Autumn Update on Spain's 2025 Tax Revamp: Crucial Information for Every Foreign Resident
Spain is set to enact tax reforms this autumn, which will primarily impact foreigners, retirees, and property owners. The changes aim to adjust income tax rates, alter capital gains taxation on real estate, and introduce new measures targeting wealth and property holdings to increase tax revenues and align with EU fiscal policies.
One of the key changes concerns the declaration of foreign income. Foreigners are now obligated to declare their pensions, freelance earnings, and rental income from other countries in their Spanish tax return. To streamline this process, rental income in Spain must be declared through new digital forms, and the tax agency is increasing its monitoring.
The Spanish tax office is also pushing for digitalisation, requiring scanned receipts, bank statements, and signed rental contracts. Non-resident landlords in Spain face stricter reporting requirements and penalties for non-declaration.
The tax reforms will likely increase the tax burden for foreign residents and retirees living off pensions. The personal income tax brackets are being tightened, with anything up to €12,450 taxed at 19%. For earnings over €300,000, the tax rate is now 47%. For savings, investments, and dividends, gains over €300,000 will be taxed at 30%.
However, there is some good news for expats. The Beckham Law offers a flat 24% tax on Spanish income up to €600,000, ignoring non-Spanish income. Sarah, an American consultant in Barcelona, benefits from this law, paying a flat 24% tax on her Spanish salary while her US income remains untaxed in Spain.
Child tax credits have risen to €1,500 per dependent in Spain. Some regions also offer relief for pensioners, but Catalonia applies the full wealth tax rates. Wealth tax remains in place for anyone with assets over €700,000, excluding the main home up to €300,000.
Inheritance tax is another area of concern for foreigners. Regions like Andalusia, Madrid, and Valencia offer up to €1 million tax-free per heir when assets are passed from parents, grandparents, or spouses. However, in Catalonia and the Balearic Islands, the inheritance tax-free threshold is lower at €650,000.
It's important for expats to be aware of common mistakes, such as assuming UK or US advice applies, failing to declare worldwide income, and poor record-keeping. The tax office in Spain is cracking down on these issues, so it's crucial to stay compliant.
Spain's 2025 tax reforms present challenges and opportunities for foreigners living there. By understanding these changes and taking proactive steps to manage their tax affairs, expats can navigate these reforms successfully and continue to enjoy life in Spain.
Deadlines for income tax returns in Spain are strict, with returns due by 30 June each year, and extensions rarely granted. The plusvalía municipal tax continues to exist, potentially consuming thousands from sale profits in hotspots like Madrid, Marbella, and Palma. So, it's essential to plan ahead and seek professional advice to ensure a smooth tax filing process.
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