At one of our recent A Place in the Sun Live exhibitions, the company EBF Consulting SL were ﬁelding lots of the same questions about the Canaries. Natasha Meah Layland, Director of EBF, thought it would be helpful for readers to share the most frequently asked queries – and her replies.
1) What is the first thing I need to do when I buy a property in Spain?
Obtain an NIE (Número de Identidad de Extranjero - or foreign identiﬁ cation number). If you plan to move there, you will need a Residencia.
2) How can I get medical cover in Spain when I move over?
If you are moving to Spain, have not reached pension age and have no plans to work, you can sign a Special Agreement with the Social Security Oﬃces, where you pay a monthly amount to be able to beneﬁt from medical assistance. The monthly amount can vary from €60 to €120 per person, depending on age.
If you are receiving a State Pension, you should apply for the S1 Form, this will come in Spanish and English if you are married and your spouse is not yet receiving a State Pension then be sure to include her/him on your S1 Form as a beneﬁciary. You will need to present the form to the local Social Security oﬃce where you will be living and then you will receive free medical assistance in Spain.
Registering as self-employed and paying the minimum monthly social security (autónomo) or having an employment contract with a Spanish company will entitle you to medical assistance.
3) Do I have to pay any tax if I don't rent out the property as a non-resident?
Yes. You are obliged to pay a yearly tax for prívate use of the property, whether you have used it or not. This is based on the “catastral value” of the property (the value that the local town hall uses to determine your local council tax). Tax is 19% of 2% of the catastral value (1,1% if the catastral value has been revised in the last 10 years).
4) How long do I have to be in Spain to be considered a tax resident?
Once you have been residing in Spain for more than 183 days, you are considered a Tax Resident. Be sure to inform the UK tax authorities that you have left the UK (Form P85) and be aware that you will have to submit your annual income tax return in Spain, where you will declare worldwide income and wealth.
5) What if I receive rental income from UK properties when I am a tax resident of Spain?
In this instance, you will have to ensure the tax authorities are aware you are a Non Resident landlord in the UK. They will expect a self-assessment from you every year where you declare the rental income and expenses, be sure to include all the supplementary pages needed to inform that you are a taxpayer of Spain.
Only the rental income from UK property will be subject to tax in the UK, the remaining income will be taxed in Spain. You will also declare the rental income/expenses in your Spanish Annual Income Tax Return and oﬀ set any tax in the UK as a tax credit to avoid double taxation.
6) Do I have any obligations in Spain if I own assets in any other countries?
Yes. In Spain, you will have to submit an Asset Report (Form 720) in February/March of the following year. This report includes the following blocks:
• Bank Accounts
• Investments, Shares, SIPPs, Life Assurances etc
The obligation to submit this report is if any of the three blocks reach an accumulated value of €50,000 (per block). The current penalty regime in Spain for this report is severe so be sure to seek professional advice on this obligation.
7) If I wanted to start a business in Spain, what are my obligations?
Make sure you contact a professional company to advise you (Asesoría Fiscal). They will advise on whether you should establish your business as a sole trader or Spanish limited company. If you establish as a sole trader, you will have to register as self-employed in the tax authorities and Social Security, plus Canarian Tax Authorities if you live in the Canary Islands.
Every quarter you will pay 20% business tax on the business proﬁt and then in May/June of the following year, you will include this in your annual income tax return, oﬀ setting the business tax as a credit. Your social security contribution amounts to a mínimum €274 per month (depending on your age), however currently in Spain there are incentives in place such as the “tarifa plana”, where during the ﬁrst year you beneﬁt from an 80% reduction; in the second half of the first year a 50% reduction and in the second half of the second year a 30% reduction.
In addition to the business tax you will have the quarterly VAT return (IVA in Spain at 21%, IGIC in the Canaries at 7%). From the 1st January 2018, the Canaries have introduced a new regime that permits an exemption from IGIC if your turnover does not exceed €30,000.
8) What do I have to do if I want to holiday let my property in Spain?
Each region has their own mínimum requirements established to obtain a tourist licence. In addition, you will need to declare the rental proﬁts in your annual income tax return in Spain if you are considered a tax resident, the tax rate will depend on your worldwide income.
Alternatively, if you are considered a non-tax resident of Spain you will need to submit a quarterly tax return (Form 210) and pay 19% tax on the proﬁt to the Spanish tax authorities; the same income should be declared in your UK tax return, where you will also oﬀ set the tax paid in Spain as a tax credit to avoid double taxation. In the Canaries, there is the additional IGIC (VAT) obligation.
If you are renting through a Spanish management agency then they may tax you at a source, in which case you will not have to present quarterly tax returns, instead, you can oﬀ set the tax as a credit in your UK or Spanish annual tax return. As a non-resident in Spain, you have the alternative of deducting other expenses and requesting a refund of the excess tax withheld by the agency, in this case, best to seek the professional advice of the implications.
9) Should I draw on my pension before I leave the UK?
We recommend that you speak with a reputable wealth management company before leaving the UK and becoming a Spanish tax resident. Be aware, that if you take a 25% cash lump sum once you have become a Spanish tax resident, while this may be tax-free in the UK, it is not tax-free in Spain.
10) What tax do I have to pay if I sell the Spanish property?
If you sell the property as a Spanish taxpayer, the Capital Gain will be included in your Spanish annual income tax return and will be subject to 19% tax (of the gain). If it is considered your primary residence then you can beneﬁt from a roll-over, if you are over 65 then you are exempt from capital gains tax (CGT). You have to have been residing in the property for a mínimum period of three years for it to be considered your primary residence.
If you sell the property as a non-resident, then the buyer will withhold 3% of the sales price at the point of sale. You will have four months to submit your CGT return, where you will be liable for 19% tax of the gain less the 3% withheld, this will determine whether you are entitled to a refund or pay the excess tax.