Andrew is British, retired to Mallorca in 2020 and has been tax resident in Spain since then. He keeps the money from the sale of his house in Bristol at a London bank, about 240,000 euros at the exchange rate. He has never filed Modelo 720, the Spanish return that reports assets held abroad, and on an expat forum he read that "since there is nothing to pay, nothing happens if you don't file it". It is half true, and the other half is the expensive one.
The 720 has no tax attached: there is no amount to leave unpaid. What happens if it is not filed, and what happens afterwards if whatever Hacienda (the Spanish tax authority) assesses is not paid either, is a chain with very different links. It is worth knowing the whole of it in order to know which point each person has reached.
How Hacienda gets to an account in London
The United Kingdom takes part, like the European Union and more than a hundred jurisdictions, in the automatic exchange of financial information. Every year its bank reports to the British tax administration the balance and income of the accounts of clients resident in other countries, and that information reaches the Agencia Estatal de Administración Tributaria, the Spanish tax agency, with Andrew's name, address and identification number.
The Agency cross-checks that data against the 720s filed and against income tax returns. An account of 240,000 euros with no 720 and with interest that does not appear in the income tax return is, in risk terms, a textbook case. It is not a question of whether the letter arrives, but of when.
First link: the request and the 720 penalty
The usual start is a formal request to file the 720 or to provide information. From that moment on, filing is no longer voluntary and the penalty in article 198 of the Ley General Tributaria (the General Tax Act) applies in full: 20 euros per item or set of data, with a minimum of 300 euros and a maximum of 20,000 euros per return, without the halving he would have had by filing earlier. All that remains is the 40% reduction for paying on time and not appealing.
With four open tax years (2022 to 2025) and a single asset per year, that comes to 1,200 euros, or 720 euros with prompt payment. Annoying, but it is not what should worry him.
Second link: where the money came from
The IRPF Law (the Spanish personal income tax act) allows assets not reported in the 720 to be treated as an unjustified capital gain. That gain is added to the general base, the one taxed at the highest scale, and carries the penalty in article 191 for failing to pay, from 50% to 150% of the tax. Since Law 5/2022 it can be avoided by proving that the money comes from declared income or from a period in which you were not resident or which is already time-barred. That is why what decides Andrew's case is not the 720: it is his folder of papers.
| Item | Scenario A: origin proven | Scenario B: origin not proven |
|---|---|---|
| 720 penalty (four years, with prompt payment) | 720 euros | 720 euros |
| Undeclared interest on the account (≈ 4,000 euros a year) | Savings tax of about 760 euros per year, with its penalty | Same as in A |
| Unjustified gain of 240,000 euros | Does not apply | Added to the general base: a tax bill that, depending on the region, can average around 40% |
| Article 191 penalty on that tax | Does not apply | From 50% to 150% of the tax, with its reductions |
Scenario B is an order of magnitude, not an assessment: the exact result depends on the regional scale, on the year to which the gain is allocated and on the reductions. But the difference between the two columns is the reason why the deed of sale of the Bristol house, the 2019 statements and the transfer receipt are worth more today than any legal argument.
Third link: if the assessment arrives and is not paid
Suppose Andrew receives an assessment and a penalty and simply does not pay them. The procedure is the same as for any tax debt:
- Voluntary period. Until the 20th of the following month or the 5th of the second following month, depending on the date of notification (article 62.2 of the Ley General Tributaria).
- Enforcement surcharge of 5%. If he pays everything before receiving the providencia de apremio, the formal enforcement order.
- Reduced enforcement surcharge of 10%. If he pays after the order, within the deadline it gives him.
- Ordinary enforcement surcharge of 20% plus late-payment interest. If he lets that deadline pass as well.
- Seizure. First money in Spanish accounts, then receivables, securities, salaries or pensions and property, in the order set in article 169.
Andrew believes his money in London is out of reach. Not entirely: the Agency can collect whatever it finds in Spain, starting with his Spanish account and his pension if it is paid here, and it has mechanisms for mutual assistance in recovery with other States, whose scope varies by country. What is certain is that the debt does not become time-barred while the administration keeps acting to collect it, because each action interrupts the limitation period.
There is also a side effect Andrew has not considered: while he has debts outstanding in the enforcement period, any refund due to him, for example from an income tax return showing a refund, is offset against that debt before it reaches him. And if at some point he needs a certificate showing he is up to date with his tax obligations, for a grant, a licence or certain transactions, he will not get it.
If his difficulty were one of cash and not of disagreement, the route would be a different one: asking for a deferral or instalments within the voluntary period. For debts of up to 50,000 euros no guarantee is required, and applying on time prevents the enforcement period from starting while the application is processed. The surcharge never accrues if it is granted and the instalments are met.
If you believe the assessment is wrong, what protects you is appealing it on time. Penalties under appeal are suspended automatically without a guarantee; the tax itself, on the other hand, is only suspended if a guarantee is provided or suspension is requested and granted. Letting the deadlines pass without doing anything is the only option that always ends up costing more.
The way out that almost nobody takes
Everything above describes what happens if nothing is done. As long as there is no request, Andrew can cut the chain at the first link: file the open 720s, regularise the interest with the recargo (the surcharge for filing late on his own initiative) and document the origin of the money at that same moment. Scenario A then costs half as much on the 720 penalty side and nothing on the income tax side. How the difference between surcharge and penalty works is in recargo versus penalty, and how the four years are counted in the four-year limitation period.
If you are in a similar situation, the first thing is to put dates and papers in order. You can start with the Modelo 720 form: you tell us what you own abroad, since when and whether any letter has arrived, and we tell you which link affects you. The outcome of a review cannot be promised; the position from which you face it can be chosen.
What people ask us about unpaid Modelo 720 debts
Can they seize my assets over Modelo 720?
Yes, and no judge needs to be involved: the tax administration collects by itself. First the enforcement surcharge, then the providencia de apremio, and then the seizure of accounts, refunds, salaries or property. With Modelo 720, what breaks that chain is acting before the enforcement order arrives, usually by asking for a deferral.
Do I have to file it every year?
No. Once filed, you only report again if a block rises by more than 20,000 euros compared with the last return, or if something is closed or transferred. But it has to be checked every year.