The High Court of Justice of Madrid (TSJM) has just recently issued a ruling in favour of exempting taxpayers under the Beckham Law from paying tax on their main residence. This special regime allows individuals who move their residence to Spain (whether foreigners or Spaniards who have lived abroad in the last five years) to pay Non-Resident Income Tax (IRNR) instead of Personal Income Tax for the first six years and thus benefit from paying a fixed rate of 24% on earned income, up to 600,000 euros.
However, regarding the habitual residence, there is a key difference depending on whether it is taxed under the IRPF or the IRNR. The Personal Income Tax Law exempts the main residence from the tax base. Conversely, if you own a second or holiday home, even if it is not rented and therefore does not generate income, it must be included in the IRPF taxable base, requiring you to pay 2% of the cadastral value or 1.1% if this value was revised after 2012. On the other hand, the Non-Resident Tax Law, taking for granted that the taxpayer does not live in Spain, does not mention any exemption on the habitual residence and obliges to pay tax on any property that the person owns in our country.
Now, the High Court of Justice of Madrid (TSJM), in a judgment dated May 6, with judge Luis Manuel Ugarte Oterino as the rapporteur, has revised its stance. It now asserts, changing its criteria, that individuals benefiting from the Beckham Law have “the right to the exemption of the habitual residence from the imputation of real estate income”. The sentence reasons that, although it is “logical” that the IRNR Law does not exempt the habitual residence because this tax is intended for people who do not maintain their residence in Spain, the people under the Beckham Law “precisely acquire the tax residence in Spain”.
The ruling reads as follows: “It should be emphasised that the special regime provided for in Article 93 of the LIRPF applies […] to individuals who precisely acquire tax residence in Spain as a result of their move to Spanish territory, which is a regime included in the scope of the LIRPF itself and which recognises the right to pay non-resident income tax, but maintaining their status as taxpayers for Personal Income Tax during the tax period in which the change of residence takes place and during the following five tax periods, and which simply allows the determination of the Personal Income Tax liability in accordance with the rules established in the revised text of the Law on Non-Resident Income Tax”. Thus, it states that the Beckham Law is not an independent regulation, but a special regime included in Article 93 of the Personal Income Tax Law, and consequently, the ruling nullifies the settlement imposed by the Tax Agency on the taxpayer for their habitual residence in Spain.
At Lullius Partners, we tailor and coordinate each client’s strategy based on the unique requirements of their situation, ensuring all obligations are met while maximizing benefits and minimizing potential risks. If you are thinking about moving to Spain, reach out to us for more information and/or detailed and personalized advice.
DISCLAIMER: This blog entry discusses a ruling that can still be appealed to the Spanish Supreme Court, which has the authority to either uphold/ratify or overturn the High Court’s decision. Ultimately, it will be the Supreme Court’s decision that establishes settled jurisprudence regarding the interpretation of the applicable rule. If you need more information or wish to discuss whether this applies to your circumstances, please do not hesitate to contact us. We are here to help.
