Tax Liability for Non-residents

Viewing 2 reply threads
  • Author
    • #52969

      Myself and a business partner own a house in Ibiza which we use for holidays and rent out in the summer months. We are non-residents.

      We live in London and receive rental income in both our Spanish bank account and a joint acct here in the UK. We have a number of questions:

      1) We know the Patrimonio liability should be paid now in June for 2006, but can this amount be offset by a UK bank loan that was secured by my friend to pay for his half of the house as well as an advance on my own UK mortgage to pay for mine? If so, do we subtract that total from the catastral value of the house?

      2) We’re also not sure what to declare and to whom re. our rental income? Am I right in saying that we should:

      a) declare our total Spanish Euro AND GBP rental income to the Hacienda
      b) pay the Hacienda their 25% tax on the gross amount of total rental income (minus utility bills? are they allowable? are there any other allowable expenses?)
      c) declare only our GBP rental income to the Inland Revenue (and because of the double taxation treaty they will not tax us on this amount as we will have provided some kind of proof that tax has already been paid in Spain.)

      3) We assume that the above procedure involves the Form 210, however,as we only rent the house out in the summer months – could we fill in a simplified Form 214 – paying the Wealth Tax & the “deemed income tax”.

      4) Is there a provision in either of these forms for joint ownership or do we have to submit a separate return each? in which case do we just halve the figures on each tax return form?

      5) Are each/either of these forms annual/quarterly?

      6) What are the penalties for late payments? When are the deadlines?

      7) Is it 4 years they examine if the Hacienda look at your account?

      8) If all these questions are too detailed we’re happy to pay for advice. We have a fiscal representative in IBZ ready to submit our returns but we feel we need more advice than he can give especially concerning amounts received in the UK. Can anyone advise of an accountant either based in Ibiza or in the UK who’d be able to help?

      Many thanks


    • #73134

      Answers or close to answers

      1) Niether you or your partner can reduce your patrimonio tax by the amount that you have borrowed in Uk to finance the purchase. It has to be on the Spanish borrowing. In addition if I remember correctly it is based on your amount outstanding at 31st december.

      2) There is a form for it. I cannot recall the number.

      a) In theory yes. The tax is due in the country where the property is situated. If this lower than the Country where you are the Tax resident you pay the difference ( Double taxation treaty )

      b) To the best of my knowledge. As a non resident you are not allowed ANY deductios at all, straight 25%. This ia an area which got left out when under Eu regulations Spain had to equilise the Capital Gains Tax.

      c) As in A above

      d) pass

      and pass tp the rest.

    • #73155

      If you spend 183 days or more in any tax year, you are regarded by HM Revenue & Customs (HMRC) as being resident in the UK and if you are resident in the UK year after year you will be treated as ordinarily resident in the UK. You should therefore submit a UK tax return plus the foreign supplementary pages in which you declare all income arising from your overseas property, overseas bank interest received etc., etc. Certain expenses may be off-set against rental income and it would be prudent to seek professional advice in this regard.

      Please note that it is also possible to be resident (or ordinarily resident) in both the UK and another country at the same time. If you are resident (or ordinarily resident) in another country this does not mean that you cannot also be resident (or ordinarily resident) in the UK. Where however you are resident both in the UK and a country with which the UK has a double taxation agreement, there may be special provisions in the agreement for treating you as a resident of only one of the countries for the purposes of the agreement and again it is advisable to seek professional advice.

      The above has been extracted from IR20 – Residents and Non Residents – Liability to Tax in the UK which you can access on HM Revenue & Customs website. This should help to explain the concepts of residence, ordinary residence, residence in two countries, domicile etc.

      As a generale rule, any tax paid in a foreign country will be taken into account by HMRC so you should not be liable to be taxed twice on the same income. I cannot however comment on the rules prevailing in Spain.

Viewing 2 reply threads
  • The forum ‘Spanish Real Estate Chatter’ is closed to new topics and replies.