por Gabriella Trussler | Nov 9, 2021 | Tax
For those who do not know, the “Impuesto sobre el Incremento de Valor de los Terrenos Urbanos”, more commonly referred to as the “Plusvalía” Tax, is a local capital gains tax on the value of urban land, levied when a property in Spain is sold, inherited o gifted. However, the gain being taxed was not a real gain, but rather a fictitious, which resulted in the tax always being owed irrespective of whether there had been an actual gain as a result of the transaction.
In 2017 the Constitutional Court started by ruling that levying the tax when there was no real increase in value of the property (e.g. when the property is sold at a loss) is unconstitutional, although it was not particularly clear about when it should be considered that such an increase in value exists (see our post «Plusvalía» Tax declared unconstitutional in certain cases).
The Constitutional Court ruling of the 26th October 2021 has declared the method of calculation of the “Pluvalía” Tax unconstitutional, thereby cancelling the tax. However, much like the ruling on mortgage floor clauses, which was eventually overturned by the European Court (see our post “Floor clauses” in Spanish mortgage contracts: What are they? What do they mean? What can you claim?…so many questions.), this ruling is yet another example of the politicization of the Constitutional Court to protect public funds.
Despite having ruled the method of calculation to be unconstitutional, the ruling also states that tax bills issued before the date of the ruling will not be subject to revision when a court ruling with the force of res judicata or a final administrative decision exists, which is usual an legal in such cases. However, the ruling goes beyond this stating that provisional and final tax assessments not appealed before the date of the ruling will also be considered “consolidated positions”, and therefore not subject to revision. This results in denying individuals who have received a “Plusvalía” Tax assessment in the last 4 years the right claim any part of it back in the huge majority of cases, or even to have the assessment cancelled in the cases where the amount has not even been paid yet.
This limitation has shocked the Spanish legal community, given that Spain was already held accountable in the almost identical instance when the Constitutional Court tried to limit such claims in the matter of the mortgage “floor clauses” by the European Court of Justice, when they reversed the court’s decision for being contrary to national and EU law. It is therefore no surprise that there is already talk of taking the decision to the European Court.
The ruling is frankly embarrassingly in breach of Spanish and EU law, as that which is unconstitutional is null and void, and we can only hope that this injustice will be remedied by the European Court.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
por Gabriella Trussler | Dic 13, 2019 | Tax
On the 31st
October 2019 the Spanish Constitutional Court issued a significant ruling
concerning the infamous “Plusvalía”
Tax (Municipal Capital Gains Tax). For those not already aware of it, it is a
local tax on the increase in the value of urban land.
The
controversy surrounding the “Plusvalía”
Tax in recent years is due to the fact that the value assigned to the urban land
in question is not the transactional value of the property, but rather a value
assigned by local administrations. This means that the actual gain is not what
was being taxed in reality, resulting in the tax being levied even in cases
where properties were sold at a loss in Spain.
As a result
of this uncertainty, brought about by a Supreme Court ruling in 2017, a lot of
Town Halls decided to hold off on levying the tax until the doctrine on this
subject had been further clarified, though others decided to carry on with
business as usual.
In its
ruling the Constitutional Court declared the “Plusvalía” Tax to be unconstitutional when it is confiscatory for
the taxpayer. What this means, in effect, is that the tax may not be levied
where the property is sold at a loss, or even in the event of a real capital
gain existing, except when the capital gain outweighs the amount owed in tax.
The final
consolidation of this position will come to an end with the approval of the
Draft Bill for the reform of the Local Tax Authorities Act, although a lot of
the Town Hall’s that had suspended issuing “Plusvalía”
Tax bills have already started issuing the bills as of the new
Constitutional Courts ruling, in accordance with the criteria laid out in it.
If you have any doubts about whether you are liable to pay “Plusvalía” Tax, or if you may be entitled to claim any amounts already paid, we would urge you to seek qualified legal advice on the matter.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
por Gabriella Trussler | Abr 4, 2018 | Inheritance, Tax
As you will already be aware if you read our post on “Inheritance Tax reform in Andalucia”, a much needed revamp of Inheritance Tax legislation took place in Andalucia in 2017.
As you may also have heard, thanks to a political agreement between PSOE and Ciudadanos, further improvement on this legislation came into effect on the 1st January 2018 and April 2019, by which a tax allowance of 1,000,000 € was introduced for some direct family members, as well as a fied 1% tax rate in all cases.
Who does this apply to?
This news, as often happens, has given way to some confusion that this in fact refers to a general tax allowance, which is not the case. The 1,000,000 € exemption per beneficiary (in Spain each beneficiary is taxed rather than the estate – for more information check out our post “Inheritance Tax reform in Andalucia”) will only apply to family members that come under Group I and II in accordance with Andalucia’s Inheritance Tax legislation. The groups under this legislation are as follows, and are based on the beneficiary’s relation to the deceased:
| Group I |
Blood or adoptive descendants under 21. |
| Group II |
Blood or adoptive descendants 21+, spouses and blood or adoptive ascendants. |
| Group III |
Collateral relations of 2nd and 3rd degree (siblings, nephews, nieces, etc.), and other ascendants and descendants (stepparents, stepchildren, etc.). |
| Group IV |
Other collateral relations (cousins) and strangers. |
This means that the 1,000,000 € tax exemption does not apply to siblings, nephews, nieces, cousins, strangers, etc. These have their own, much lower allowances.
Finally, a further condition to being entitled to this exemption is that the beneficiary’s existing assets are no more than 1,000,000 €.
In addition, a reduced tax rate of 1% applies to these types of beneficiaries, as far as any amount that surpasses this allowance.
Changes to Gift Tax
The 1,000,000 € tax allowance will also apply to the direct family members described above, only in the event that a living gift is made for the purpose of the beneficiary purchasing his/her first home, or for a business startup or expansion. Obviously certain conditions are put on this exemption that will ensure the gift is being made for that purpose.
Once again, the 1% tax rate applies in the case of a living gift to these beneficiaries from Group I and II
In conclusion, despite having some limitations, this is a welcome change that effectively does away with Inheritance Tax in Andalucia for direct family members, except in the case of the “super rich”. It is important when dealing with an inheritance in Spain that you seek the appropriate legal counsel, who is aware of these and other benefits, and who knows how to apply them in both the resident and non-resident field.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
por Gabriella Trussler | Abr 6, 2017 | Tax
If you are living or working in Spain, you will be liable to pay Spanish taxes on your income and assets and will need to file a Spanish tax return.
Who is a resident?
The first question to answer is who is considered a resident for tax purposes. This consideration must not be confused with the legal status of resident, which I have explained in detail y my previous post «Living and working in Spain».
Natural persons (private individuals) are considered resident in Spain for tax purposes if they remain in Spain for more than 183 days of the calendar year.
Anyone who does not find themselves in this situation will be considered a Non-Resident Income Tax payer (see our previous post «Non-Resident Income Tax: What is it and why do I have to pay it?»).
Who has to pay taxes in Spain?
As a Spanish resident, you will need to submit a Spanish tax return and pay Spanish Income Tax, at progressive scale rates, on your worldwide income if:
- your annual income from one source of employment is over 22.000 €;
- you are self-employed or run your own business;
- you receive rental income of over 1.000 € a year;
- you have capital gains and savings income of more than 1.600 € a year;
- it is your first year declaring tax residency in Spain;
Among other examples.
You will have to declare all overseas assets worth more than 50.000 € (using Form 720). Your taxable income is the income left after deductions for social security contributions, pension, personal allowance, professional costs, etc.
Do I have to register for taxation in Spain?
You will need to register for tax in Spain with the Spanish Tax Authority, whether you are a resident or non-resident.
However, in recent years the police and the Foreign Office have begun registering anyone who passes through their system, which has unfortunately resulted in many foreigners being incorrectly registered. It is therefore very important to make sure what you are considered to be liable for by the Spanish Tax Office, as many have been registered as tax residents without their knowledge.
What are the rates?
Personal Income Tax is split between state and region and while the state has reduced taxes and simplified the income bands, this has not happened right across Spain. Each region sets its own tax bands and rate of income tax, so how much income tax you pay depends on where you live.
Income Tax rates
| From
(Euros) |
To
(Euros) |
State tax
% |
Regional tax
% |
Total tax
% |
| 0 |
12.450 |
9.5 |
9.5 |
19 |
| 12.450 |
20.200 |
12 |
12 |
24 |
| 20.200 |
35.200 |
15 |
15 |
30 |
| 35.200 |
60.000 |
18.5 |
18.5 |
37 |
| 60.000 + |
|
22.5 |
22.5 |
45 |
If you are resident in Spain you will be subject to Spanish taxation on your worldwide income.
When do I have to pay?
The end of June is the deadline every year, by which time residents must have filed their annual Income Tax return for the previous year, and you can start submitting your tax returns from the beginning of April (exact dates vary each year).
Not submitting your tax return or submitting it incorrectly can result in expensive fines, so it is important that you seek professional advice and assistance for peace of mind.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
por Gabriella Trussler | Nov 25, 2016 | Tax
The determining factor regarding what kind of Income Tax a natural o legal person pays in Spain is residence. Residents pay regular Income Tax (IRPF) or Corporation Tax (IS), and non-residents, both natural and legal persons, must pay Non-resident Income Tax (IRNR).
Who is a resident?
The first question to answer is who is considered a resident for tax purposes. This consideration must not be confused with the legal status of resident, which I have explained in detail y my previous post “Living and working in Spain”.
Natural persons (private individuals) are considered resident in Spain for tax purposes if they remain in Spain for more than 183 days of the calendar year.
Anyone who does not find themselves in this situation will be considered a Non-Resident Income Tax payer insofar as they obtain income or own real-estate in Spanish territory.
Income to be declared on real-estate in Spain
According to Spanish law, non-resident natural persons who own urban real-estate assets in Spanish territory, for their own personal use, rather than for economic activity or which are vacant, are subject to Non-Resident Income Tax for the income obtained from these buildings. To clarify, although there is no actual income received in these cases, a “fictional” income is calculated based on the value of the said property. This is not to be confused with the local Property Tax (I.B.I.), the payment of which does not exempt you from Non-Resident Income Tax.
If you are renting out your property you will have to declare the income you obtain from said rental.
Will I be notified I have to pay?
The system for collecting taxes in Spain is different to that in many other countries. Under the Spanish system you will not necessarily be reminded that you owe tax, it is your responsibility to make sure you are up to date on your tax payments.
However, this does not mean you won’t be caught for not paying your Non-Resident Income Tax. The Spanish Tax Authority is increasingly cross-referencing information to identify where there are irregularities (including monitoring electricity consumption and Land Registry records, among other measures).
A letter may be sent to your Spanish address notifying you of your obligation to pay Non-Resident Income Tax, though this is not necessarily the case and not receiving such a letter does not exempt you from your tax obligation. Even in the event that this letter is sent out, if you are not there to receive it at the time it is issued, as many who are not residing permanently in Spain may not be, then the letter will be returned to the Spanish Tax Authority.
When do I have to pay?
The 31st December is the deadline every year, by which time non-residents must have filed their annual Non-Resident Income Tax return for the previous year (e.g. deadline for 2019 tax return is 31st December 2020).
Consequences of failing to pay
The main consequence of non-payment is that the debt with the Spanish Tax Authority will be held against your property and, as a result, will have to be settled before you are able to sell your property, or before your heirs are able to inherit it.
In addition, you may have to pay late payment interest, as well as the appropriate tax sanctions, the funds in your bank account could be seized, or you could become the subject of one of the Spanish Tax Authority’s anti-fraud campaigns.
It is for all of these reasons that it is essential that non-residents seek a professional and experienced fiscal representative who is in a position to make sure your taxes are paid on time, receive notifications on your behalf, represent you to the Spanish Tax Authority, inform you of changes to Spanish tax law and answer all your queries on the matter.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
por Gabriella Trussler | Nov 5, 2016 | Inheritance, Tax
Finally, a much needed change to Inheritance Tax in Andalucia has arrived and will be coming into effect on the 1st January 2017. With Andalucia being one of the poorest regions of Spain it was becoming increasingly difficult to justify it being the region with the highest level of Inheritance Tax, forcing many inheritors to renounce their inheritance because of the unaffordable tax bill that came with it. Consequently, a restructuring of the tax had long been a matter of debate and negotiation, on a regional as well as a national scale.
Higher threshold
The main change brought about by the new Inheritance Tax reform is the increase of the general threshold from 175,000 € to 250,000 € for each individual beneficiary. This means that as long as the value of the part of the entire estate being inherited is under this amount, no Inheritance Tax will be owed by said heir.
In addition, to inheritances of between 250,000 € and 350,000 € a 200,000 € reduction is applied (e.g. if an inheritor’s share is valued in 270,000 € tax will only be due on 70,000 €). The effect of this change is to correct the leap that currently exists where, the moment the inheritance is even a euro over the threshold, Inheritance Tax is owed on the entire amount. This circumstance quite clearly placed inheritors at a comparative disadvantage, and was one of the main criticisms made of Inheritance Tax regulation in Andalucia.
Main residence
Another important change is the introduction of increased
allowances for the inheritance of the deceased’s main residence by spouses, ascendants or descendants, or collateral relations over 65 years-old. Specifically, a 100 % allowance is applied when the value of the property is under 123,000 €, which reduces 1 % each time as the property value band increases, with the minimum allowance being 95 % when the property is valued at anywhere over 242,000 €.
Furthermore, as of the 1st January the beneficiary will now only be required to maintain ownership of the property for 3 years, as opposed to 10 years as it stands at the moment.
How is the tax rate calculated?
The above allowance, together with any other allowance the heir may be entitled to, is applied to the amount above the general threshold to determine the taxable amount.
Once we have the taxable amount the Inheritance Tax scale is applied, as well as a coefficient that depends on the relation to the deceased and the inheritor’s existing assets, to determine the tax rate that applies. All of these aspects remain unaltered by the tax reform.
Will this apply to UK residents post Brexit?
The regional allowances for Andalucia in the event that both the deceased and the beneficiary are EU residents. When this is not the case, only state allowances may be applied, which are far fewer.
Therefore, depending on the result of the negotiations between the UK and the EU, these regional allowances will continue to be applied to UK residents post Brexit, or not.
It is important that all of these circumstances and potential costs are taken into account when preparing your will, so as to organise your will and manage your wealth in a way that will be most beneficial to yourself and your inheritors. All of which makes seeking professional assistance in these matters essential, to avoid any unexpected and costly surprises when it’s too late.
Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería
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