It is important to review your tax planning from time to time, to check that it is up to date and that you are using all the opportunities available in Spain to reduce tax liabilities for yourself and your heirs.
While the state did not introduce many tax changes for 2016, the local Islas Baleares government has made changes to income, wealth and succession taxes.
The Spanish ‘Personal Income Tax Act’ was significantly amended for income received in 2015. This lowered tax for all taxpayers, but does more for those on low and medium incomes. The government then shaved half a percentage off tax rates in last July, and they are reduced by around another half a percentage again for 2016 income. The general state income tax rates for 2016 are –
Income € Tax rate
0 – 12,450 19%
12,450 – 20,200 24%
20,200 – 35,200 30%
35,200 – 60,000 37%
Over 60,000 45%
However these rates are made up of equal part state rates and regional rates, and each Autonomous Community can amend their local rates. Here in Islas Baleares, the income tax rates range over 13 income tax bands from 19% to 47.5%. The top rate is for income over €175,000.
The above rates only apply to general income (employment, pension, rental income, etc). Savings income is taxed at different rates. The 2016 rates are –
Income € Tax rate
0 – 6,000 19%
6,000 – 50,000 21%
Over 50,000 23%
Savings income covers interest, dividends, income derived from life assurance contracts, purchased annuity income and capital gains on the sale or transfer of assets.
Note that when it comes to tax on capital gains, with effect from 2015 all gains are taxed at the savings tax rates, even those arising on assets held for less than a year. The depreciation relief on capital gains was removed, but on assets acquired before 31st December 1994 taxpayers may be entitled to a reduction provided that the sales proceeds do not exceed €400,000.
For those residents who benefit from the ‘special tax regime‘ for inbound assignees (‘Beckham law’), the tax rates for 2016 are 24% for income up to €600,000 and 45% after that.
Non-residents who earn any kind of Spanish income will pay tax at fixed rates of 19% for EU residents and 24% for everyone else.
For peace of mind about your tax residency status speak to an experienced advisory firm to British expatriates Blevins Franks […] Where are you tax resident – Spain or the UK?
When wealth tax was reinstated in 2011, it was meant to apply for 2011 and 2012. However it keeps being extended, and remains in place for fiscal year 2016.
Spanish residents pay wealth tax on the value of their worldwide assets as at 31st December. Generally, rates rise progressively from 0.2% to 2.5% (from 0.28% to 3.45% in Islas Baleares).
There are however reductions available, ranging from €700,000 to €2m, depending on whether you own your home and if you are single or a married couple. Islas Baleares had increased the individual allowance from €700,000 to €800,000 last year, but from 1st January 2016 it is back down to €700,000.
This is a tough tax for wealthy residents, but steps can be taken to limit it.
The Islas Baleares government has removed the regional allowance for spouses and children over 21 (the 99% reduction for children under 21 remains in place). However, with effect from January 2016 there are two new sets of tax rates for succession tax purposes in this region. The one for group I and II beneficiaries (spouses and children) range from 1% to 20%, whereas in the one applicable for everyone else (group II and IV beneficiaries) the rates range from 7.65% to 34%.
UK nationals need estate planning to cover both Spanish succession tax and UK inheritance tax.
Do not forget that Modelo 720 needs to be submitted by 31st March, reporting on the assets you owned in 2015 if you were resident in Spain. You need to declare all overseas assets worth over €50,000. If you have submitted this form before, you only need to report again if the value of an asset increased by more than €20,000, or you sold an asset or closed an account, or you obtained a new asset.
Although the European Commission is investigating whether Modelo 720 (the disproportionate penalties and lack of statute of limitations) infringes on EU law, you still need to file your form as usual, at least for the time being.
With specialist advice you can often use compliant arrangements to reduce tax on your savings, investments, pensions and assets – with the right tax planning Spain can be very tax efficient for retired expatriates.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon Blevins Franks’ 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.
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Are you tax resident in Spain? This tax guide from Blevins Franks explains the tax rules in Spain and how it will affect your tax situation. […] Spain’s Residence Tax Rules
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This article was written on the 07th of February, 2016.