Many of us see the New Year as an opportunity to assess our financial affairs, including tax planning. Tax in Spain is complex and the tax reform that began in 2015 is ongoing so more changes may come.
The first step is to confirm what your tax liabilities are in Spain, before you move on to establish the most tax-efficient way to hold your assets. This article focuses on capital gains tax.
ResidentsIncome in Spain is split into general (renta general) and savings (renta del ahorro) income. Capital gains (on both investments and property) are treated as savings income. In 2016, residents pay tax on savings income progressively at 19% (€0-€6,000), 21% (€6,000-€50,000) and 23% over €50,000.
Generally, for a chargeable gain, or an allowable loss, three conditions must be met:
- There must be a change in the value of the taxpayer’s wealth
- There must be a change in the composition of the taxpayer’s wealth
- The profit realised must not have the quality of income.
You can offset capital losses against other capital gains or savings income of the current year. Net losses for a year can be carried forward for the next four years.
Holding shares directly in Spain is not very tax-efficient but there are compliant arrangements available in Spain that enable you to hold your investments in a very tax efficient manner.
Note that special rules apply for collective investments in tax havens – the tax office treats these gains as part of your normal income and you pay tax at your marginal income tax rate – so you could pay considerably more tax.
The tax office no longer makes any distinction between assets you have held for more or less than a year. However, there are reductions available for any assets you acquired on or before 31st December 1994 under certain conditions. For example, if you disposed of the asset after 1st January 2015, you may get a reduction on the gain you accrued up until 20th January 2006 – if the asset sold for €400,000 or less.
You do not pay capital gains tax in Spain when you sell your main residence if you reinvest the money in another property to be your main home.
However, you do pay tax on the sale of any other property worldwide at the above rates – and you may have to pay tax in that country as well. The Spain-UK double tax treaty was created to help in these cases but you should seek advice about your individual situation.
Residents over 65
If you are over 65 and resident in Spain you have certain advantages. If you sell a home that has been your main residence for more than three years, you do not have to pay tax on the gain even if you do not re-invest in another, though you must meet certain conditions.
Also, you are exempt from tax on any gains from the sale of other assets (not just real estate) if you use some or all of the money to set up a pension annuity (renta vitalicia) within six months, but only the amount you use is exempt. The maximum you can re-invest in the annuity for this purpose is €240,000.
Changing tax residency
If you intend to leave Spain, you may face what is commonly known as the ‘exit tax’, which is applied to unrealised gains on certain assets wherever they are in the world. However, this only applies if your shares are worth more than €4 million or the total shareholdings exceed 25% and the market value of the shares exceeds €1,000,000, and under certain circumstances.
Any Spanish sourced capital gains on the sale or transfer of assets located in Spain, is taxed at a fixed rate of 19%. However, since 2015 anyone resident in another EU country or an EEA country that has signed up to the tax information exchange agreement with Spain can now claim re-investment relief on the sale of their own home. The new home you are buying does not need to be in Spain. You do have to meet a number of conditions to qualify though, so you should seek professional advice before you take any action.
Take specialist advice to ensure that you hold your assets, particularly your investment assets, in the most tax efficient way for Spain. A good adviser will help you manage your assets so that you do not pay more tax than you need to. Always seek professional advice before making any changes to your investments and tax planning.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
Source: BLEVINS FRANKS, Tax & Wealth Management