SHARE
COPY LINK
For members

TAX

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

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.

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

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

READ ALSO:

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members

LIFE IN SPAIN

Is Spain going cashless?

Card payments are on the rise in Spain, but many Spaniards still use cash in their day-to-day life. Scandinavian countries are heading in the digital direction, but could Spain ever go cashless?

Is Spain going cashless?

¿Con tarjeta? is something you asked a lot in Spanish shops and bars, and according to recent statistics, it’s on the up.

Card payments increased by 23.56 percent in Spain during the second quarter of 2022, according to data from the Bank of Spain.

Card payment transactions have been steadily rising in Spain since the start of COVID-19 pandemic because physical money – especially coins – were considered unsanitary.

This is part of the reason why both the rise in the number of card transactions (23.56 percent) and in the amount paid for on card (25.05 percent) have reached record highs.

The number of cards in circulation has also risen by 1.44 percent to 87.9 million, meaning there are almost double the amount of bank cards than there are people in Spain.

In perhaps what might allude to the current cost of living crisis, credit cards have increased by 7.1 percent, and debit cards fallen by 2.95 percent. 

Cash withdrawals also increased by 2.37 percent in the second quarter, with 170.8 million ATM withdrawals across Spain.

Still, that figure is far lower than the pre-pandemic figure, when a staggering 900 million cash withdrawal operations were registered in 2019.

Despite the underlying trend towards digital payment, experts believe the shock of inflation and cost of living crisis could cause a short-term uptick in cash payments in Spain as a means of controlling spending.

According to Helena Tejero, a Director from Banco de España, using cash is “a good way to keep the money that comes out of the wallet at bay” and it could become more common as Spaniards tighten their belts in the face of inflation.

READ ALSO: How Spain’s cost of living increase is worse than in France and Germany

Cash only

Card payments may be on the rise, but for many Spaniards cash is still a daily part of their lives.

According to Banco de España, 64 percent of purchases in Spain are paid for in cash.

Around 1 million people in Spain are, according to a Study of Consumer Payment Attitudes in the EuroZone, living in “financial exclusion” where they can only access cash.

This is most common in rural Spain where many villages and hamlets.

The number of ATMs in Spain has also been falling since 2008. According to the Banco de España, there are now 58.4 percent fewer cash points than in 2008, although Spain is still the country with the second highest proportion of ATMs per person in the EuroZone, with 58 cash points for every 100,000 inhabitants.

READ ALSO: Spanish banks’ ATMs are disappearing or being replaced

Cashless future?

Though card payments are rising in Spain, it is still a long way off countries such as Sweden and Norway, which are all but cash-free societies.

READ ALSO: Reader’s story: How I adapted to Sweden’s cashless society

In Sweden card payments (whether its card or mobile phone) make up more than 90 percent of all transactions in the Scandinavian countries. Next-door in Norway, just 3 percent of purchases are made with cash.

Financial experts point to some of the benefits of transitioning to a cashless society, including a reduction in crime as there is physically less money to steal, but also the creation of a more robust and far-reaching digital paper trail, which makes financial crimes such as money laundering more difficult.

On the other hand, many people feel moving away from cash comes with its downsides. For many bank cards and online banking is a steep technological learning curve, it leaves you with no other option in the case of technical issues and, as the Banco de España suggested, for some people the lack of physical cash can make controlling spending more difficult. 

SHOW COMMENTS