UK and US tax treaties with Spain: what they mean for your Spanish property

The two treaties

The UK-Spain treaty, signed on 14 March 2013, has applied since 12 June 2014. For UK income tax and capital gains tax, it took effect on 6 April 2015.

The US-Spain treaty dates from 1990. A protocol signed in 2013 came into force on 27 November 2019. The US keeps the right to tax its citizens as if the treaty did not exist, while the treaty still provides relief from double taxation.

Rental income from your Spanish property

Spain taxes the rent from a property located there. Residents of the UK and the US, outside the European Union, pay non-resident tax at 24% on gross rental income, without deducting expenses. EU residents pay 19% after expenses.

In the UK, you report the rent on the foreign pages of your Self Assessment return (SA106) and claim Foreign Tax Credit Relief for the Spanish tax. The £1,000 property allowance covers UK and overseas property income together.

In the US, you report the rent on Schedule E of Form 1040 and claim the foreign tax credit on Form 1116.

Selling: capital gains

Spain taxes the gain on selling a Spanish property at 19% for a non-resident seller. The buyer withholds 3% of the price and pays it to the Spanish tax office as an advance on that tax.

Both treaties let Spain tax the gain first. The UK charges capital gains tax on overseas property and gives relief for the Spanish tax; the US gives a foreign tax credit.

Alveo Properties handles the sale of your property, from valuation to completion.

Wealth tax

The UK-Spain treaty lets Spain tax property located in Spain under its wealth tax. The UK has no wealth tax of its own.

The US-Spain treaty does not cover wealth tax: Spain applies its own rules to your Spanish property, and the US has no federal wealth tax. A non-resident receives a €700,000 allowance on Spanish assets.

Retiring to Spain: pensions

Under the UK-Spain treaty, private pensions are taxed only in the country where you live, so Spain taxes them once you are resident. Government service pensions stay taxable in the UK, unless you are resident in Spain and a Spanish national.

Under the US-Spain treaty, private pensions are also taxed in your country of residence. US Social Security may be taxed by the US, with relief from Spain. US government pensions stay taxable in the US, unless you are a resident and national of Spain.

Where you are tax resident

Spain treats you as resident if you spend more than 183 days there in a calendar year, if the centre of your economic interests is there, or if your spouse and minor children live there.

When both countries claim you, the treaty decides in this order: permanent home, centre of vital interests, habitual abode, then nationality.

Reporting for US citizens

US citizens and residents report their worldwide income. If your foreign financial accounts exceed $10,000 combined at any point in the year, you file an FBAR. Form 8938 applies above higher thresholds, starting at $200,000 at year end for a single filer living abroad.

A property you own directly is reported on neither form; your Spanish bank accounts are.

Inheritance

Spain has no inheritance tax treaty with the UK or the US. Each country applies its own rules, and your home country gives a credit for the Spanish tax paid on the property.

Legal references

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