‘Second homes tax’ for residents on worldwide property

When I made out joint annual tax return in June, I was surprised the Gestor showed a property which my wife had declared on her 720 (assets in excess of 50,000 euros) which she has in Asia, but which is not let so no income, and calculated the ‘second home tax’ for it.

 

I had not realised (just never thought about it)  that as a tax resident in Spain, one must declare properties both in Spain, excluding main home)  and worldwide and pay tax, in the same way non-resident property owner s do on property in Spain (form 210).

 

I wonder how many who live in Spain and still have a property in UK are aware of this ?  Of couse if that property is let one must pay tax on it in UK, an exception to normal rule that all tax on income must be paid in Spain  (and maybe declare that income too in Spain) but even then the 'second property tax' is still payable in Spain.

 

 

This message was last edited by johnzx on 25/09/2013.

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I think this is one of the main reasons why the 720 was introduced, because, like you, there are probably a huge number (the vast majority I would imagine) of foreign residents with property overseas that they have (quite innocently) never realised they are supposed to declare on their income tax returns - although when you think about it, it makes sense. (I personally know quite a few) What I'm unsure of is how exactly the tax is calculated - if it's a second home in Spain (not rented) it's based on the valor catastral, which may bear little resemblence to the purchase price or current market value. So how do they calculate it for property overseas? 

I suspect we will start hearing quite a few 720 related tales of woe before to long.

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Roberto   What I'm unsure of is how exactly the tax is calculated.

In my case it was calculated on the purchase price, so in effect a higher rate than applies in Spain.

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I'm pretty sure i mentioned this when we discussing the 720. Still at least you declared it. There will be some who don't declare it, and will be getting a letter. You might be lucky and they just leave it at that, or you may not, and they will be after you for previous years.

I was looking at my tax returns online the other day, and for the last 4 years they all still show pending, which means at any time they could pick up an issue. My son told me last week he got a letter saying that a capital loss ( on shares) he claimed for in 2009 wasn't allowed, and he had to repay the tax plus 5% p.a


This message was last edited by Kathyslad on 26/09/2013.

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Thank goodness, for a variety of circumstances that I thought woeful at the time, I do not own a property. I rent in Spain and it is so liberating. Having a home, especially in a stagnant market and excruciatingly worse when they lose their value, is a burden too far. It is rather like having a permanently anchored ship upon which harbour fees are imposed. The property owner is vulnerable, trapped.

 

I pay a rent that is likely less than the mortgage. I pay no utility bills, SUMA or any of that sort of stuff. If I owned a property and popped my clogs neither of my sons would welcome their problem-loaded inheritance. They trot around Europe and don’t rate Spain.

 

I can - and I have re-located with a week or two’s notice to Britain, Latvia and various regions of Spain. A caravan with a tiled roof. If for any reason I wanted to live in Austria or Hungary, Estonia or the Czech Republic I could do so online and be there within four weeks.

 

Lastly, the authorities, because I have no assets, are vulnerable; I am not. A happy man.

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Elaine/Johnzx/G: what I find hard to fathom is how this can be a fair and justifiable way to calculate a tax. Let's say you purchased a second home in Spain for €150,000, but which has a catastral value of €50,000 - you'd pay imputed income tax of something like €240. Now let's say you bought a property in, say, the Philippines, for €150,000 - you'd pay three times as much tax. How can that be right?

Presumably, if you hadn't have used a gestor (and the same one) to do both your 720 and IRPF, you'd still (in all innocence) not be declaring the second home for income tax, but since you dutifully declared it on your 720....? 

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I don't know anyone who declares their property in their home country on their annual tax return.  I'm also yet to find anyone who actually submitted a 720 declaration.  And I'm talking of dozens of people here.

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Presumably, if you hadn't have used a gestor (and the same one) to do both your 720 and IRPF, you'd still (in all innocence) not be declaring the second home for income tax, but since you dutifully declared it on your 720....?

 

Roberto/Mary, yes you are right, but having thought about it I realise that it was my mistake.  I also own a lock up garage here, so I believe I should have been paying the tax on that too, although  that being in Spain, of course,  it was not on the 720.  But I will probably include it  on my IRPF next year.

I understand, from a couple of ‘reliable sources’ that Hacienda are in the process of sending out letters ,  following the 720 submissions, or not, as the case maybe.  I wonder who will ‘have problems’ as a result.    I suspect, maybe many of the people you, Sanchez, know.

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I understand, from a couple of ‘reliable sources’ that Hacienda are in the process of sending out letters ,  following the 720 submissions, or not, as the case maybe.  I wonder who will ‘have problems’ as a result.    I suspect, maybe many of the people you, Sanchez, know.

Undoubtedly, people who haven't been careful are going to get busted for not submitting the 720.  I'm not sure how Hacienda are going to trace property owned abroad though.  In the case of the UK, they would have to trawl the Land Registry.  Not sure how easy that would be for Hacienda.

I've been surprised at how relaxed the people I know are regarding non submission of the 720.  I think I would be a bit worried if I were them though.  Especially the ones I know that work in Gibraltar and live in Sotogrande, without declaring a thing (720 or annual tax return)

 

 

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  Especially the ones I know that work in Gibraltar and live in Sotogrande, without declaring a thing

Last week I had a meeting with a ‘financial adviser’ and his colleague, with offices in Gib.  He lives in Gib,  the colleague in Sotogrande.  She said Hacienda and the Guardia Civil were driving around the urbanisation making notes, taking car numbers etc., apparently  with a view to investigating those who live there but ‘pretend’ to live in Gib. I have no idea if that is correct, it would be a bit ‘advanced’  I think the Spain, but it might be.  I would suspect that it would be simple for the authorities to prove who lives there and who does not;  children at school, utility bills, visa payments, nosey neighbours etc.  But we may see, eventually.

 

 

I'm not sure how Hacienda are going to trace property owned abroad though

Hacienda  have a day to day exchange of info with HMRC.   I would think HMRC might be able to supply that sort of detail from their records. .

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 I'm not sure how Hacienda are going to trace property owned abroad though.  In the case of the UK, they would have to trawl the Land Registry.  Not sure how easy that would be for Hacienda

They just need to ask HMRC. Its all covered in the new agreements, and although it was in the old DTA, the new one is more far reaching. It doesn't even matter if they don't have the information, they will get it if Spain asks. There will soon be nowhere to hide. They only need your name, and some sort of link ID - passport, NI etc. 

1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to this Convention, in particular, to prevent fraud and to facilitate the administration of statutory provisions against tax avoidance

4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information

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..."what I find hard to fathom is how this can be a fair and justifiable way to calculate a tax. Let's say you purchased a second home in Spain for €150,000, but which has a catastral value of €50,000 - you'd pay imputed income tax of something like €240. Now let's say you bought a property in, say, the Philippines, for €150,000 - you'd pay three times as much tax. How can that be right?

The calculation is different for an overseas second home because of the fact that there is no 'catastral' value.  This is foreseen in the tax code as follows:

"En cuanto al calculo de la imputacion de rentas para estos inmeubles en el extranjero, habra que aplicar las reglas de los inmeubles que caracen de valor catastral, es decir, el 1.1% sobre el 50% del valor de adquisicion del mismo, ponderado por el porcentaje de titularidad sobre el inmeuble".

i.e. the 1.1% tax is calculated on 50% of the original purchase price.  The percentage of the amount to be paid is then divided up between the number of people who own the property.

 

 

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OK, thanks, wasn't aware of that (on account of the fact I have no property overseas so it's never been an issue for me). On the (purely theoretical) example I gave then, I think you'd actually pay a bit less on the overseas property.

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Last week I had a meeting with a ‘financial adviser’ and his colleague, with offices in Gib.  He lives in Gib,  the colleague in Sotogrande.  She said Hacienda and the Guardia Civil were driving around the urbanisation making notes, taking car numbers etc., apparently  with a view to investigating those who live there but ‘pretend’ to live in Gib. I have no idea if that is correct, it would be a bit ‘advanced’  I think the Spain, but it might be.

ElaineG, I have heard the same things. It's all part of the PP's anti Gibraltar campaign.

I also heard that a director of one of the online gaming companies was busted by Hacienda recently.  Apparently a disgruntled fomer employee "had a word" with Hacienda!

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