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 The Spanish tax system
Spain, as any other country, has a large number of national, regional and local taxes. A number of these taxes will be explained here.

Become /remain a resident, or become / remain a non-resident
The European regulations with regard to residence are as follows: 

As from the 2nd of April, 2007 citizens of the European Union are no longer obliged to apply for a residence card. 
For a stay of 3months (apart from a valid passport) no further documentation is required. 

If you wish to become a resident, however, you will have to prove by means of an employment contract, the establishment of a business of your own, or by registering with the Spanish tax authorities as a self-employed person, or by proof of a perpetual allowance, that you have sufficient income to provide for yourself (and your family). 

Of course, there is not always a free choice between being a resident in Spain of Great Britain. However, since as a result of the free entry in the European Union it is very difficult for the authorities and tax authorities to check how long you stay in which place, there is always room for a certain freedom of choice. 

90 days' rule
If you only visit your second home in Spain from time to time, the advantages are limited, however, if you plan to spend larger parts of the year in Spain, thing are becoming more interesting. If you stay in Spain for 90 days or more each year, you have the possibility to establish yourself as a "residente". In that case for tax purposes you will be considered a resident of Spain and you can profit from the tax advantages which Spain offers compared to Great Britain. 

Deductibility of mortgage interest
Once you are a fiscal resident, the cost of a mortgage on your own house in Spain are partially deductible. This applies not o0nly to the interest, but also to the instalments on the loan. During the first two years after contracting the loan this deduction amounts to 20% and in the years thereafter to 15% of the mortgage cost, with a maximum of 9.000 Euro. The deductibility of the cost is limited to house mortgages which have been taken out when buying, and does not apply to mortgages taken out for financing renovations.

Income tax
As a resident you will have to pay income tax in Spain over your global income (there are exceptions, though). You can acquire your declaration form at the tobacconist's. The declaration has to be submitted in June of each year.
Both residents and no residents are obliged to apply for a NIE number (número de identificación de extranjeros - identification number for foreigners).
Spain no longer applies the system of rateable value for residents. Other deductible items are, amongst others, maintenance, local taxes, insurance premiums.

Capital tax
Residents are obliged to submit their declaration for the capital tax including their total global capital. Non-residents only have to declare the part of their capital located in Spain. The percentage is between 0,2 and 2,5%.
Capital includes: real estate, bank balances, shares and bonds, luxury goods (cars, yachts), life insurances, the value to be paid at the end of the year, household effects, for which a standard percentage is applied, depending on the capital.
Taxes on purchase, high tariff 16% and low tariff 7%
The VAT (Value Added Tax) is known in Spain as I.V.A. (Impuesto sobre el Valor Añadido). The percentage depends on what you have bought. The following tariffs apply:
16% on building land without structures
16% on a swimming-pool, terrace or garage after the house has already been bought earlier.
7% on building land if the order to build the house is given immediately. 

Stamp duty: resident / non-resident (ITP = Impuesto de Transmisiones Patrimoniales)
If you buy an existing property off a private person, you will not pay IVA, but ITP, at 7% on the value of the property as stated in the notarial deed (escritura pública de compraventa).
The profit you as a seller make on your house is subject to capital gains tax. All prices we quote are exclusive of VAT.

The United Kingdom has concluded a Tax Exemption Treaty with Spain to prevent double taxation. More information on this subject can be found on: www.hmrc.gov.uk/si/double.htm

Plusvalía
Plusvalía (a local tax) and capital gains tax (a national tax) are often being confused. The plusvalía is calculated on the basis of the capital gain on the soil. Every time real estate with its soil changes hands (also in case of hereditary succession) the municipality will impose this tax, even in the case of a flat in an apartment building. In that case, the soil belonging to the apartment is used as a basis. The maximum period for the levying of plusvalía is twenty years. This local tax has to be paid by the seller.

It can be decided by mutual agreement, however, that de buyer assumes this tax obligation. Usually, the municipality does not raise any difficulties, as long as the tax is being paid. In those cases, the buyer and seller usually agree that the tax due will be deducted from the asking price of the property. 

The plusvalia is being levied on the cadastral value of the soil. The capital gain on the soil is being established and adapted by the municipality on the basis of a table. This capital gain depends on the number of years the seller has possessed the property and the number of inhabitants of the municipality. The municipalities in Spain are allowed to determine their own tariff for the plusvalía, bound by minimum and maximum tariffs.

If you sell your property with a profit, a capital gains tax will be imposed.

Law of succession
Most homeowners are unaware of the fact that on the decease of the owners, the heirs will have to pay taxes. To save on inheritance, it will be wise to employ the services of an expert (Spanish) consultant. Since there are enormous differences between the British and Spanish inheritance tax systems, British residents are advised to call in a consultant with knowledge of both the British and the Spanish rules. We work together with several specialists in this area, and will be gladly prepared to advise you. 

During your stay in Spain we can put you into contact with an English-speaking tax specialist, since the practical consequences of the fiscal laws can be extremely complicated. Usually the interpretation of the laws only becomes clear after consulting the jurisprudence.
Anyhow, we advise you not to base your decisions only on the (general) information supplied on this website.
Further information on these and other subjects is also to be found at: www.taxationweb.co.uk/taxlaw/article.php
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