17th August 2010

 

IRISH and ENGLISH investors in Spanish properties face a race against time to claim a tax rebate of nearly €20,000.

They are in line for the lump sum after being illegally overcharged by the Spanish authorities on the sale of holiday homes. The deadline to reclaim the overpayments is October 31 of this year.

It comes after a European Court of Justice (ECJ) ruling last year upheld an appeal by a British couple against the amount of tax they had to pay.

The elderly pair had been ordered to pay more than twice the rate of Capital Gains Tax (CGT) applicable to Spanish residents.

Before January 2007, the CGT rate in Spain for non-residents selling homes was 35pc.

It was less than half -- 15pc -- for Spanish residents who had owned their property for more than a year. However, the policy had led to complaints by non-residents who had bought Spanish properties.

The ECJ ruled that the higher tax rate broke European Community rules on discrimination.

The European Commission had challenged the tax rules in Spain, arguing they were discriminatory.

Since the start of 2007, the Spanish authorities have levied the same 15pc tax rate on residents and non-residents.

It is not known how many Irish people are entitled to the rebate but up to mid-July more than 500 British people had made claims.

They have received an average of around €18,246.06 each from the Spanish Tax Office.

Please email us as soon as posible to find out if you are intilted to a Tax refund. We will take appropriate steps to make claim before deadline october 31 st 2010.

Barry Smullen

 

On January 1st 2010, Spanish Rental Income Tax rules changed. Before that date, income tax was payable at 24% of the gross income but no deductions were permitted for expenses. These recent changes allow EU residents to deduct expenses against rental income provided such expenses are directly related to the rental income generated from your property in Spain.

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Under Spanish Tax law, all non-Spanish tax residents (ie you pay your taxes to another country's tax authorities) will be required to pay a tax on the property you own to the Spanish Inland Revenue (Agencia Estatal de la Administración Tributaria). This tax should not be confused with the annual rates payable to your local Town Hall .

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General Tax Information:

 

The information on this page helps to explain other general taxation terms and phrases associated with Property tax

Except in cases of residents in countries or territories with which an effective exchange of tax information does not exist, there is no obligation to appoint an agent to act before the Tax Authorities. Nevertheless if you should choose to do so, you may appoint whoever you wish, and should communicate this appointment to the Branch or Administration of the Tax Agency corresponding to the location of the property.

NIF (Fiscal or Tax Identification Number)

This is the tax ID number. For Spaniards, it's the DNI plus one letter; for foreigners, it's the same number as your NIE. Once you have a NIE, you do not need to re-apply for an NIF; if and when you have to pay taxes, use your NIE number. Your NIF number must appear on all tax returns and in all communications with the Tax Authorities.

NON-RESIDENT INCOME TAX

When the property belongs to a married couple, or to more than one person, each person is an independent taxpayer, and must file an individual tax return.

Depending on the use of the property, the taxes to which it is liable are:

INCOME CALCULATED ON URBAN PROPERTY FOR PERSONAL USE

If you own a property that is unoccupied or that has been used by its owner, there is a tax to be paid regarding to the previous year.

What is the amount to declare? The amount to declare will be that resulting from applying a percentages to the Valor Catastral (assessed value) of the property as shown on the IBI bill (Property Tax) of the year of which taxes we are paying.

This yield is calculated once per year, on 31 December.

If you have not been the owner of the property during the whole year, or if it has been rented for any period, only the proportional part of this amount is declared

When to file the tax return? Between 1 January and 31st of December following the end of the taxable period.

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INCOME FROM RENTED PROPERTY

What is the amount to declare?

This amount is understood to have become liable for taxation at the moment that it is demandable by the lessor or on the date that it is collected, if this is earlier. Tax is charged separately on each amount accumulated and, therefore, a tax return must be made for each amount accumulated.

Nevertheless, joint tax returns may be made, including the amounts of one or more taxpayers for a quarter. In the event that the joint tax return contains amounts from different taxpayers, the declaration must be made by a common representative, someone jointly responsible for the tax liability (payer, trustee or manager) of all the taxpayers, or by a withholder (in the case of rental of premises to professionals or companies).

When to file the tax return? If it is an ordinary tax return (form 210) the period is one month from the date of accrual of the income. If it is a joint return (form 215) for a quarter, within the first 20 days of the months April, July, October and January, for the quarter immediately prior to this month.

Spanish Rental Income Tax rules have changed with effect on January 1st 2010. Prior to 2010 income tax was payable at 24% of the gross income with no deductions permitted for expenses.  The 2010 changes make it possible for EU residents to deduct expenses against rental income provided such expenses are directly related to the rental income generated from the Spanish property.

CAPITAL GAINS ON THE SALE OF PROPERTY

This is taxable income on the capital gains obtained from the sale of real estate. It is to be understood that this income has accrued when the property is transferred.

In general, the amount of the capital gain is determined by the difference between the cost price and transfer value of the property.

The cost price consists of the real cost price of the property involved, plus all costs and taxes arising, excluding interest, paid by the transferor. Depending on the year of acquisition, this value is corrected by the application of an updating coefficient which is established annually, in accordance with the General State Budget Act.

If the building being transferred had been rented, the value determined should be reduced by the amount of the depreciation corresponding to the rental period. This depreciation will also be updated in accordance with the year to which it corresponds.

The transfer value is the real amount for which the sale was made, reduced by the amount of any costs ( for eg. Estate agents commission) or taxes related to the transfer paid by the seller.

As a result, the capital gain on which taxation will be paid consists of the difference between the transfer value and the cost price, determined as described above.

Nevertheless, if the property is transferred by an individual who purchased it prior to 31 December 1994, net gains will be subject to a transitory scheme and the previously calculated figure will be reduced.

If the transferor acquired the property on two separate dates or the property has been renovated, calculations must be made as if there were two net gains.

Withholding on account The person acquiring the real estate, whether or not they are resident, is obliged to withhold and deposit in the Public Treasury ( Spanish inland revenue) an amount of 3% of the consideration agreed for acquisitions made from 1 January 2007 (for acquisitions made up to 31 December 2006, the rate was 5%). For the seller, this withholding acts as a payment on account of capital gains tax arising from the transaction. Therefore, the purchaser will give a copy of form 211 (used to deposit the withholding) to the non-resident seller, so that the seller can deduct this withholding from the tax to be paid as a result of the tax arising from the capital gain. Should the amount retained be greater than the tax liability, it is possible to obtain a refund of the difference.

In the event of the withholding not being made, the building will remain liable for the payment of the tax.

When the property being transferred is jointly owned by a married couple where both partners are non-resident, exceptionally it will be possible to file a single tax return.

Time period: three months from the end of the period that the person acquiring the building has to deposit the withholding (this time period, in turn, is one month from the date of the sale).

Tax rate: For transfers made from 1 January 2010 the rate is 19%. For transfers from the 1 January 2007 up till the 31 December 2009 18% and for transfers made up to 31 December 2006 the rate was 35%.

Refund of excess withholding

In the event of capital gains loss, or in the event of a withholding greater than the amount that should have been deposited, there is a right to a refund of the excess amount retained. The refund procedure begins with the submission of return form 212.

The refund is made by bank transfer to the account nominated in the tax return. The holder of the account will be the non-resident taxpayer or their representative; in the event of the person being a representative, they must be expressly granted powers to receive the refund in the documentation showing their status as representatives. Should there be no account open in Spain, it is possible to request the refund to be made using a cheque; such requests must be made in writing to the Tax Agency branch. The tax return (form 212) shall always have attached to it the copy “for the non-resident transferor” of form 211, which is used to deposit the withholding.

IBI (IMPUESTO SOBRE BIENES INMUEBLES) This is what is known as your rates bill.

The tax charged by local Councils and paid by property owners.

All property within the Council's area is included on a census and is assigned a value called valor catastral (Assessed Value ). The amount of tax to be paid is calculated by applying the tax rate set by the Council to this valor catastral.

A bill is sent out for payment of this tax every year for every property on the census. These bills don´t always arrive (normally due to postal problems) so make sure that you are paying this tax. If you haven´t been contacted by the town hall you must contact them. Usually, Councils allow the possibility of payment of the tax via direct debit from a bank account, which facilitates payment within the time period set and thus avoids any possible surcharges.

Contact us or more information.