pay a lot of inheritance tax.

Are annuities treated differently in Spain? - Yes if you have income from an annuity you should declare it in a separate section to your pension income. Annuities receive favourable treatment in Spain which reflects that included in the annual income you receive is an element of the capital you initially invested. For instance if you invested 20,000 euros in an annuity you might receive 800 €uros per year income but some of that will be your own capital being returned to you. The amount of annual income that you have to declare in your tax return depends on your age when you contracted the annuity. If you were under 40 years of age only 40% has to be declared so in the example above when you received 800 €uros you would only need to put 320 in your tax return.

The percentages are as follows:

Under 40 years of age 40%

40-49 years of age      35%

50-59 years of age      28%

60-65 years of age     24%

66-69 years of age     20%

70+ years of age           8%

I bought my house in 1984 so as I had owned it for 10 years prior to 1996 why do I now have to pay Capital Gains tax? - At the 31st December 2006 the Government changed the goal posts and said that any gain after that date would be taxable so now you have to pay for the gain attributable to 2007 and 2008. Even though prices have reduced in the past couple of years the capital gain is apportioned pro-rata to the number of days the property has been owned. So in your case you purchased the property in 1986 and sold in 2008. You have therefore owned it for 22 years. The gain on 20 parts is tax free and the gain for 2 parts is taxable. As time goes on the taxable part increases. If you are over 65 years and have been a tax resident for 3 years you do not have to pay capital gains tax on the sale of your home.

When do Tax Returns have to be presented? - The period for presenting your Income Tax Returns is from May 1st until to June 30th.  If you have to pay tax or are requesting a tax rebate you can take the tax return to your bank. If the tax declaration is zero you have to present the return at the tax office (Hacienda) in Denia. If you require help contact the Spanish Tax Office or an Accountant or Assessor but do not leave it until the last minute because you will not be able to get an appointment with anyone.