Why you should make a resident tax declaration in Spain

Last updated on May 9th, 2020 at 04:11 pm.

Would you do a good deed if you didn’t anticipate a reward of some kind from it? The concept of the random act of kindness has taken root. In case you haven’t heard of this, there is even a website dedicated to it: http://www.randomactsofkindness.org/ Wikipedia describe it as ‘a selfless act performed by a person or people wishing to either assist or cheer up an individual person or people’.

The key word here is that it should be ‘selfless’. A random act of kindness is not for your benefit but just to make (hopefully) someone happy. In most case the actions we take are based upon our own needs or wishes, no matter how altruistic we think we are. That’s why  it’s a bonus that there are benefits to making a Spanish resident tax declaration.

As a reminder, most residents are required to present their annual resident tax declaration in Spain before the 30^th June and declare their worldwide income for tax purposes. Having made a resident tax declaration it is easier for you to obtain a Spanish fiscal residency certificate. This certificate then acts as evidence that you really have been resident and can help prevent you having 3% of the sale price of your house retained. It also helps you reduce or eliminate Spanish inheritance tax.

We’re not talking about paltry sums of money either. For example, where the husband or wife of a couple living in the Comunidad Valenciana dies, the remaining spouse inheriting 50% of the property, benefits from a 95% reduction on the value of the property (i.e. tax calculated only on 5%), plus another 100,000€ tax free allowance. If, after these reductions have been made, there remains an amount of tax to pay, a further 75% discount is applicable.

In most cases such as this, the Spanish inheritance tax will be zero where a property is valued at less than ½ a million euros and is jointly owned. However, if you cannot prove you are a fiscal resident in Spain or are a non-resident then you only have approximately 16,000€ of tax free allowance. This means that for any property owned jointly and valued over 32,000€ on the death of one spouse there will be inheritance tax to pay. This could work out at around 3,250€ for a property worth 100,000€.

We have seen cases where someone who has classed themselves as a resident has not been acknowledged as such by the Spanish Tax Authority because they have not been able to demonstrate their fiscal residency status.  Just having the green residency certificate or card is not sufficient to prove it. It is your responsibility to make sure you have the evidence. After all, if there’s one source you can’t expect a random act of kindness from, it’s the Spanish Tax Authority.

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