Tax planning in Spain is a very important part of living life abroad and should never be ignored at any costs – BUT you must also be very careful and sure that you understand the rules as they may apply to your own individual scenario.
There are regular tax changes so keeping up to date with the alterations can be a tricky task. Ultimately it is important to make sure you are compliant without paying more to ‘our friend’ the Taxman than is necessary.
Cross border interests amongst other things mean that tax planning as an expat is not always as straight forward as it might be if you are a fulltime UK tax resident.
Local rules can have a significant effect on your situation aswell as the bigger picture of International regulations, so comprehensive and current knowledge is a must when protecting your interests, and that of any heirs or beneficiaries in the future.
There has been a number of high profile ‘tax evasion/unpaid tax cases’ in the newspaper headlines over the last 18 months with the rich and famous not exempt from the spotlight – Superstar footballers such as Cristiano Ronaldo, Lionel Messi and Manchester United manager Jose Mourinho have all fallen foul of the taxman in recent months.
The Spanish Tax Authority is becoming very proficient at not only detecting but also preventing tax evasion. The introduction of the Modelo 720 in 2012 was a game changer in terms of the information it collects and uses to monitor taxpayers’ overseas assets.
Absolutely every resident without exception in Spain is obligated to report their non-Spanish assets over €50,000. On an annual basis. This is a separate report with its own individual requirements to that of income and wealth tax returns with its own reporting.
If this is not conformed to, the penalties for failing to declare assets are particularly harsh.
This obligation falls on the owner of the asset, or Spanish resident beneficiary or authorised signatory, and includes assets held in a trust.
Make sure you know what assets and values to include in your Modelo 720 and that you are submitting the correct information on time to avoid substantial penalties.
Wealth tax can pose particular problems for people who are asset-rich, but on a low income. Fortunately, there are structures in place and steps you can take to reduce liability due on your assets. Prudent planning for those in this situation should be considered essential.
When it comes to planning for your heirs and beneficiaries the rules applicable in the UK and Spain are very different.
Spanish Succession Tax is a version of inheritance tax, BUT it operates in an entirely different way to UK inheritance tax.
The tax is payable by the beneficiary and is dependent on the amount of inheritance that beneficiary receives and their degree of kinship with the deceased.
Substantial reliefs may be available for close family members. However as if to complicate matters even further the rules are different depending on which particular region of the country that you are resident in, so baring this in mind it is essential that you seek advice on the rules applied in your area. Due to the way in which Spanish succession tax operates, thankfully there are a number of methods of legally reducing this liability.
A very important consideration that many people are unaware of is the issue as to where you are officially classed as domiciled.
Even if you become resident in Spain and live there for many years, you may still be liable to UK inheritance tax which is based on your domicile status not your residence status. It can be very difficult, but not impossible, for an individual to change their domicile status.
Planning for solid and sound financial tax future as an ex pat in the modern world takes some serious consideration and is virtually impossible without professional, up to the minute and compliant advice and support.