MONEY MATTERS
Owning a property in southern Spain is a dream for many people – and it’s easy to see why. The laidback lifestyle, fabulous scenery, golden beaches and perfect weather attract thousands of buyers each year. Life here is great, but of course there are less glamorous practicalities you’ll need to consider, like organising your finances.
Luckily, almost everything in Spain is cheaper than the rest of northern Europe. And although they might take a bit of getting used to, Spain’s financial regulations, services and procedures are no more complicated than at home.
BANKING
If you’re buying a property in Spain, it makes sense to set up a Spanish Bank account. You can do this as a resident or non-resident, and it’s a very easy process. You’ll find all banks on the Costas have English speakers on the team.
The two main types of banks in Spain are commercial banks for current accounts, called bancos, and savings banks called cajas, which are like UK building societies and generally used for saving larger sums of money.
To open an account you’ll need your passport or residence card and an NIE number (your foreigners’ identification number, which can be obtained easily from your nearest police station in Spain) and proof of address both here in Spain and the UK.
TAXES
Buy a property in Spain and you will have to pay taxes in some form. What you have to pay depends on your circumstances, but here’s a simple guide.
INCOME TAX
Non-resident
You’ll have to pay tax on any income from Spanish sources, such as rental income from your property or a summer job.
Resident
If you spend 183 days or more in Spain per year, you’ll be classed as a resident. This means you’ll have to pay income tax in Spain on your total worldwide income.
VALUE ADDED TAX - IVA TAX
Equivalent to UK VAT but at slightly lower rates. It’s included in the price of most goods in shops.
WEALTH TAX
Hopefully being abolished by 2009....
Non-resident
You’ll need to pay wealth tax only on Spanish assets, usually a property.
Resident
You’ll be taxed on the value of all your assets worldwide, though you’ll have a tax-free allowance of around €150,000 for your main residence, plus €108,000 for other assets.
INHERITANCE AND GIFT TAX
Payable on worldwide. It’s very important to take expert advice in order to take full advantage of all potential deductions.
CAPITAL GAINS TAX
The maximum capital gains tax for residents is 15%, for non-residents 35%. Fortunately, thanks to pressure on the Spanish government from the European Commission, the non-resident rate is likely to be brought down very soon.
BUSINESS TAX
Paid once a year by all businesses, including sole traders.
COMPANY OR CORPORATION TAX
Between 30% to 35% tax paid on profits by partnerships and registered companies.
Various other taxes may affect you, depending on your circumstances. Seek financial advice if you are unsure.
PENSIONS
There’s no problem having your UK pension paid to you in Spain – you just need to complete an E121 form, available from the Benefits Agency. In general, if you are a non-resident spending less than 183 days a year in Spain then your pension will be taxed in the UK. If you are a resident, or a fiscal resident (ie. spending more than 183 days a year in Spain) then you will be taxed in Spain.
GOVERNMENT SERVICE PENSION
The exception to this general rule is if you have a pension from government service. In these cases your pension remains liable only for UK tax.
UK STATE PENSION
The UK state pension does not count as a government pension. It is tax-free in the UK but taxable in Spain if you are a resident or fiscal resident. It’s paid to you in sterling but you can have it transferred to your euro bank account in Spain if you wish.
PRIVATE PENSIONS
This can be complicated as the definition of an annuity is quite vague in Spain, so you’ll definitely need advice. In general you’ll find that your annuity is taxed pretty favourably in Spain.
SPANISH STATE PENSION
If you are employed or self-employed in Spain, your social security contributions go towards a state pension. As in the UK this may not be enough to live on, so it’s best to make other provisions.
Please note:
As with everything to do with your money and property, you should always take independent advice before entering into any kind of agreement. The article(s) above are written based upon our understanding of the facts but do not constitute financial advice of any description.
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