Tax Obligations for UK Citizens with Property in Spain

For UK citizens owning property in Spain, understanding the tax obligations is crucial, especially post-Brexit. The Spanish tax system imposes several obligations on non-resident property owners, encompassing income tax, property tax, and capital gains tax. Here’s a detailed guide on what UK citizens need to know about their tax responsibilities in Spain.

Non-Resident Income Tax (Modelo 210)

Imputed Income

For non-residents who own property in Spain that is not rented out, an imputed income tax is levied. This tax is based on a percentage of the property’s cadastral value (valor catastral), which is the value assigned by the local municipality for tax purposes. The imputed income rate is 2% of the cadastral value, or 1.1% if the cadastral value has been revised in the last ten years. The tax rate applied to this imputed income is 24% for UK citizens post-Brexit.

Rental Income

Non-residents who rent out their property must declare the rental income received. The tax rates and deductions have changed post-Brexit:

Pre-Brexit:

• Income Tax Rate: 19% on rental income.
• Deductions: Rental expenses such as maintenance costs, local taxes, and mortgage interest were deductible.

Post-Brexit:

• Income Tax Rate: 24% on rental income.
• Deductions: Rental expenses are no longer deductible for UK citizens. This means the gross rental income is subject to the 24% tax without any allowances for expenses.

Capital Gains

The capital gains tax rate for non-residents selling property in Spain remains the same, regardless of the owner’s residency status. Both pre- and post-Brexit, UK citizens are subject to a flat rate of 19% on any gains from the sale of property. Expenses related to the acquisition and sale of the property, such as legal fees, improvement costs, and agent commissions, remain deductible for non-residents, including those from non-EU countries.

Property Tax (IBI)

All property owners in Spain, including non-residents, must pay the local property tax, known as Impuesto sobre Bienes Inmuebles (IBI). The rate varies depending on the property’s location and the local municipality’s regulations.

Wealth Tax

Non-resident property owners may also be subject to Spain’s Wealth Tax if their worldwide assets exceed certain thresholds. The rates and thresholds for 2024 in different regions are as follows:

Exempt Thresholds for 2024:

• Balearic Islands: The exemption threshold is €3,000,000. Above this amount, the tax rates range from 0.2% to 2.5% depending on the value of the assets.
• Andalucía: The exemption threshold is €1,000,000. Above this amount, the tax rates range from 0.2% to 2.5%.
• Catalonia: The exemption threshold is €500,000. Above this amount, the tax rates range from 0.2% to 2.5%.

Special Considerations

Double Taxation Agreement

The UK and Spain have a Double Taxation Agreement (DTA) to prevent double taxation on income and gains. This agreement allows UK citizens to offset the Spanish tax paid on their rental income or capital gains against their UK tax liability on the same income or gains.

Annual Tax Filing Deadlines (Starting 2024)

From 2024, the filing deadlines for non-resident taxes in Spain are as follows:

Imputed Income:

The imputed income is declared the following year. Therefore, the imputed income return for 2023 must be declared within 2024 by 31st December (20th December for Direct Debit).

Rental Income:

Rental income must be declared annually from 2024 (previously, it was quarterly). The filing period is the first 20 days of January of the following year. Rental income earned in 2024 must be reported in the first 20 days of January 2025.

Consequences of Missing Tax Obligations

Failing to comply with Spanish tax obligations can lead to significant consequences. The Spanish tax office (Hacienda) can review tax filings and impose penalties for up to four tax years retrospectively. If a non-resident voluntarily declares past periods, the penalties are lower, with a maximum of 15% of the owed tax. However, if the tax office requests the submission, the penalties are much steeper, starting from 50% of the owed tax. This substantial difference underscores the importance of proactive compliance and timely tax filing.

Understanding these tax obligations helps UK citizens avoid unexpected liabilities and ensure compliance with Spanish tax laws. While Brexit has introduced some unfavourable changes, being informed and proactive about these tax responsibilities is essential for UK property owners in Spain. For tailored advice and assistance with your tax filings, consider using IberianTax's expert services.