Understanding the rise of Spanish tax demands in the UK: legal and procedural considerations.

HMRC’s intensified enforcement of Spanish tax debts in the UK has become a pressing concern for British taxpayers.

Although the UK no longer participates in the EU’s mutual assistance in the recovery of debt (MARD) arrangement for post-Brexit liabilities, it still applies to debts incurred before Brexit. Under this framework, the Spanish Tax Agency (AEAT) may request HMRC to collect unpaid debts. Cross-border enforcement continues under the 2013 Spain-UK double tax treaty and the OECD’s Convention on Mutual Administrative Assistance in Tax Matters (MAATM).

With more than one million UK property owners in Spain, the AEAT aims to collect all pre-Brexit debts before the statute of limitations expires. In Spain, tax obligations generally lapse after four years unless the authorities extend this by issuing formal notices. Once that period elapses without valid interruption, the debt is unenforceable.

In past years, they have issued numerous MARD requests, requiring HMRC to confirm the validity of each debt. Therefore, the taxpayers must carefully review the underlying Spanish claim and ensure HMRC follows the correct procedures.

The application of international agreements

UK taxpayers receiving an HMRC demand from Spain should assess the applicable international legal frameworks alongside UK and Spanish tax laws and the double tax treaty. Two main international frameworks apply where HMRC may treat the Spanish tax debt as if it were a UK tax debt:

1) Mutual assistance in the recovery of debt (MARD): MARD is an EU system allowing enforcement of tax debts across member states. The UK left the EU on 31 January 2020, but tax debts before that date may still come under MARD. Under Article 100 of the Withdrawal Agreement, MARD can continue if:
a) the debt became due before 1 January 2021; or
b) the liability arose after 31 December 2020 but is linked to a pre-Brexit event.

2) OECD MAATM: Although the UK is no longer bound by EU tax enforcement measures after Brexit, Spain and the UK remain parties to MAATM, which allows cross-border tax enforcement requests. However, MAATM does not grant the same level of direct enforcement as MARD, and the UK authorities have broader discretion when reviewing foreign tax requests.

What is the legal basis for enforcement in the UK?

When HMRC enforces Spanish tax debts under MARD – often the most common scenario – it is essential to confirm that the liability falls within the scope of the withdrawal agreement and has been correctly converted into sterling. After determining the relevant international framework, counsel must review the steps from notification to enforcement under Spanish and UK law.

If a procedural error is determined and the taxpayer decides to challenge the tax demand, they should immediately inform the HMRC inspector.

However, under the Court of Justice of the EU case in Kyrian concerning the Czech Republic, any appeal against the notification must be filed in the courts of the requesting member state. Accordingly, the taxpayer should also liaise promptly with the Spanish tax agency.

Under Articles 109 and 110 of the Spanish General Tax Law (Ley General Tributaria – Ley 58/2003), tax demands must be properly served to be enforceable. Notification procedures are particularly relevant in Spain, where courts regularly find that the tax administration has failed to serve notices by the law.

Taxpayers who believe the Spanish demand is inaccurate, unfair, or improperly enforced may appeal. An appeal may be possible even if the tax administration has formally complied with all procedures in exceptional cases.

If the tax demand is indeed valid and all appeal options in Spain have been exhausted, taxpayers may attempt to negotiate instalment payments or partial settlements directly with the Spanish authorities. However, this process can be complex and requires careful evaluation.

If such negotiation is not viable – or in cases of financial hardship – HMRC may be open to discussing enforcement arrangements.

Finally, should HMRC fail to follow proper procedures or misapply MARD/MAATM, a taxpayer may seek judicial review in the UK High Court under Part 54 of the Civil Procedure Rules (CPR 54).

What are the key points for UK tax practitioners?

Ignoring a Spanish tax demand is not advisable. Even post-Brexit, close tax co-operation means HMRC can enforce Spanish debts in the UK.

A structured approach is key for UK taxpayers dealing with Spanish tax demands.

First, check the claim’s legal basis and ensure proper notification under Spanish law. Engage with AEAT and HMRC to clarify doubts and challenge errors through administrative appeals or, if needed, through judicial review in the UK.

If the debt is valid but unaffordable, explore payment options with AEAT and HMRC.

Seeking expert Anglo-Spanish tax legal support is advisable to determine the interplay between Spanish and UK tax systems.