Owning a second home in another country can be a source of worry and most non residents are careful to do what they can to avoid potential problems—from taking out home insurance to propping open the fridge door if the power is going to be off.
Taking care of your Spanish tax affairs is no different. You can safeguard against unwelcome surprises in your Spanish mailbox, from an overdue final tax demand to a hefty fine—or even notice of a freeze on your Spanish bank account that could mean utility bills don’t get paid. Taking precautions now means you won’t be spending that longed-for sunshine break in solicitors’ offices, government buildings and banks.
Many owners of second homes in Spain are blissfully unaware of their tax obligations under Spanish law. Others have tried to find out how to meet the requirements, but wound up lost in the labyrinth of Spanish taxation bureaucracy. Here are a few of the non resident community’s most common queries answered in plain English.
As the owner of a second home in Spain, what taxes am I liable for?
Most non residents are liable for just two taxes, the IBI and the IRNR.
1. The IBI, known as el ee-bee, is very roughly equivalent to the UK’s council tax. Payable on each property annually, the IBI is based on the rateable value of a property as recorded in the Land Register or Catastro.
2. The IRNR is a Non Resident Income Tax whose name is misleading. All non resident property owners are liable for this tax.
Why am I liable for Non Resident Income Tax if I don’t have any Spanish income?
You don’t have to have a Spanish income to be liable for it. If you own, or co-own, a Spanish property of any kind, you are obliged to prepare and submit an annual non resident income tax return and pay the tax due. Described as a deemed income tax —on the basis that you could rent out your property if you chose to— the IRNR for those who choose not to let is essentially another property tax. Happily, the sums involved are relatively small, and if you own an old village house, small can mean tiny.
If you do derive an income through rentals, logically this falls within the scope of the IRNR, too, and should be declared at the same time.
What is the policy on non-payment of the IRNR in Granada province?
At this stage there seems to be no clear policy on fines for non-payment or late payment of the IRNR in Granada province. In Málaga and other areas with a large non resident community, non residents have been paying their IRNR for many years and the systems are well-established, but in Granada province it’s been another story until very recently. Despite being a legal requirement, virtually nobody seemed to be paying it, and solicitors, local tax agents, even the tax administration itself didn’t seem to take it very seriously.
Over the last year or two, though, things have been changing as a bankrupt Spanish government realises that here is a potential source of revenue which, in many areas, is simply not being collected. The Spanish tax administration has already targeted at least 300,000 non residents with letters reminding them of their tax obligations, so certainly there are moves towards regulating the situation, and sooner or later we can expect the inspectors’ gaze to turn on Granada.
How much are the fines?
Spanish law already allows for late-payment penalties to be imposed on taxes paid after the due period, as well as fines for non-payment and deliberate concealment of income. Late payment penalties usually start at 5% of the original tax due, and go up in stages to a maximum of 20%, though the maximum penalty is only rarely imposed after repeated demands for payment have been ignored. Fines for non-payment start at 50%, but are only imposed when the tax administration has had to prompt the taxpayer to make a return, and only exceed 50% (rising to a maximum of 150%) when income can be shown to have been deliberately concealed.
Call or email for a free consultation and a quote for your particular circumstances, on this or any other aspect of the Spanish bureaucratic maze.