Tax…a really boring but important subject and definitely something you need to think about if you’re planning on becoming a resident of Spain.
First of all, we are not tax experts so we suggest getting some advice from an official source before making any decisions. However, after 3 years of both ourselves and our retired parents living in Spain and paying tax on earnings and pensions, we know a little bit about some of the common tax queries and questions that many Expats have. And also some things that you may not have considered.
So let’s try and clear up some basic questions on paying tax in Spain as a British citizen…
Do British expats have to file a tax return in Spain?
The simple answer is yes. You must pay tax in Spain on any worldwide income if you live in Spain for for more than 183 days during a calendar year. This includes any income from employment as well as income from things such as pensions and renting out a property.
Will I be taxed in both the UK and Spain?
It doesn’t matter where the income is generated, if you are a resident of Spain you will only pay tax in Spain. There is a treaty between the UK and Spain designed to prevent British citizens from paying tax twice on the same income.
Who has to file an income tax return in Spain?
Whether you need to file a tax return in Spain and how often depends on various factors.
If you are employed in Spain you will need to file a tax return in your first year. From the second year onwards, a tax return only needs to be filed if your income from employment is more than €22,000. If you are earning less than that, your income tax will be calculated and deducted by your employer.
If you are self-employed in Spain you will need to file quarterly tax returns as well as an annual tax return. Your gestor or accountant will be able to advise on this.
If you receive a pension with an annual income of less than €22,000 a year, there is no requirement to file an annual tax return. However, if your pension is more than €22,000 a year, an annual return will need to be submitted.
What is the personal tax allowance in Spain?
The personal tax allowance in Spain is much lower than in the UK.
For 2022, the personal allowance is €5,550 per year. This rises to €6,700 if taxpayer is over 65 years old and €8,100 if the taxpayer is over 75 years old.
How much tax do expats pay in Spain?
The amount of tax you pay will vary depending on your level of income and which region of Spain you live in. The rate ranges from 19% for the lowest earners (€0 – €12450 per annum), rising to 45% for the highest earners (over €60k per annum.) This rate applies to any income whether from employment, pensions, or rental income.
When does the tax year in Spain run?
The tax year in Spain is different to in the UK and runs from January to December. You will file your annual tax return between 1st May and 30th June the following year.
What other taxes will I have to pay in Spain?
As well as income tax on any income generated, expats are also liable to pay tax on:
- Assets worth over €700.000 – wealth tax ranges from 0.2% to 2.5%
- Inheritance tax – exact amount depends on the region and municipality where you live
- Capital gains tax – if you sell a property or company shares and make a profit, you will need to pay between 19 – 23% in taxes.
Spain is very strict when it comes to paying your taxes and you will face significant penalties if you fail to declare and pay any taxes due.
The Spanish tax office can go back 4 years to chase any undeclared tax, so you could end up with quite a hefty bill to pay.
What happens if you don’t pay your taxes in Spain?
Late tax returns incur a fee of between 5%-20% of the total tax due. The rate depends on just how late the return is.
There are also fines of between 50% -150% of the tax due for those who have to be chased by the tax office.
We hope these questions and answers have cleared up a few things surrounding paying tax in Spain. As mentioned at the beginning of this blog post, we would always recommend speaking to a tax specialist to make sure you know the rules for your personal situation.
For more information head to the Tax Agency website.
We personally pay tax on self-employed income and use an accountant to file our tax returns as the Spanish system can be quite complicated!