It's coming up to the end of the year. Time to reflect, plan your new year resolutions and perhaps hope that 2011 is a better one financially. So what will your new year resolutions be? No doubt, like most people there will be something in there about cutting down, giving up or doing more. Somewhere on that list should be - I must sort out my taxes.
Whether you are a resident or a non-resident, you should be paying tax. That won't come as a surprise if you are a resident in Spain but for those of you who are reading this back in the cold and frosty UK, it might. We find that most non-residents don't have difficulty understanding the concept of paying IBI - that's the local council tax, or what used to be called rates in the UK. It's the second-home income tax or imputed income tax that causes more of a problem.
I've lost count of the number of times people have said 'but I can't pay income tax in Spain, I don't live there'. You might not, but paying income tax if you are a property owner is a legal requirement. The logic goes like this. If you rent out your Spanish home then you are expected to pay income tax on any rent you collect. That seems straight forward enough. If, however, you have a Spanish home that isn't your main residence, it doesn't matter whether you rent it out or not, the Tax Authority believe that you could. Therefore you should pay income tax anyway. This is the second-home or imputed income tax.
You can be forgiven for finding it confusing, it is. Perhaps the easiest way of thinking about it is that if you are a non-resident you should be paying two taxes on your home - however you choose to use it. If you're not then it's time to make that new year resolution. The 31st December is the final day for making your non-resident tax declaration.
"I know lots of people who aren't paying any tax at all and they've never been found out". That's another statement we hear quite a lot. At one time it might have been true but times are changing. Only last week we received a phone call from a lady living in London who had received a letter in English from the Tax Authority in Alicante. It explained that if she didn't settle her property taxes quickly, her house would be sold at property auction.
This is no mythical scenario. It's a real case that could have turned into a real disaster. Fortunately, the lady in question was able to act in time and we are currently helping her to address the problem. She'll still have her house for the new year but we wonder how many can expect a similar letter hidden amongst their Christmas cards.
Imputed Tax is not that expensive. It's a once yearly payment that doesn't compare to many other taxes you might be used to paying. For example, on a property worth 140,000 Euros on the title deed with a catastral value of 40,000Euros you would expect to pay 192 Euros for the year. In the current climate it's just not worth taking the risk - contact a reputable fiscal representative, make your tax declaration and celebrate new year knowing there's at least one resolution you might actually keep.
Written by: Susan Partridge
About the author:
Susan Partridge Helme is a Tax Adviser in Ábaco Asesores. She has twenty five years experience dealing with resident and non-resident Spanish tax declarations, supplementary taxation and international taxation agreements.
If you want to know how to protect your property and the precious time you spend in it, you are welcome to join our Seminar on-line. In a little less than half an hour we will explain your tax obligations as a non-resident home-owner in Spain and what happens if you don't meet them: please, click here.
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