Whether you have bank savings, a large share portfolio, or own investment property, you need to be clear on how this capital and any income generated is taxed in Spain. Tax residents are liable to Spanish tax on worldwide income, gains and wealth; non-residents are liable on any Spanish assets.
Interest, dividends, capital gains etc
For Spanish tax purposes, income is split into two categories with different tax treatment. The savings income tax category covers interest income; dividends; capital gains; income from life assurance contracts and purchased annuity income. Your savings income for the year is added together and taxed as follows:
- Up to €6,000 ----------- 19%
- €6,000 to €50,000 ----------- 21%
- €50,000 to €200,000 ----------- 23%
- €200,000 to €300,000 ----------- 27%
- Over €300,000 ----------- 28%
For residents, gains made on the sale of real estate would be taxed as above, unless it meets the criteria for being your main home, in which case it is exempt. Non-residents pay tax at 19% when selling Spanish property.
Life assurance contracts
An approved life assurance policy, where you hold your choice of investments within its ‘wrapper’, can provide tax advantages in Spain. Income and capital gains rolled up within the policy are not subject to tax, while only the gain element of withdrawals is taxed. Take specialist advice to establish if these arrangements would be suitable for you and how you could potentially benefit.
Rental income
Rental income is classed as general income, along with any other non-savings income. The Balearics income tax rates start at 19% for income up to €10,000 and rise progressively to 49.5% for income over €300,000.
For Spanish residents, a reduction of 60% is generally available against the net rental income before tax is payable, where the property rented will be used as a main home.
Non-residents who live in an EU/EEA country are taxed on the net rental income from Spanish property after expenses at 19%. Non-EU/EEA residents currently pay tax at 24% on the gross rental income.
If you own a property in Spain that is not your main home, a purely notional rental income is deemed to arise for periods where the property is not actually let to a third party and therefore empty, and taxed as above. It is generally based on 1.1% of the official value (valor catastral) of the property.
I will continue this topic in my next article, looking at wealth taxes, cryptocurrencies, Spain’s exit tax and tax planning.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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