# Taxes as non-resident v/s resident



## nanita (May 27, 2013)

Hi

We are planning our move to Spain and I would like some information regarding taxes.

We will be buying a house there and I understand aside from all other taxes, there is also a yearly wealth tax which I understand. My query is regarding properties back in the UK. The new rules make is necessary to declare all property held in other countries. Are these also subjected to a wealth tax?

Thanks


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## Chopera (Apr 22, 2013)

nanita said:


> Hi
> 
> We are planning our move to Spain and I would like some information regarding taxes.
> 
> ...


Yes (but only if their total value adds up to more than €700k)


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## extranjero (Nov 16, 2012)

Chopera said:


> Yes (but only if their total value adds up to more than €700k)


That includes your property in Spain too as wealth tax is the value of all your assets worldwide.
You will also have the 720 assets form to complete!
If you sell your properties or rent them, thru will go on your yearly tax return
Ahh.... the pain in Spain!


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## snikpoh (Nov 19, 2007)

nanita said:


> Hi
> 
> We are planning our move to Spain and I would like some information regarding taxes.
> 
> ...



Unless you have a 'wealth' of more than 700,000 euros, then there is NO wealth tax. So, for example, as a couple you could own a property worth in excess of 1.4m euros before paying wealth tax. Even then you get an allowance of 300k euros for your main property. It also depends where in Spain you intend to live.

There is a new rule stating that all WEALTH held outside of your residence must be declared. For example, if you are resident in Spain, then you must declare each asset with a value in excess of 50k euros. There is no tax associated with this declaration - it's just a legal obligation to declare assets.


You haven't stated whether you would be Spanish resident or UK resident, how long you would be in Spain each year etc. etc. These are all important questions when it comes to tax.


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## chris&vicky (Feb 6, 2013)

Chopera said:


> Yes (but only if their total value adds up to more than €700k)


+ Euro 300,000 for main residence if resident in Spain


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## nanita (May 27, 2013)

Hi all

This is really helpful. I conclude then:

- Allowance of €300K - as we will be residents - for main property which will be in Spain
- €1.4M euros between my hubby and I before we have to pay wealth tax for properties held in the UK.

We should be fine then even with London property prices!

Cheers


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## snikpoh (Nov 19, 2007)

nanita said:


> Hi all
> 
> This is really helpful. I conclude then:
> 
> ...


You misunderstood - that figure is TOTAL wealth. Cash, properties, pension etc. wherever they may be in the world! The allowance of 300k may be each but I can't remember.


ps. Don't forget that you will have to pay tax on any rental income. If you don't rent the UK properties, you will still have to pay tax on the imputed rental income.


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## nanita (May 27, 2013)

snikpoh said:


> You misunderstood - that figure is TOTAL wealth. Cash, properties, pension etc. wherever they may be in the world! The allowance of 300k may be each but I can't remember.
> 
> 
> ps. Don't forget that you will have to pay tax on any rental income. If you don't rent the UK properties, you will still have to pay tax on the imputed rental income.


Yes, I understand that is the total wealth. The properties will be rented and tax will be paid in the UK. Under double taxation agreement (Spian/UK) I should not be charged any further taxes for these in Spain. Anyway, it is a bit complex so I think I will get professional advice. I don't want to have *nasty* surprises.


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## snikpoh (Nov 19, 2007)

nanita said:


> Yes, I understand that is the total wealth. The properties will be rented and tax will be paid in the UK. Under double taxation agreement (Spian/UK) I should not be charged any further taxes for these in Spain. Anyway, it is a bit complex so I think I will get professional advice. I don't want to have *nasty* surprises.


That's great - you'll still have to declare the rental income in Spain but offset the tax already paid in UK.


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## chris&vicky (Feb 6, 2013)

snikpoh said:


> That's great - you'll still have to declare the rental income in Spain but offset the tax already paid in UK.


I am not sure how you could have no further tax to Spain on rental income? Having said that this is something I still don't fully understand. 

In UK rental income is taxed as normal income so you would only pay tax on what exceeds your personal allowance. As most other things would not be taxed in UK (if tax resident in Spain) your entire allowance would likely go against rental income. 

In my situation my rental income comes from one property, my main residence, and after allowances I would pay very little tax in UK so there is not much tax to offset against the tax due in Spain. Surely I must pay more tax in Spain given their very low allowances? 

This is something I have been trying to understand for some time and now want to ask an adviser about.


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## nanita (May 27, 2013)

chris&vicky said:


> I am not sure how you could have no further tax to Spain on rental income? Having said that this is something I still don't fully understand.
> 
> In UK rental income is taxed as normal income so you would only pay tax on what exceeds your personal allowance. As most other things would not be taxed in UK (if tax resident in Spain) your entire allowance would likely go against rental income.
> 
> ...


That worries me too. If I do things correctly, between expenses, my allowance and my husband's - we own the properties jointly and receive the income jointly - we should have little tax to pay in in the UK. But that is not say they can come up with a different calculation and tax us on top of the UK tax. I went to the tax office in Mallorca and the told me they have an online tax calculator where I can run a simulation but I haven't found it. I'll look for it tomorrow and post a link if I find it.


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## CapnBilly (Jun 7, 2011)

If your only income is rental income, then the amount of extra tax is likely to be very little. This is because although the personal allowance is quite small (€5151), you only pay tax on 40% ( (was 50%) of your net rental income I.e les expenses including mortgage interest. On addition you can claim 3% depreciation of the property cost/value (.i.e excluding the land). Then you can offset the tax you pay in the UK. It's only really a problem if you have other income that is taxable in Spain, and therefore uses up your allowance.


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## chris&vicky (Feb 6, 2013)

CapnBilly said:


> If your only income is rental income, then the amount of extra tax is likely to be very little. This is because although the personal allowance is quite small (€5151), you only pay tax on 40% ( (was 50%) of your net rental income I.e les expenses including mortgage interest. On addition you can claim 3% depreciation of the property cost/value (.i.e excluding the land). Then you can offset the tax you pay in the UK. It's only really a problem if you have other income that is taxable in Spain, and therefore uses up your allowance.


I have heard that 40% mentioned and have looked for information about it but can never find it.

So for example if my rental income is £12,000 (euro 14,000) pa I would pay tax in UK on about £3,000, about £600 (euro 700). In Spain on only euro 5,600 (40% of 14,000) - 5151?, @ 24.75%? so very little, with a little adjustment for expenses, maybe nothing. In fact I could take some income elsewhere, pension drawdown, to offset against my £700 and still pay no tax? 

Is that correct or have I really not grasped this yet?


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## CapnBilly (Jun 7, 2011)

chris&vicky said:


> I have heard that 40% mentioned and have looked for information about it but can never find it.
> 
> So for example if my rental income is £12,000 (euro 14,000) pa I would pay tax in UK on about £3,000, about £600 (euro 700). In Spain on only euro 5,600 (40% of 14,000) - 5151?, @ 24.75%? so very little, with a little adjustment for expenses, maybe nothing. In fact I could take some income elsewhere, pension drawdown, to offset against my £700 and still pay no tax?
> 
> Is that correct or have I really not grasped this yet?


That's correct. The 40% is set out in Article 25 of ley 35/2006. http://http://noticias.juridicas.com/base_datos/Fiscal/l35-2006.html

I thought I had posted about this before.


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## snikpoh (Nov 19, 2007)

chris&vicky said:


> I am not sure how you could have no further tax to Spain on rental income? Having said that this is something I still don't fully understand.
> 
> In UK rental income is taxed as normal income so you would only pay tax on what exceeds your personal allowance. As most other things would not be taxed in UK (if tax resident in Spain) your entire allowance would likely go against rental income.
> 
> ...



Out of interest, how can this be your main residence if it is rented out? I think you have to be very careful about this for CGT and IHT purposes. 

If you live in Spain, then it certainly can't be your main residence.


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## CapnBilly (Jun 7, 2011)

snikpoh said:


> Out of interest, how can this be your main residence if it is rented out? I think you have to be very careful about this for CGT and IHT purposes.
> 
> If you live in Spain, then it certainly can't be your main residence.


I read it to mean its their current residence in the UK. As I recall Chris&Vicky are moving this year.


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## chris&vicky (Feb 6, 2013)

CapnBilly said:


> That's correct. The 40% is set out in Article 25 of ley 35/2006. http://http://noticias.juridicas.com/base_datos/Fiscal/l35-2006.html
> 
> I thought I had posted about this before.


Thanks I must have missed it.


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## chris&vicky (Feb 6, 2013)

snikpoh said:


> Out of interest, how can this be your main residence if it is rented out? I think you have to be very careful about this for CGT and IHT purposes.
> 
> If you live in Spain, then it certainly can't be your main residence.


Sorry I do not understand what you are saying.

I am renting out my UK house and taking a long term let in Spain next month. How could I pay CGT I am not selling my house? I only own one house so I assume that is my main residence, or are you telling me my main residence is the house I let in Spain? What difference would that make anyway? If I decide to sell I know my house would then become subject to CGT if I am a resident in Spain and I would need it to be my main residence to claim allowances against that. 

I am not sure what you mean about IHT?


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## chris&vicky (Feb 6, 2013)

snikpoh said:


> Out of interest, how can this be your main residence if it is rented out? I think you have to be very careful about this for CGT and IHT purposes.
> 
> If you live in Spain, then it certainly can't be your main residence.


Sorry but you have my mind racing again 

If I decide to sell my UK house at a later date while renting in Spain I assume I can still claim allowances against CGT? The law I understand says ...

_Main home relief/exemption if under 65:-

Reinvestment relief is available to Spanish residents when they sell their main home and invest in a new one.

To qualify for this relief, the *property must be your main residence* and you must have lived in it continuously for at least three years._

But your post appears to suggest this will not be my main residence if I am in renting in Spain?


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## gus-lopez (Jan 4, 2010)

Yes, the house in the UK cannot be your main residence once you are a spanish resident. Therefore the Cgt allowances would not apply & if you sold it , tax would be payable on the differece between the purchase price & selling price at an increasing amount.


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## nanita (May 27, 2013)

*Simulator*

Here is the tax return simulator. I am not familiar with the terminology so I am seeking specialist advice.

https://www2.agenciatributaria.gob.es/es13/s/dacoda2rs00w


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## chris&vicky (Feb 6, 2013)

gus-lopez said:


> Yes, the house in the UK cannot be your main residence once you are a spanish resident. Therefore the Cgt allowances would not apply & if you sold it , tax would be payable on the differece between the purchase price & selling price at an increasing amount.


Well the Spanish taxman have rather shot themselves in the foot with that one then. 

I would be happy to pay my CGT if I received the allowances for reinvesting some of the money in another property but if this is the case then I will just return to the UK, become non-resident in Spain, sell my house while UK resident and pay no tax. Then return to Spain and buy, a bit of a pain but that what I will have to do then.

Thanks for the info.


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## nanita (May 27, 2013)

Yes, you are right. I didn't express myself properly : )
It will not be my main residence. Our new Spanish house will be our main residence.


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## Chopera (Apr 22, 2013)

chris&vicky said:


> Well the Spanish taxman have rather shot themselves in the foot with that one then.
> 
> I would be happy to pay my CGT if I received the allowances for reinvesting some of the money in another property but if this is the case then I will just return to the UK, become non-resident in Spain, sell my house while UK resident and pay no tax. Then return to Spain and buy, a bit of a pain but that what I will have to do then.
> 
> Thanks for the info.


Technically you'd then be liable for CGT in the UK for any increase in value of the property while you were renting it out. I'm not sure how they'd work that out though.


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## chris&vicky (Feb 6, 2013)

Chopera said:


> Technically you'd then be liable for CGT in the UK for any increase in value of the property while you were renting it out. I'm not sure how they'd work that out though.


I think I could live with that. It would only be a few years, and as you say how do they work that one out? I had three valuation on my house a few years back at £300k, £350k, and £400k, all done within weeks of each other. Who knows what a house is worth unless you sell it? That law does seem a bit ridiculous, do they actually enforce it? Don't you have an annual exempt amount in the UK anyway for CGT?


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## chris&vicky (Feb 6, 2013)

Chopera said:


> Technically you'd then be liable for CGT in the UK for any increase in value of the property while you were renting it out. I'm not sure how they'd work that out though.


This from the HM revenue website ... Absences as you've moved out of your home
You may still get the full relief even if you didn't live in your home all of the time that you owned it. The final 36 months (three years) that you own it will be treated as if you lived there, even if you didn't. The property must have been your only or main home at some time during the time that you owned it.

Looks like I need to see an adviser but hopefully I can still avoid the CGT. After all I need the money to buy the equivalent house elsewhere so there is really no actual gain, is there?


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## CapnBilly (Jun 7, 2011)

chris&vicky said:


> This from the HM revenue website ... Absences as you've moved out of your home
> You may still get the full relief even if you didn't live in your home all of the time that you owned it. The final 36 months (three years) that you own it will be treated as if you lived there, even if you didn't. The property must have been your only or main home at some time during the time that you owned it.
> 
> Looks like I need to see an adviser but hopefully I can still avoid the CGT. After all I need the money to buy the equivalent house elsewhere so there is really no actual gain, is there?


Its quite easy to work out yourself. If you understand Excel I have a model I could send you. If not, then if you pm some details I could work it out for you.


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## chris&vicky (Feb 6, 2013)

CapnBilly said:


> Its quite easy to work out yourself. If you understand Excel I have a model I could send you. If not, then if you pm some details I could work it out for you.


Thank you. Yes I understand Excel I will pm you my email address.


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## nanita (May 27, 2013)

After doing some reading it seems that Baleares applies a 100% credit on wealth tax meaning there is nothing to pay if you exceed the allowances (€300K, €700K which double if you have a spouse). Can anyone confirm?

If at any point, they decide to take away or reduce the 100% credit, would the mortgage for a property which is not your main home be calculated minus the mortgage? i.e
Property value = £100K
Morgtage = £50K
Tax calculated in £50K

(I have buy-to-lets which on paper are of high value, but they are mortgaged)


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