If you are considering purchasing a property in Spain, please spend a few minutes reading this guide to ensure that you aware of all the taxes and costs involved, not only in the purchase but also in the event of the sale, so that you do not get any nasty surprises. This summary also explains your annual tax filing obligations.
What you need to know when you purchase a property in Spain
Transfer Tax.– The purchase of a property in Spain is subject to a Transfer Tax which is payable by the purchaser. The tax rate varies depending on the region of Spain and it is usually between 7-10%. As an example, the tax rates applicable in Andalucía are as follows:
When you purchase a property from a developer, Transfer Tax is not applicable as VAT (currently 10% of the purchase price) is payable instead. Additionally, Stamp Duty on documentation associated with the property conveyance is also payable and this tax rate also varies depending on the region of Spain. This can vary between 0.5% and 1.5% and, for example, in Andalucía it is 1,5% of the purchase price.
Notary fees and land registry fees.– In Spain all property transactions have to be signed before a notary public and then this deed is duly registered at the land registry of the municipality when the property is located. These costs are approximately 0.5% of the purchase price.
Professional fees.- Depending on the value of the property and the complexity of the transaction, these fees are between 0.5% and 1.5% of the purchase price, subject to negotiation between the parties.
Mortgage costs.– If you need Spanish bank finance for the purchase of the property, you will need to be aware that there will be additional notary fees, land registry fees and Stamp Duty. Sadly enough, by adding the bank commissions the total costs would be in the region of 2-3% of the mortgage capital.
What are the taxes payable when owning a property in Spain.
Income tax.- When a property is not rented to third parties, the property owners have to pay an annual tax based on the deemed rental value of their homes. The ‘taxable base’ is 2% of the cadastral value of the property (1.1% if this value has been revised during the last 10 years), and the tax rate is 24%. No property costs can be deductible. However, for EU residents the tax rate will be 20% in 2015, and will be reduced to 19% from the 1st of January 2016.
If the property is rented to third parties, the rental income needs to be declared and the tax paid to the Spanish tax office. For EU citizens, the tax rate is 20% (19% in 2016) of the net rental income, whereas for non-EU citizens the tax rate is based on the gross rental income.
For EU citizens, only the costs that are directly related to the generation of the rental income are deductible (e.g. agents fees, cleaning, laundry, repairs and maintenance). In the case of all other property costs (e.g. local rates, community fees, utilities or interest on bank mortgages) they are only deductible pro rata to the number of days the property is rented.
For the number of days, within a calendar year, a property is not rented out, it remains subject to deemed rental income as explained at the beginning of this section.
The tax declaration is called Modelo 210 and the deadline for the payment is 31 December each year.
Wealth tax.- Non-resident individuals are subject to wealth tax on the value of their Spanish assets, but only for the net value that exceeds 700.000 € per property owner. The tax bands and tax rates are as follows:
The tax declaration is called Modelo 714 and the deadline for the payment is on 30 June each year.
Local rates (IBI and Basura).- This is the annual municipal tax called ‘Impuesto sobre Bienes Inmuebles’ (IBI), which is based on the cadastral value of the property. This tax varies depending on the municipality in which the property is located. There is an additional rubbish collection tax which is paid twice a year.
The Spanish Town Halls are not obliged to ensure that the tax demands are properly received in the property’s address as they are sent by normal post. Therefore you should ensure that you arrange for the payment of these taxes by direct debit.
What you need to know when you sell a property in Spain
Capital gains.- This tax is calculated by the difference between the sale price and the purchase price, having deducted all the necessary costs related to the respective purchase and sale, and adjusted by Spanish indexation relief. The tax rate is 20% for 2015 (19% in 2016).
When the property is sold by a non-resident, the purchaser has the obligation to withhold 3% of the sale price and pay it to the tax office within one month from the date of the purchase. This is considered as a payment on account of the total tax payable by the vendor. If the capital gains tax payable by the vendor exceeds the 3% tax withheld, the balance is paid to the tax office within four months from the date of the sale, and if lower the vendor will be able to reclaim for a tax refund.
Plusvalía Tax.- This local tax is paid to the Town Hall where the property is located, and is based on the increase of the value of the land between the date of purchase and the date of sale. The tax rate increases in accordance with the number of years the property is owned, with a maximum of 20 years.
Other costs.- Normally there are no notary fees or land registry fees, as they are payable by the purchaser, unless otherwise agreed between the parties.
Professional fees for dealing with the sale are based on the value of the property and the complexity of the transaction and, as for the property purchase, they are normally between 0.5% and 1.5% of the sale price. If the property has a Spanish mortgage and has to be cancelled prior to the sale, there will be notary fees and land registry fees payable by the vendor, which are normally withheld by the purchaser.
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