Spain tells British expats to declare overseas assets
'Prohibitive' penalties await those who fail to declare overseas assets to the Spanish tax authorities.British people living in Spain must declare all their assets held outside the country to the Spanish authorities under new rules designed to target tax evasion.
Residents have until April 30 to declare all relevant overseas assets worth more than 50,000 (£44,000) and could face huge fines for not complying.
Assets include bank accounts, property and other movable assets such as shares, life insurance policies and annuity income.
David Truman, a partner at accountancy firm Menzies, said: "My understanding is that clients are considering or are leaving Spain as a result of the introduction of the new rules.
"It does appear to be concerning people, and it does appear to be driving people out of the country."
British expatriates are considered residents in Spain if they spend more than 183 days a year in the country, or if their spouse and dependent minor children live there.
The Foreign Office estimates that 800,000 British nationals live all or part of the year in Spain. Residency is difficult to measure, but estimates vary from 250,000 to 400,000.
Residents must declare the value of their assets on December 31 last year and failure to do so could result in fines exceeding the value of the asset.
Mr Truman said: "They are asking people to declare their assets, which will give them the ability to cross-check that information with what you have put on your tax return.
"If someone is already compliant, they will have forms to fill in that they didn't have to before. But if you have been living in Spain without declaring your overseas income, you could be in trouble."
Callum Girvan of financial management firm Blevins Franks said: "We've been running seminars and it is clear it has caught the attention of UK nationals living overseas.
"We are strongly telling our clients that they should declare. The penalties are quite prohibitive, and you could end up paying more tax than your asset's worth."
The minimum penalty for failing to declare an asset is 10,000, as well as income tax on undeclared income, late-payment interest and penalties as high as 150pc of the total tax due on the asset.
For example, a Spanish resident with 300,000 (£260,000) in an undeclared overseas account would incur the minimum penalty of 10,000 (£8,640), and see the amount taxed at the top interest rate of 52pc. But they would also be fined 150pc of the tax owed and 4pc annual interest going back four years, meaning they would owe the Spanish taxman 424,960 (£368,000), according to figures from Blevins Franks.
Unpaid tax as a result of undeclared overseas assets worth more than 120,000 (£104,000) could also be considered a criminal offence of tax fraud.
The authorities are looking for people who not only own the asset but are the beneficiary or authorised signatory. The law also requires the average balances of bank accounts in the last three months of the year, and the acquisition value of properties.
In future the deadline will be the end of March, but you will only need to report the assets again if their value has increased by more than 20,000 (£17,000.
A spokesman for the Spanish tax authority said the globalisation of financial activity and increasing problems with fraud made it necessary "to establish a specific obligation of information on assets located abroad".
He said residents who were unsure of how to submit their declaration, which has to be completed online, should visit their nearest tax office for further information.
Mr Girvan said: "Different governments across Europe are looking at tax declaration. The pressure to raise revenue means that any legitimate methods to generate funds will be pursued."
Thousands of British expats and second-home owners have been leaving Spain in recent years as its economy teeters.
Spain, the eurozone's fourth-largest economy, slipped back into recession in 2011 and the economy shrank at the fastest pace in more than three years in the final quarter of 2012, according to the Madrid-based National Statistics Institute. A 26pc unemployment rate and a series of austerity measures have prompted mass protests.
The falling pound has meant expatriates dependent on sterling incomes, such as a pension annuity, have seen their incomes slashed.
Average property prices have fallen by 30.7pc from the 2007 peak, according to Eurostat figures, while the cost of maintaining a property overseas has continued to grow.
Mark Bodega, marketing director of currency firm HiFX, said: "Just as a number of eurozone governments have increased the taxation burden on holiday-home owners, sterling depreciation is acting as a double whammy, hitting owners firmly in the pockets.
"With many analysts expecting further sterling depreciation, cost of ownership for Brits with property in the eurozone is likely to increase."