***These Q and A's cover UK citizens but can easily be applied to other non Spanish nationals.
Q. What Is The First Thing I Must Do When Purchasing A Property In Spain?
A. The first thing to do when buying a property in Spain is to obtain an NIE or Numero de Identidad de Extranjero. The NIE is a foreign identification number, but if you plan to move to Spain you will require a Residencia.
Q. How Can I Get Medical Coverage In Spain When Moving?
A. If you choose to relocate to Spain, but have not reached the pension age and do not have plan to work, it is possible to sign a Special Agreement with Spain's Social Security Office. The Agreement allows you to pay a monthly allowance where you can gain medical assistance from the government. The monthly amount ranges from €60 to €120 per individual dependent on the individual's age.
If you are currently receiving a State Pension, you must apply for the S1 Form that is available in both English and Spanish. If you are married and your spouse does not yet receive a State Pension, it is necessary to include them on the S1 Form as a beneficiary. The form must be presented to the local Social Security authorities in the area where you reside, and you will then receive free medical coverage.
To register as a self-employed individual and paying the minimum social security amount or having a contract with a Spanish company can entitle you to government medical assistance.
Q. Do I Need To Pay Tax If I Don't Rent The Property As A Non-Resident?
A. Yes, you are required to pay an annual tax for the use of a property as a private residence regardless of whether or not you have used it. This tax is based on the 'catastral value' of the property - the value placed on the property by the local town hall to identify the local council tax. Tax is 19% of the 2% of the catastral value, but this is only evident if the catastral value is revised in the past 10 years.
Q. How Long Must I Reside In Spain Before I Can Be Considered A Tax Resident?
A. When you have lived in Spain for over 183 days, then you will be considered a Spanish tax resident. It is vital that you inform the UK tax authorities that you have left the United Kingdom using Form P85. Note that you will need to submit annual income tax returns in Spain where you will declare all global income and wealth.
Q. What Happens If I Continue To Receive Rental Income From The United Kingdom When Considered A Spanish Tax Resident?
A. If you continue to receive rental income from the UK while living as a tax resident in Spain, you will need to inform the UK tax authorities that you are a non-resident landlord. HMRC will expect a self-assessment from landlords each year when declaring the rental expenses and income; therefore, you need to include all supplementary pages to inform them you are also a tax resident in Spain.
Regarding taxation, only the rental income from the UK properties are subject to tax in the United Kingdom, and the remaining income will be taxed in Spain. The rental income and expenses can be declared in the Spanish annual income tax return, plus any write-offs in UK tax can be used as a tax credit to help avoid double taxation.
Q. Do I Have Obligations In Spain If I Own Assets In Other Countries?
A. Yes, this is true. When in Spain, you must submit an Asset Report (Form 720) in February/March of the following year. The report includes blocks where you can declare property, bank accounts, and financial assets (shares, investments, life assurances, etc).
The obligation for submission of this report is if any of the blocks reach an accumulated value of €50,000. The existing penalty for not submitting the report is severe, so it is recommended that you obtain professional assistance with this issue.
Q. What Are My Obligations If I Want To Start A Business In Spain?
A. When choosing to open a business in Spain, it is recommended that you contact professionals for assistance. Professionals can offer you advice on whether you should register the business as a Spanish limited company or a sole trader. If you opt to operate as a sole trader, you must register as a self-employed individual for tax authorities with social security; as well as Canarian tax authorities if you reside in the Canary Islands.
Each quarter, you will be required to pay 20% company tax on the business profit. In the May/June of the following year, you must include this amount in the annual income tax return to off-set the business tax as a tax credit. Social security contributions are dependent on your age and can meet the minimum amount of €274 per month; however, there are existing incentives in place where the first year allows an 80% reduction benefit. The second half of the first year allows a 50% reduction, and the second half of the second year offers a 30% reduction benefit.
Along with the business tax to be paid, you are required to report a quarterly VAT return. The IVA in Spain is 21%, and the IGIC in the Canary Islands is 7%. As of the beginning of 2018, the Canary Islands have a new protocol allowing exemption from IGIC if the company's annual turnover does not exceed €30,000.
Q. What Must I Do If I Want To Rent My Property In Spain As A Holiday Accommodation?
A. Each of the regions in Spain present with minimum requirements to obtain a tourist licence. Moreover, you are required to declare the rental profit on your annual income tax return when considered a tax resident in Spain because the tax rate depends on your overall income.
However, if you are not a tax resident of Spain, you will need to submit a quarterly tax return (Form 210) and pay 19% tax of the rental profit to the tax authorities in Spain. The same amount must be declared in your tax income in the UK, where you can off-set the tax paid in Spain to avoid any double taxation. Based on the change of procedure, there are no IGIC (VAT) obligations in the Canary Islands.
If you choose to rent the property via a Spanish tour management agency, they may tax you using the agency; therefore, you will not need to present quarterly tax returns. In this case, you can write off the tax as tax credits on either your Spanish or UK annual tax returns. If you are not a tax resident in Spain, you have the option of deducting rental expenses and requesting refunds of the additional tax held by the agency. In this situation, it is recommended you contact a professional regarding the implications of the action.
Q. Should I Claim My Pension Before Leaving The UK?
A. It is recommended that you consult a wealth management company before you leave the UK and become a tax resident in Spain. If you opt for a 25% cash lump sum as a pension, this is beneficial in the UK as it is tax-free; however, as a tax resident in Spain, the lump sum is not tax-free.
Q. What Taxes Must I Pay If I Choose To Sell My Property In Spain?
A. If you opt to sell the property in Spain as a tax resident, the capital gain will be included in your annual income tax return with taxation of 19% on the gain. If the property is your primary residence, you can benefit from the rollover. If you are over the age of 65, then you will be exempt from any capital gain tax. However, you need to reside in the property for at least three years for the property to be considered a primary residence.
If you'd like to get some advice in this area, the people at Delmar Estate Agency can help you navigate any obstacles you encounter and they know the sector very well.