I´ve lived in Spain nearly 5 years, and only worked legally for 6 months - my partner hasn´t worked so when I have not had an income we have lived off our savings which we have in a local building society account. We are residents and own our flat without a mortgage and have no other money or property outside Spain.

Although my only legal job was a six month contract, I have had two other jobs working for British companies that didn`t give me contracts and therefore I was (and still am) paid in cash. It has not been my fault as I need to have an income and have tried exhaustively to find legal reasonably work without success.

I have never been happy with this situation as I would like to contribute to the tax system and have a chance to top up my pension - I am 45 so have a few more years to go!

My big worry is that I have quite a lot of cash in my current and savings account and recently my boss has been paying my salaries via bank transfer - not huge amounts of money but has been adding up to around an average of 2,000 a month. Also, we have had to top up our income by renting our flat to tourists a few days each month - we use an agency and pay them a percentage, the rest we get in cash. However, as we live in our flat most of the time we assumed this was okay. I am aware that we should declare it but due to my salary also being cash I am reluctant to as then I might have to pay 25% tax on all my income.

To be honest I am scared to make a "declaración de Renta" - tax declaration - because that will alert the authorities to why I haven´t made one before and could be opening a can of worms. I had assumed from all my previous research that if you didn´t earn more than 20,000 euros a year it wasn´t necessary to declare your income. Also, even though I am bringing in around 2,000 euros a month clear, this income is for myself and my partner and we are joint owners of our property so everything we have is split between two.

I am worried that if I am investigated they will want to know where all the cash deposits have come from and will assume that everything I currently have is from earnings which is not true as we had savings that we brought from the UK and some of this is part of what I currently have.

I have recently considered putting my money in an offshore account as many do but I have been told it costs around 3,000 euros to set one up which is not worth it as we don´t have huge amounts of money. However, I have also heard that authorities will soon have the powers to look into accounts offshore thus making them a less useful option.

Finally, we are seriously considering returning to live in London but will keep our flat here and continue to rent it out, I don´t want to go back to the UK worrying about the Spanish tax authorities.

Can anyone give me some advice or let me know if they are in a similar position. Thanks.

I would go to a gestor for advice.

Rosemary

Well .... I'd say that you have a bit of a problem As you say, if you declare anything to the tax authorities I'm guessing they will see how long you have been living here and want to know some more details. They can have open access to your building society and / or bank accounts and will see all the money that has been paid in ... and ask where its come from. If you've earned that for as long as you've been here you're talking about over 100,000 euros of taxable income.

I'm no expert of course, and as mentioned above I would take advice.

Thanks for replies and I expected someone to tell me to seek professional advice, which I will of course do.

Mitzyboy, I have definitely not earned that much money since I came here!! For the first year we spent 70% of our savings and had no other source of money at all. I then got a job paying me in cash and I earned around 1,200 euros a month and often I would not put it in to my bank. I did not become an official tax resident until May 2005 so they have no claim on my money before that date.

After I lost that job a couple of years ago we were forced to rent out our flat to tourists as we had no other income and as it was the summer it was impossible to find a job. As I said, this money was for the two of us. After 4 months I got my one and only legal job so far and everything was above board - we continued with the tourist rentals as I didn´t know how long my job would last and it didn´t pay too well. After six months I was without work but found my present job within a month and then started being paid cash again. For the last year I have been earning around 1,600 a month in cash plus tourist rental money, some of which has gone into my bank, some has been spent as needed. It is only since the end of last year that my current boss has been transferring the money to my bank regularly.

Obviously, I want to safeguard what I have saved as I need this money for the future and to make up for not being in the system, i.e. I have no right to state benefits, pension etc. I am sure there are many people in my situation over here!

Oh OK the financial amount isn't as big as thought then ........ Under the new laws you can earn around 13k euros a year without paying tax with the allowances but I don't know what it was in the past.

You said you've been here 5 years ..... if thats the case you were a tax resident officially from the time you'd spent 6 months here .... The 6 month period is always quoted, but from what I understand you can be a tax resident from almost the day you arrive, if you are moving here with the intention of living here permanently.

You should have paid tax every year, non residents pay a 'wealth tax' based on their property value and what they owe on their mortgage, when you take out residencia the tax has a different name, but is still basically the same. Our lawyers worked it all out for us, and last year we paid 26 euros.

Regarding wealth tax, we did seek a lawyers advice about 3 years ago when we weren´t residents - I am aware of the law of spending 183 days in a country making you a resident, but for nearly 2 years I was here without any income from any other source than my own savings which I had earned and paid tax for in the UK so there´s no way on this planet the Spanish tax system is getting any of that. I was told my lawer that the wealth tax up to the date I became resident was about 300 euros. You do not have to pay wealth tax on you only property world wide if you are a resident, that is only if what you own is considered a luxury property or if you have more than one property in Spain or abroad. I may owe tax from when I first bought the property up to when I became resident but that will not be much and I intend to pay it when I sell.

I'm sorry mate, you're labouring under a misaprehension. It doesn't matter if you have no income. You're still a Spanish tax resident and it is recommended by many that you put in a NIL tax return to prove you are in the system as it helps when you sell your home eventually. As for your BS interest in the UK, had you registerd in Spain and it was your only income you probably wouldn't have paid a cent tax on that in Spain. Meanwhile of course you HAVE been paying tax on it in the UK!

You DO have to pay tax on your assets worldwide, and I'm afraid under the Spanish tax system you WERE under that regime from the the six months when you moved here. Sorry!

So whatever you think about when you became a tax resident I'm sorry to say you are wrong ....... but whats going to happen when you come to sell your home??

Okay Mitzyboy I do understand that I am in Spain and I should abide by their laws, as many do and obviously as we all know, very many more don´t.
However, I initiated this conversation because I am aware of the potential problems I may face one day if I don´t sort things out now.

What I don´t understand, from what you are saying, is that I should have paid tax on my savings that I brought with me from the UK - surely the Spanish tax man has no right to this, as it was the money I made from selling my one and only property worldwide and there was no tax payable on that. I accept that money I have earned, legally or not, could be taxed from the moment I arrived here, official resident or not.

I will assume that I can deduct around 25,000 euros a year from my net earnings/ lettings money and roughly calculate 25% tax payable on what remains. I will contact my lawyer before I leave this country to calculate what I might owe and see how best I can declare my assets without attracting too much attention. Compared to many expat crooks, boiler room types who come here and make millions, my bank account will be of little significance. However, I want to do things legally and it has not been my fault that I have been unable to work within the system. This begs the question as to who is responsible for my non-declaration - in my view, my boss is the true culprit for putting me in this position and not paying social security for my employment. There are thousands like him so I know I am not alone.

I am looking forward to going back to London to get a proper job where I can pay my tax and NI contributions and be part of the legal world again, until I came here I had no idea of the kind of mafiosa mentality the Spanish have - this country is full of corruption and black money, but that´s another subject.

I've just, today, had a letter from my lawyers requiring information so my tax can be paid. I do not, yet, have residencia, but they want to know:- Income from work, address of home, certificate of benefits and retentions for pensions and unemployment, bank statement showing duplicate of bill for IBI-SUMA, receipts of collected rents and invoices of expenses fro the rented properties, certificate showing bandk accounts [B]WORLD WIDE[B], Certificates of life insurance and any refunds, deeds of purchase or sale of any real estate, quoted and non quoted securities certificates, certificates of investment funds, Certificate of pansion plans, invoices and receipts of purcahse of family home, bank statements showing mortgage remaining anf payments made, and any accounts of any business I own.
The vast majority of these i do not have as I'm retired, but for others out there, that's what is needed.

There is a standard form that my accountants send out to me every year that lists all that is required by them to prepare my yearly trip to Andalucia so that I can sign my tax forms to pay the Hacienda

No I wasn't having a go ... I was just explaining.
And the answer is yes, now you are living here the Spanish tax system has every right to tax the interest on your savings, and also apply wealth tax to the total asset value.

Not sure where your 25k euro deduction and 25% payable comes from as I don't know your circumstance, but as I understand it if you are a married couple your basic allowances will total somewhere around 11000 euros a year and depending on your earnings the tax rate varies (2006 figs) from 15% up to 45%

I'm no expert obviously, but I do know what my gestoria outlined and it fitted in almost exactly with what I had learned from various sources over the last few years

Heres a link that Fred kindly showed me a while back that has the personal allowances, and more
- Hope it helps
http://www.spainaccountants.com/it.html

Its in the free beer fred

I bet you wake Mrs JDR up every night when you shout that out in your sleep.

Careful how you reply as I am very easily shocked.

Rosemary

Lol,, I want to put it in flashing lights so people look at but I cant do it ;-(