This non-resident tax issue can be confusing. Why should owning a holiday home entail paying income tax? There is no equivalent in the UK, and no one from the tax office informs non-residents of their obligation to pay the tax and submit the form. In fact, a lot of holiday home owners are oblivious to the requirement or think they have already paid.

This is because they have paid local property taxes: Impuestos sobre Bienes Inmeubles (“IBI”). But IBI is another tax that has to be paid by all property owners, residents and non-residents alike. It is set and collected by the town hall, very similar to council tax in the UK. It is usually collected every Autumn and you get the amount on an IBI statement through the post. It is now generally paid by direct debit from your bank.

So if you are a typical holiday home owner, the question to ask yourself is have I paid both my local (IBI) taxes to the town hall and my income tax to the national government (Form 210)?

The government doesn’t request payment of income tax and many non-resident owners don’t know about it and therefore do not fulfil their obligation to declare and pay it. Initially there may appear to be no adverse consequences, but the tax office (the Agencia Tributaria) know the status of all properties from the IBI and other records and know whether they are owned and occupied. It is a simple task for them to identify which property owners are (a) non-resident and (b) not declaring their taxes. In fact they have recently begun chasing non-payers with letters demanding that non-resident taxes (or resident taxes if applicable) are paid.

That said, many people go years without being caught up in tax office investigations. The problem often only rises to the surface when non-residents come to sell their property. In this case the seller is obliged to pay 3% of the sale price to the tax office, which is only recoverable by the non-resident seller when they are up to date on taxes including capital gains tax on the sale and, increasingly, the form 210 tax. This may then require multiple tax returns to be submitted going back several years with fines and penalties.

You can easily catch up on previous years, but there may be interest costs and penalties. Before 2008 the tax was higher as well because Spain also had the “wealth tax”. (The wealth tax has returned in 2011, but now only applies to non-residents with Spanish assets of over €700,000.) On the plus side, there is a statute of limitations that applies to unpaid Spanish tax which means that tax is not collectable after four years from its due date. If you want advice on the costs and implications of unpaid taxes including back years, send us an email. It may not be as painful as you think, although we do charge an extra €__ for overdue years as they cannot be submitted swiftly online.

We include your Spanish bank account details on the tax return so the authorities can deduct the payment automatically. This is done at the end of the year. On the 31st December the tax office will debit the account you have nominated.

Stick with your fiscal representative if you think they are worth the annual fee, e.g. because they offer valuable advice as well as filing the return or because your affairs are more complicated than the standard holiday property owner. An example of this might be if you rent out your property for part of the year which involves a lot more in the way of reporting (see below). Note that residents of countries without a Spanish tax treaty must have a fiscal representative if they own property in Spain. Most countries, like the UK, have treaties with Spain but tax havens like Gibraltar and some other territories do not.

Of course there many situations which are not so clearcut, e.g. during a transitional year when you are settling in Spain. The rule of thumb is that spending over half the year in one country makes you tax resident but there are a lot of subtleties and variations. Where your family or business is based can be a factor. If you require clarification contact Advoco.