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The convenience of the new European Will

The convenience of the new European Will – Until the entry into force of the Regulation 650/2012, the law ruling cross-border successions was the one contained in the article 9.8 of the Spanish Civil Code.

This article records a personal conception on succession rights, being applicable the national law of the deceased which, at some points like inheritance of real properties, entered into a positive conflict with the law of the State in which the real estate is located. According to this, an English national who owns a property in Spain and deceases in Spain would have his property applied the Spanish succession law, whilst the English succession law would be applied to the rest of his assets.

corralalcarazThe convenience of the new European Will
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DO YOU OWN PROPERTY IN SPAIN AND HAVE RECEIVED THE LETTER FROM THE TAX OFFICE?

DO YOU OWN PROPERTY IN SPAIN AND HAVE RECEIVED THE LETTER FROM THE TAX OFFICE?

The Tax Office has sent a massive campaign to alert foreign property owners in Spain. You are very likely to have received this letter if you own a holiday home in Spain.

They question your fiscal status and ask you to report and prove either way you are non resident or fiscal resident in Spain in the years 2010 and/or 2011. You will have different liabilities depending on your fiscal status weather you are fiscal resident or non resident in Spain.

corralalcarazDO YOU OWN PROPERTY IN SPAIN AND HAVE RECEIVED THE LETTER FROM THE TAX OFFICE?
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CAPITAL GAINS TAX ON THE SALE OF PROPERTIES

CAPITAL GAINS TAX ON THE SALE OF PROPERTIES ACQUIRED BEFORE 31ST DECEMBER 1994

One of the key measures introduced by the new tax law of 28th November, Law 28/2014, which is effective from this year 2015 is the abolishment of the coefficient which reduces capital gains tax when selling estate property based on how long the property has been owned. This could allow us to increase the purchase value of our property and consequently reduce our tax bill when selling, for those properties acquired before 31st December 1994.

corralalcarazCAPITAL GAINS TAX ON THE SALE OF PROPERTIES
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LATEST CHANGES IN NON RESIDENT TAX 2015

LATEST CHANGES IN NON RESIDENT TAX 2015

The new tax law which is effective from 2015 was published in the Official Spanish Gazette (BOE) on 28th November, Law 28/2014. This law contains the latest changes affecting non residents taxation.

Non Residents who own property in Spain need to complete and submit a Non Resident Tax income form.

For owners not obtaining a rental income, the tax rate has been reduced from 24.75% to 20% for people living in the EU zone, Iceland and Norway. (24% for non EU members). This tax rate will be further reduced to 19% in 2016.

corralalcarazLATEST CHANGES IN NON RESIDENT TAX 2015
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ASSETS DECLARATION 2015

ASSETS DECLARATION 2015

The tax form 720 must be completed, the same as last year, by all tax residents in Spain with a deadline of 31st March 2015, reporting assets held as of the 31.12.2014 with a value of more than 50,000 Euros.

  1. Accounts in foreign banks: Balance at 31st December 2014 and average balance in the last quarter.
  2. Properties and property rights owned in any other country.
  3. Shares, rights, life insurances and incomes deposited, handled or obtained abroad.

Tax evaders will incur a penalty of 5K for every asset not declared after the deadline with a minimum penalty of 10,000. In addition, non-declared assets might be considered by the Tax Office as capital gains and could incur an additional penalty up to 150% over the total taxable amount.

For more information please feel free to contact Corral&Alcaraz Law Firm. Please seek expert advice as it is not worth the risk.

 

corralalcarazASSETS DECLARATION 2015
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NEW DOUBLE TAXATION AGREEMENT UK-SPAIN

NEW DOUBLE TAXATION AGREEMENT UK-SPAIN

The new treaty signed between the Kingdom of Spain and The United Kingdom of Great Britain and Northern Ireland, published in the Official Gazette (BOE) on 15th May 2014, is also a key issue for expats. This replaces the old 1976 Double Tax Agreement.

The new treaty is especially relevant to expat pensioners who are in receipt of civil service pensions from public sector occupations i.e. civil servants, military personnel, fire service, police service and local authority employees who were previously exempt from Spanish tax.

corralalcarazNEW DOUBLE TAXATION AGREEMENT UK-SPAIN
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SPANISH FISCAL RESIDENTS TO DECLARE THEIR FOREIGN PENSIONS IN SPAIN

6 MONTHS GRACE PERIOD FOR SPANISH FISCAL RESIDENTS TO DECLARE THEIR FOREIGN PENSIONS IN SPAIN STARTS ON 1st JANUARY

It has now been published in the Official Spanish Gazette (BOE) on 28th November, Law 28/2014, that Spanish fiscal residents will be given a 6 months grace period to update their fiscal situation to declare pensions received from their own countries.

This act comes into force, effectively from 1st January 2015, and follows the new draft for Spanish Income Tax and Non Resident Tax Law, approved on 1st August 2014.

corralalcarazSPANISH FISCAL RESIDENTS TO DECLARE THEIR FOREIGN PENSIONS IN SPAIN
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GRACE TAX PERIOD TO SPANISH FISCAL RESIDENTS

Spanish fiscal residents will have to upgrade their fiscal situation, declaring pensions received from their countries.

The Spanish Tax Office has announced to open a 6 months period starting January 2015, allowing them to regularize their situation according to new draft for Spanish Income Tax and Non Resident Tax Law, just approved last 1st August.

For those who have not included their pensions, when completing a tax return in Spain within this 6 months period, no fines or interest charges for late payment will be applied, and for those who have already upgraded their situation, any fine or charge paid will be refunded.

A complementary tax return, for those who have completed one, and not included or wrongly included their pensions, or just a new tax return will need to be submitted for the four years behind.

For a tax purpose you are considered Spanish Fiscal Resident if you stay in our country more than 183 days within a year period.

Recent agreements signed among EU countries to interchange fiscal information, provide the Spanish Authorities with a more efficient communication system, to help to find out people receiving pensions abroad and non declaring their incomes according to law.

 The Spanish Treasury Minister, Cristobal Montoro, recently explain that nearly 28,000 files were opened against resident pensioners who have not be declaring their foreign incomes in Spain. However, he highlighted that no fines or charges will be applied, as that it is not the goal of the Spanish Inland Revenue. They want just to make sure that Spanish pensioners and Spanish fiscal residents complete their annual income tax on the right way, including pensions and rest of earnings obtained worldwide.

 Spanish Tax Office says: this measure will enhance the integration of these citizens, same as any other resident in Spain. “Our country is an attractive place where pensioners will enjoy their retirement, and this measure will benefit Spain as residential destination for pensioners with high economic standing, whom in such way will cooperate with the economic recovery”

corralalcarazGRACE TAX PERIOD TO SPANISH FISCAL RESIDENTS
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CAPITAL GAIN TAX. CHANGES ON TAXATION FOR SPANISH FISCAL RESIDENTS AND NON RESIDENTS

Spanish fiscal Residents and Non Residents selling property are liable to pay capital gain tax.

The capital gain or loss on property sale is calculated by the difference between your selling price and your purchasing cost, as stated on your purchase deed.

The current Spanish Tax Law allows us to increase the purchase price, by adding up all the costs related to the purchase, such as solicitor fees, notary fees, land registry fees, alterations made to the property and taxes paid on purchase.

In the same way, we are allowed to deduct all costs related to your sale, such as estate agent fees, “plusvalia” tax and solicitor fees.   

According to current law, the total purchasing cost can be increased by applying a coefficient based on how long the property has been owned.

Additionally, for those properties acquired before the 31st December 1994, the resulting capital gains difference can be reduced for properties purchased before 2006 by applying a reduction of 11.11% per year on the portion of gain accruing before 20th January 2006. Consequently gains accruing from 20th January 2006 are fully taxed up.

The following table shows the percentages by which capital gains susceptible to a reduction can be reduced on the basis of the length of time the asset had been owned by the taxpayer at 31st December 1996.

Number of years till 31st Dec 1996 Purchase Date % Reduction
2 years From 31/12/1194 to 31/12/1996 0,00%
3 years From 31/12/1193 to 31/12/1994 11,11%
4 years From 31/12/1192 to 31/12/1993 22,22%
5 years From 31/12/1191 to 31/12/1992 33,33%
6 years From 31/12/1190 to 31/12/1991 44,44%
7 years From 31/12/1189 to 31/12/1990 55,55%
8 years From 31/12/1188 to 31/12/1989 66,66%
9 years From 31/12/1187 to 31/12/1988 77,77%
10 years From 31/12/1186 to 31/12/1987 88,88%
More than 11 years Till 30/12/1986 100,00%

And finally the following tax rates apply on the gains made by Spanish fiscal residents on the sale: 

Capital Gain Tax Rate
On the first €6,000 21%
For the next €12,000 25%
For the amount exceeding €18,000 27%

However, for Non Fiscal Residents there is a flat rate of 21% regardless of the amount of the capital gain which will be reduced to 19% in 2015.

Non residents are also subject to a 3% retention to be made by the purchasers on the sale price when selling property.  3 months after the first month of completion, they will need to complete a capital gains tax declaration to declare their gain or loss.  The 3% retention is fully refundable when the vendor declares they have not made a gain on the sale.

THE NEW TAXATION LAW WHICH COMES INTO FORCE IN 2015

In line with last year’s reforms, the Spanish government has continued approving several tax and administrative changes since the financial crisis, as well as improving the prosecution of fraud and the collection of debt. The tax reduction will come into effect on January 1, 2015, and will be implemented in two stages.

With reference to Capital Gain Tax the following measures have been adopted, in the first stage:

  • Tax rates have been cut off according to the following table:
Capital Gain 2015
On the first €6,000 20%
For the next €50,000 22%
For the amount exceeding €56,000 24%

 

  • However, we will be no longer be allowed to apply the aforementioned table of costs which increases the property purchase costs, and neither the reductions depending on whether you purchased your property before the 31st December 1994.
  • This means that in spite of the fact that our capital gains will be taxed at a lower rates, we will be facing a much higher tax bill. 

    We may see an example in the following table:

Purchasing Date 15th January 1985    
Purchasing Price                                60.000 €    
Selling Price                              150.000 €    
       
           
    SELLING DATE
    31st December 2014 1st January 2015
Capital Gain                          90.000,00 €                         90.000,00 €
Indexation co-efficient 1,3299 non applicable
Reduction (%) 66,66% non applicable
CAPITAL GAIN TAX                             9.952,20 €                         20.480,00 €
           
DIFFERENCE ON NEW 2015 TAXATION:                          10.527,80 €

Therefore, those people who sell their property after the 1st January 2015, will see an increase on capital gains tax, especially for those properties bought many years ago.

Finally, no changes have been made on the following exemptions:

Spanish Fiscal Residents:

  • People selling their main home and re-invest in a new home, which will be their main residence, are exempt to pay capital gains tax on the amount reinvested.
  • People older than 65 years old are totally exempt for capital gains tax when selling their main home, regardless of whether they reinvest or not. They must have owned and resided in that property for at least three years.

 Non Residents and Spanish Fiscal Residents:

  • 50% tax exemption on capital gains tax on properties purchased between 12th May 2012 and 31st December 2012.  You will only be taxed 50% on your capital gain.

There is an important exemption which has been introduced for Non Residents:

  • Only EU Non Residents will benefit from an exemption on capital gains tax, when selling their main home in Spain and re-invest in a new home in Spain, as they will be also exempt to pay capital gains tax on the amount reinvested .

 If you are willing to sell your property now, you should contact your lawyer immediately so they can calculate the difference on tax liability, between selling before the end of the year or after.

 We advise you to contact a professional who can asses your tax obligations and liabilities, for your peace of mind.

 Juan Francisco Orenes Hernández

Chartered Accountant & Certified Financial Auditor at

Corral & Alcaraz Law Firm

LAWYERS, BARRISTERS & ACCOUNTANTS

corralalcarazCAPITAL GAIN TAX. CHANGES ON TAXATION FOR SPANISH FISCAL RESIDENTS AND NON RESIDENTS
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THE IMPORTANCE OF KEEPING YOUR TITLE DEEDS UP TO DATE

THE IMPORTANCE OF KEEPING YOUR TITLE DEEDS UP TO DATE

It is a normal practice to make building extensions on your property, or major building works, such as a swimming pool or a garage, where planning permission required, although it isn’t unusual to be made illegally without planning permission, which can result in them having to be demolished or the owner incurring huge fines.

The Spanish Property Registry, which is similar to the UK’s Land Registry, and likely, one of the safest in the world, and concerned mainly with the ownership of property, recording all deeds of sale that have been notarized and inscribed in the register and property rights are protected by the Courts.

Besides, there is another other property registry, so called, Catastro, concerned with the location, physical dimensions and accurate description in terms of measures, boundaries and classification of a property in Spain.

Catastro produces accurate information about the property including plans, maps, and aerial photographs. This information is used by the Town Hall to calculate the Council Tax, so it is truly important they have the full descriptions of your property, to avoid fines for not reporting any alterations on your property. They handle information gathered from  aerial pictures, to update the catastral information of properties, and report owners when there are items does not match with the information they have from deeds. 

When selling your property and transferring the title deed, boundaries and measurements in the deed are accurate, as well as at the Catastro Office.

The purchaser’s lawyer will check out that the property is correctly described in the deeds before purchaser may proceed to buy, so your deeds better must contain by then descriptions of the amount of land (if any), boundaries, built areas, and any other alterations of the property.

Properties are quite often inaccurately described in the deeds for a number of reasons. You or your previous owner, could have carried out building work, such as a pool, store rooms, or just bricked a terrace, and not have registered these changes in the deeds.

Properties must be accurately described in notarised title deeds, and fully inscribed in the Land Registry, and all copy of the deeds reported to Catastro. If there are any illegal features that are not described in the existing deeds then you will need to legalise and update your deeds.

We may find different reasons why this may have happened:

  1. The changes were illegally carried out without building permission from the town hall.
  2. A building license was granted by either way, you were not advice to carry so, or you just did not bother to afford the cost to update your deeds at a Notary, pay the taxes and register this at the Land Registry.

In the first case, you must keep record of the license, or a copy could be requested to the Town Hall, to justify the discrepancy between the physical reality of the property and the deeds, and then this can be used to update the deeds when you complete and sign before Notary.

 

In the second case where the changes were carried out illegally then the process becomes somewhat more complicated to resolve, and you will need to liase with your lawyer to receive legal advice and find the best way to have the alterations legalised. Your lawyer will need to visit the planning department of the town hall to clarify what is and is not legal, and what can be legalised if necessary. It is very likely that he will need to coordinate this with an architect to carry out this check, as they have good knowledge and understanding of planning regulations.

It is possible to legalise some alterations by the time being, and normally after 4 years without any fines as consequence of no complaints from neighbours or orders from the town hall to be demolished. In this case, Land Registry normally accept after 8 years to inscribe the alterations when an arquitect issue a certificate stating the works are older than the 8 years. This is the so called, “Certificado de antigüedad”

 

 

 

corralalcarazTHE IMPORTANCE OF KEEPING YOUR TITLE DEEDS UP TO DATE
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