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Q&A: What Brits in Spain need to know about tax and residence after Brexit

Q&A: What Brits in Spain need to know about tax and residence after Brexit
Residency and tax issues in Spain post Brexit. Image: JORGE GUERRERO / AFP
Now that the UK is no longer part of the EU, many of our British readers have been asking us about the residency and tax rules in Spain post-Brexit. We spoke to Blevins Franks's Jason Porter to offer some clarity on some common queries and worries.

Q1: As remote working is so common now because of the pandemic, many readers have been asking us what happens if they have a remote job in the UK or have been offered one, but live in Spain. Where are they liable to pay taxes? How do they navigate this with their UK employers and what are their options on how to declare the tax in Spain?

A1: Whilst there is no specific visa or residency permit for remote working in Spain, most immigration specialists have been using the tried and tested, non-lucrative visa (NLV) route for years.

You would need financial resources of €27,115 per annum for an individual or almost €33,900 for a couple, as well as medical insurance.  Recently, there has been emerging evidence that Spanish consulates around the world are rejecting applications for NLVs on this basis, suggesting they “will not accept any non-lucrative applications from applicants that will be involved in any type of professional or lucrative activities”.

As a result, the only options might be via Spain’s ‘Ley de Emprendedores’ Programme, which includes the “Freelancer” or Self-Employed Visa, or the Entrepreneur Visa/Start-Up Visa. 

You will pay income tax where you are regarded as tax resident, which should be Spain if you spend more than 183 days there. The UK has its Statutory Residency Test which determines how long you can spend there before becoming resident, according to a list of UK “ties”.  Exceed these number of days in the UK and you could be tax resident in both jurisdictions. 

The Double Tax Treaty between the UK and Spain determines the main place of residence and any tax payable in one jurisdiction can be set off against the same tax liability in the other. Any UK employer would probably apply to their PAYE district for an NT (no tax) tax code for a remote working employee.

How much capital gains tax are you liable to pay in Spain? Image: panoramicvillascosta / Pixabay

 
Q2: How have the rules on capital gains tax on property changed since Brexit? How are residents in Spain affected as well as UK residents who own holiday homes here? 

A2: The rate of capital gains tax (CGT) on the sale of Spanish real estate has increased from 19% to 24% on UK tax residents, now the UK is no longer part of the EU.

The rate of CGT on Spanish tax residents is charged in bands: 19% on the first €6,000 of gains, 21% on the next €44,000, 23% on the next €150,000 and 26% on gains over and above €200,000 apply (though certain main home reliefs are available which might reduce or eliminate the taxable gain).

The buyer of the property, who is required to “withhold”, or make a down payment of the CGT on behalf of a non-resident seller to the Tax Agency in Spain, continues to pay over 3% of the purchase price. This percentage is the same for EU citizens and non-EU citizens.

Similarly, property let out for rental in Spain is taxable at 19% where the owner is resident in the EU, and includes relief for expenses including mortgage interest, repair and maintenance costs, electricity, insurance, etc. However, a UK owner who is now resident outside the EU will pay tax at 24% going forwards, with no deduction for property expenses.

Q3: Wealth tax is another question that comes up a lot. Has Brexit affected this and what are the implications?

A3: Brexit has not impacted Spanish wealth tax in any major way, but those UK citizens residing in Spain who have UK pensions could find they now need to make a wealth tax declaration and may have a wealth tax liability to pay. UK pension plans (other than purchased annuities) have generally been exempt from Spanish wealth tax. But now that UK pensions have become ‘third country’ (non-EU/EEA) assets, they may no longer qualify for the exclusion.

The current wealth tax exemptions do not differentiate between Spanish and foreign/EU and non-EU pension plans, so both should have the same tax treatment. However, a binding 2019 ruling from the Spanish Directorate-General for Tax (DGT) states that “pension plans established in non-EU member states may not benefit from the [wealth tax] exemption”.

With no distinction between Spanish/non-Spanish pension plans in the wording of the law, lawyers could argue that UK pensions remain exempt, but Brexit is an untested position and the outcome is unclear. Spanish residents with UK pension plans may have to potentially defend their positions with the tax authorities to prevent them from imposing a wealth tax liability.

Q4: Are all Brits who spend less than 183 days in Spain considered as non-residents and are therefore exempt from paying tax here or are there some exceptions and what are these?

A4: Understanding where you are a tax resident is important as, in most cases, your country of residence taxes you on your worldwide income and gains. In Spain, you are considered a tax resident if you spend more than 183 days there during a Spanish tax year (the calendar year). 

Alternatively, the number of days test can be overruled where your main professional activity or most of your assets are based in Spain (i.e. if your centre of economic interest is in Spain). You can also be considered to be resident in Spain if your spouse and/or dependent minor children live in Spain.

The Spanish tax authorities chose to disregard OECD guidance on how to deal with COVID-19 exceptional circumstances and published a binding tax case ruling, which states that days unwillingly spent in Spain due to COVID-19 restrictions must always be taken into account for the purposes of determining tax residency, i.e., the 183-day rule.

The 183-day rule in Spain has no established exceptions and emphasis, and in this case was also placed upon the fact that the individuals concerned were from Lebanon, a blacklisted tax haven for Spanish tax purposes.

On this basis there should only be a limited impact, as the UK is not a blacklisted tax haven, having already concluded a Double Tax Treaty with Spain. As such, the treaty tie-breaker rule for the determination of the “treaty residence” would apply, which takes into account other circumstances different from the days spent in one territory during a tax year, such as the centre of vital interests, place of habitual abode or nationality.

What are Spain’s laws on gains from cryptocurrencies? Image: Firmbee / Pixabay

Q5: Lastly, a few of our readers wanted to know about Spain’s new cryptocurrency tax laws and when you are liable to declare these. Has Brexit affected this in any way?

A5: In October 2020, the Spanish government published its first draft law to regularise and control cryptocurrencies, including their taxation. You are now required to inform the tax authorities of any cryptocurrency you may have and any transactions that you undertake. For Spanish residents, this applies to coins held in any other country in the world.

More precisely, you must inform them of any acquisition, transmission, exchange, transfer, collection, or payment made through the form Modelo 720. 

But, if you merely hold a position throughout a calendar year, then there will be no tax to pay. You will also need to assess any wealth tax exposure, much like any other financial asset.

Any profits on the sale of cryptocurrencies are subject to capital gains tax, which for Spanish residents is payable at 19% on the first €6,000 of gains, 21% on the next €44,000, 23% on the next €150,000, and 26% on gains over and above €200,000.

For non-Spanish tax residents, Brexit means gains would be taxable at a flat rate of 24%, rather than 19%. Gains (and losses) are calculated the same as any other currency transaction, relating the buy and sale prices to the value of the Euro on the relevant dates.  Losses can be offset against any gains to give a net position at the end of the year. Any unused losses can be carried forward for four years. 

Mining cryptocurrencies, and the income it generates could be considered a business if it is big enough. You would need to pay income tax according to the amount generated, though you will not need to pay VAT or declare it, as there is no specific or defined client.

Jason Porter told The Local that many of the answers to these questions could cover several pages and that responses given above are generalised versions. If you need any more specific information about tax or residency in Spain, contact Blevins Franks

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