The beautiful island of Mallorca, with its favourable climate and stunning landscapes, is a great place to live, but it pays to understand the tax rules. You will be able to enjoy your new home all the more when you know you and your heirs will not face unnecessary bills.
Spain classes you as a resident for tax purposes if you spend more than 183 days in one calendar year there, or if your “centre of economic interests” (your economic or professional base) or your “vital interests” (your spouse and/or dependent minor children) are here.
Expatriates also need to follow the tax residency rules of their home country and its double tax treaty with Spain, to be sure that you are paying tax in the right country.
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As a Spanish resident, you will be liable for income, capital gains, wealth and succession taxes on your worldwide assets.
General income is taxed at scale progressive rates and is a combination of state and regional rates. Each Autonomous Community can vary the regional portion and in Islas Baleares the total tax rates range from 19% to 44%. Pensions are generally taxed at the scale rates.
Savings income is taxed separately, with no regional variations, and consists of interest, dividends, capital gains on the sale/transfer of assets, and income from life assurance contracts and purchased annuities. It is taxed progressively at 19.5%, 21.5% and 23.5%.
Besides income taxes, Spanish residents are also liable to an annual wealth tax where they are taxed on the value of their worldwide assets. In Islas Baleares, each individual receives a €800,000 allowance, plus (for residents) €300,000 for the main home. Tax is applied progressively up to 2.5% in Islas Baleares. Non-residents pay tax only on the assets they have in Spain.
Besides the corresponding tax returns, Spanish residents must also declare overseas assets and rights worth over €50,000 on Modelo 720.
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Spanish residents are subject to Spanish succession and gift tax. It is due on death if the asset is in Spain or if the recipient is resident in Spain. Each beneficiary pays tax on any assets they receive.
Rates and allowances vary depending on region and spouses are not exempt. In Islas Baleares, the allowance for spouses, descendants and ascendants is increased from €15,957 under state rules to €25,000. The relief on the main home also rises from 95% to 100%, up to a maximum of €180,000 provided the recipient is a spouse, child or someone over 65 who has lived with you for two years, and keeps it for at least 10 years. Additionally, a 99% deduction (based on a specific calculation) is applicable for descendants, ascendants and spouses on inheritances.
Progressive tax rates range up to 34%, but there are multipliers depending on the beneficiary’s relationship to you and their net worth that can take it much higher – up to 82% in some cases.
Spanish succession law restricts how you can divide up your estate. Expatriates can elect for the law of their country of nationality to apply on their death, more so now under the new EU succession regulation ‘Brussels IV’. It does not mean you can opt out of Spanish succession tax.
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It is essential to get expert estate planning advice and have an up-to-date will so that your assets are distributed according to your wishes and your heirs properly protected.
The Spanish tax regime can provide tax advantages, so that living here can be beneficial from a tax point of view. Seek personalised specialist advice.
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.
More about Blevins Franks tax advisors
For more information and personalised advice, contact Peter Worthington, Senior Partner at Blevins Franks, on +34 971 719 181 or email@example.com.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
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This article was written on the 08th of September, 2015.