Spain Explained

What you can and can’t be taxed on in spain

One thing you will soon become familiar with if you spend time in Spain are the range and variety of taxes. Most of them are the same as you would expect in your home country. However, one or two might take you by surprise.

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Like all countries, public services in Spain are paid for through taxes. You will find a number of different taxes here, some of which are collected by the government and others by the town hall. What you have to pay varies depending on whether you are a resident or non-resident and whether your home country is in the EU or not.

Annual property taxes

Some property taxes are directly paid to your town hall. IBI (council tax) is the main one that people are aware of. In the Alicante province this is collected annually by SUMA who have offices in the different towns. You can also pay via their website if you don’t have a tax representative like Ábaco to do it for you.

Other property taxes, such as imputed income tax, go directly to the government. This is a tax on the income you could have made if you rented out your property as a second home and is payable by non-residents and residents with more than one property. All home owners must pay rental income tax to the government on any rent they receive.

Tax on property that changes hands

There are several different types of tax that are charged as part of the conveyancing process. If you are selling your property you can be required to pay capital gains tax on any profit you make. There is also plus valía which is a tax on the profit you make on the land your property is built on. This is paid by the seller of the property and goes to the local town hall.

When you buy a resale property you pay transfer tax or ITP. The percentage varies from region to region eg. Valencia Community 10%, Murcia Region 8%. If it’s a new property that you are buying then you will have to pay IVA (VAT) at a rate of 10% and AJD (stamp duty) at 1.5%, again depending on where your property is.

There is inheritance and donation tax to pay when a property changes hands. The exact amount of this varies according to your relationship with the deceased (in the case of inheritance) and also according to where the property is situated. There are ways of reducing the amount of inheritance to pay that a good solicitor will be able to advise you on when making a will.

Tax on things you buy

The Spanish equivalent of VAT is IVA and you will find this tax on all items you purchase. Sometimes it will be included in how much you are charged but at other times it is added on. There are different rates of IVA – including the general rate of 21%, the reduced rate of 10% and a super reduced rate on some items of 4%.

The general rate is applied to all non-essential products and services and the reduced rate includes foodstuffs, soft drinks, glasses, house construction,, health assistance and dental work. The super reduced rate applies to staple food items such as cheese, milk, fruit and vegetables.

Tax on what you earn

If you work in Spain then you will also need to pay income tax. This can also apply if you are retired and earn above a certain amount. We recommend that everyone does an annual resident income tax return who lives here. This not only ensures that you are paying what you should but provides you with evidence that you are a tax resident in Spain.

In some types of employment you can opt to have some of your salary retained to pay towards your annual tax bill. The balance of how much you owe is calculated annually at the end of June.

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Some surprising taxes

People who do make an annual tax return are sometimes surprised at the items they must declare. For example, there has been a scheme to encourage people to swap old cars for new.

This scheme is liable to taxation! If you win money on the national lottery you must also declare this and will be taxed on your winnings. Of course, if you were lucky enough to win a sizeable amount it’s unlike you would be too bothered about the requirement to pay tax.

What’s most important is that you keep up with whatever tax you must pay. Tax debts accrued will eventually catch up with you and you can be fined and have to pay interest too. Paying taxes is an unpleasant part of life but without them we’d soon miss the services they help to support.

To help navigate the bureaucracy of the Spanish tax system, our dedicated advisers are on hand to help at every step of the way. Contact us and we will offer you a free consultation without obligation.

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8 comments

Cheryl Robbins

5 February, 2019 6:49 pm

What is the amount you are
What is the amount you are allowed to earn before you have to pay tax for a retired person?

Suzanne O'Connell

12 February, 2019 8:14 am

Hi Cheryl

Hi Cheryl

The obligation to present exists between €12,000 and €14,000 for one income only. It can also be for two incomes but one must be under €1,000. 

Laurina Wright

18 January, 2020 10:43 am

We are both residents since 2015 and are pensioners with no other income or property. We are told we have to pay tax on a lump sum private pension we had in 2014 which was already taxed at source. I don’t understand how they can demand tax on money we had when still in UK

Oscar Paoli

20 January, 2020 3:35 pm

Hello Laurina,

You will have to justifiy to the tax office documentation that you were non resident in Spain. To prove this normally you will use a residence document, Padron, Driving Licence, SIP Card all providing they show the date of 2015 or late 2014.

With kind regards,

Ábaco Adviser

GARRETT ROCHE

22 January, 2020 8:24 pm

Hi there

We are considering a move to Spain but am concerned about the Wealth Tax. Can you clarify the 60% limitation rule and how that applies to our assets in the USA ? My wife is American and I have worked there for the last 20 years or so. Also are our retirement plans in the US (401K ) subject to the wealth tax analysis?

Thanks so much.

Oscar Paoli

29 January, 2020 3:14 pm

Dear Garrett,
Unfortunately we are not specialists in US citizens paying Spanish resident taxes as the agreement between both countries is quite complex.
Should you need any other information we can get you in touch with a tax specialist betwween the US and Spain.
With kind regards,
Ábaco Advisers

Lorraine

19 February, 2020 7:00 pm

We are retired, and don’t claim any social services from Spain, but the accountant wants to see our bank statements. We have no pensions and are living on our savings. In all we have around £250,000 saved in England that we transfer over. Is this amount of money taxable when we declare it. The tax has all been paid in England, we have been residents here since June
Many thanks

Oscar Paoli

4 March, 2020 4:34 pm

Hello Lorraine,

Since you have been residents since June of last year, you must now declare your taxes here in Spain, not in the UK. This means that your advisor wants to see all kinds of income you have, be it pensions, interest, dividends, etc.
In this case, what the advisor is asking for are excerpts to see if the accounts you have generate interest during the year because if so, this should be included in the personal income tax later.
Now, given the amount of savings, you have to present a Model 720 this year on, at a minimum, Group 1 for the accounts you have abroad. Maybe this is what the advisor is referring to.

with kind regards,

Ábaco Advisers