Beatriz is a retired nurse. She trained in Salamanca, worked for twenty-five years in London hospitals and stayed on to live there. She receives a British pension and a small Spanish Social Security pension, and keeps an account in Spain holding just over 60,000 €, inherited from her mother. A friend told her that with that balance she "had to file the 720" and she has been worried for months, because she has read stories of huge fines. The answer, in her case, is reassuring. But there are nuances worth knowing before anything changes in her life.
The 720 looks outwards from Spain
Modelo 720 is an information return on assets and rights located abroad. Who has to file it is set by the Spanish tax management and inspection regulations (Real Decreto 1065/2007): articles 42 bis, 42 ter and 54 bis all begin the same way, referring to individuals and legal entities resident in Spanish territory.
Two consequences follow for Beatriz:
- As long as she is not tax resident in Spain, she does not have to file the 720, whatever she holds in the United Kingdom or in any other country.
- Her Spanish account is not an "asset abroad" from the Spanish point of view, so it does not go into the 720 either, not even if she comes back one day.
What may affect her because of that account is non-resident income tax (IRNR) on the interest, if it earns any, and Spanish wealth tax on a territorial basis, which taxes what she owns in Spain and only requires a return if there is tax to pay or if the value of her assets in Spain exceeds 2,000,000 € (article 37 of the wealth tax act). These are other obligations, with their own rules, which we develop in do I have to pay wealth tax as a non-resident.
First situation: the day you come back
If Beatriz decides to return to Spain and becomes tax resident, the 720 appears all at once. In the first year of residence, everything she holds in the United Kingdom becomes an asset abroad belonging to a resident, and the return is filed between 1 January and 31 March of the following year.
It is organised in three blocks: accounts (code C); securities (V), fund units (I) and insurance (S), which go together; and real estate (B). Each block is declared only if it exceeds 50,000 €.
With Beatriz's figures if she came back, at 31 December of her first year of residence:
| Asset in the United Kingdom | Value | Block | Block total | Declared? |
|---|---|---|---|---|
| Current account | 38,000 € | Accounts | 54,000 € | Yes, both accounts |
| Savings account | 16,000 € | Accounts | ||
| Share portfolio | 45,000 € | Securities, funds, insurance | 45,000 € | No |
| Flat in London | 180,000 € | Real estate | 180,000 € | Yes |
Look at the accounts: neither exceeds 50,000 € on its own, but the block does, and once it is exceeded all of them must be reported. For accounts, moreover, the limit is measured twice (balance at 31 December and average balance for the last quarter), and it is enough for either total to exceed it.
The following years: the 20,000 € rule
Once filed, the 720 is not repeated every year out of habit. It only has to be filed again when the combined value of a block already declared rises by more than 20,000 € compared with the last return, when you stop owning something that was declared, or when a block not yet declared exceeds 50,000 € for the first time.
Let us continue with Beatriz:
- Year 1: accounts 54,000 €. She files.
- Year 2: accounts 71,000 €. An increase of 17,000 €, below 20,000 €. She does not file for the accounts.
- Year 3: accounts 76,000 €. An increase of 22,000 € on the 54,000 € of year 1, which is the last return. She files.
- Year 3: the share portfolio reaches 52,000 €. It exceeds 50,000 € for the first time. She files that block too.
The typical mistake is in step 3: comparing with the previous year instead of with the last return filed. It is explained in when the 720 has to be filed again.
The Court of Justice of the European Union, in its judgment of 27 January 2022 (case C-788/19), struck down the special penalty regime for the 720, which is the one behind the stories of disproportionate fines. The reporting obligation remains in force and failure to comply is penalised under the general regime. Filing it correctly is still the sensible course; living in fear of those figures is not.
Second situation: a relative who does live in Spain
Beatriz is not obliged, but someone in her family may be. If her brother, who lives in Salamanca, is an authorised signatory on Beatriz's London account in case anything happens, he is a resident with power of disposal over an account abroad. The regulations expressly include representatives, authorised persons, beneficiaries and beneficial owners. Her brother may have to file the 720 for an account whose money is not his.
The same happens in marriages where one spouse lives in Spain and the other abroad, or when a resident son or daughter appears on the accounts of their retired parents abroad. It is worth checking who appears on each account before assuming that "the 720 has nothing to do with us".
Third situation: residence that is not so clear
The third is the most delicate. Some people consider themselves non-resident but, under Spanish criteria, are not: they spend long periods in Spain, their spouse remains here, or most of their assets and income are here. If the Agencia Tributaria (the Spanish tax agency) concludes that the person was resident, it will not only claim IRPF (Spanish personal income tax) on their worldwide income: it may also demand the 720 returns for those years.
That is why anyone who lives between two countries should have their tax residence proved with the certificate from the administration of the country where they live, referring to the treaty. The tie-breaker criteria are in dual residence conflict.
The inbound workers regime
A curiosity worth knowing if someone in your family comes back to work: anyone who opts into the regime in article 93 of the Spanish income tax act (IRPF) is not required to file the 720 while applying it, even though they are resident. Their relatives who have not opted in, on the other hand, may be. It is not a regime for pensioners, but it often comes up in families where one person retires and another returns with a contract.
If you are thinking of coming back and want to know which blocks you would have to declare in the first year, the pensioners form is the quickest way to send us the list of accounts, investments and properties you hold abroad.
What to keep now, even if it does not affect you today
If there is a chance you will return, it is worth keeping now the December statements for each account, the year-end valuation of portfolios and the purchase deeds for properties with their price. The first year's 720 asks for data that is hard to reconstruct after a few years, such as the date and acquisition value of each asset.
Preparing the first 720 on returning, and checking who in the family is obliged, are part of what we explain at Salama Tax for pensioners with assets in more than one country. How the blocks work, with more examples, is in the three blocks of the 720.