Spanish property tax entails the payment of a rather significant amount - much much than you may have expected or experienced previously in another country. Below you will find detailed information about the taxes to be paid by those buying property in Spain. So, while this article may not leave you particularly happy, you will at least be somewhat prepared!
What Property Taxes are there in Spain?
While Spain is famous for it's sun, sand and sangria, it is also undeniably a world-beater when it comes to property tax! There are many types of tax awaiting the unwary property owner and it is easy to get confused by the endless acronyms. Here we highlight the principal property taxes in Spain that you are likely to come across when buying a property. In general the principal taxes or charges triggered by the acquisition of Spanish property can be grouped as follows:
- IVA (VAT)
- ITP (Impuesto Transmisión Patrimonial)
- IBI (Impuesto de Bienes Inmuebles)
- Capital Gains tax
- Plusvalía tax
- La Comunidad
- Other Charges
IVA (Impuesto de Valor Añadido - VAT)
The purchase of a new property in Spain currently attracts a VAT or sales tax rate of 10% over the tax base ie purchase price. IVA is paid instead of ITP (see below). The new property owner pays the tax directly to the promoter of the development or urbanization together with the monies to pay for the purchase of the property and the promoter is responsible for passing it on to the government in the usual way.
ITP (Impuesto Transmisiones Patrimoniales)
The purchase of a second-hand property in Spain attracts ITP sales transfer tax which varies across Spain but is typically between 6% and 10%. The reason the tax rate varies is because it is set by the regional rather than central government. The tax should be paid within one month from having purchased the property at the local tax office and it is the responsibility of the purchaser to ensure that the tax is paid.
AJD (Impuesto de Actos Jurídicos Documentados)
The registration in the Spanish land registry of new property deeds upon the acquisition of a property, and the creation of a new mortgage in Spain, both attract the AJD tax which is a type of old-fashioned stamp duty. These taxes are regulated by the local government and so the rate of tax can vary across Spain. In particular, certain regional governments allow for reductions where the purchaser is under a certain age or the property is social housing. Typically the rate will vary between 0.5% - 1.5% of the value of the property on the deeds or the amount of the mortgage accordingly.
IBI (impuestos de Bienes Inmuebles)
This is an annual tax paid on property ownership that is similar to Council Tax or rates in the UK. It is normally payable once a year (occasionally it is billed quarterly) at the 'ayuntamiento' or town hall and the specific date that the charge falls due depends upon the individual town hall though is often towards the end of the calendar year. Care should be taken when buying a property- especially if buying a repossessed property in Spain - given that the purchaser should pay for only those months of the year that they own the property. If the previous owner has paid for the full year then they may claim return of that portion which they will not use. The amount payable is expressed as a percentage of the 'catastral' value of the property. The catastral value is the value of the property expressed in Euros as appears in the catastro registry. This registry is like a census of all properties in an area and the value the registry attributes to a property is taken as a reference when determining certain local administrative issues – such as the IBI tax payable. Once the catastral value is found, the tax payable is determined by multiplying the catastral value by a coefficient or percentage. For urban property this oscillates between 0.4% and 1.1% though may be more depending on whether the property is located in the municipal capital or if more services than normal are provided. If you are buying a repossessed property in Spain, check to make sure that all out standing IBI
Capital Gains Tax
This tax, just as in the UK or Ireland, is payable on any capital gain or profit derived from the sale of the property. For 2013 the tax rate is set at 21%. It is usual in the case of non-resident sellers that the purchaser will retain 3% of the stated purchase price to liquidate this tax on behalf of the seller. Should the 3% not cover the entire liability then it is possible that the Spanish revenue will seek an additional payment from the vendor at a future date. On the other hand if 3% is greater than the Capital Gains liability then any surplus may be reclaimed. This should be carried out within three months of the sale via the relevant local tax office.
Exemptions to Capital Gains Tax
As well as deducting the initial purchase cost of the property, any costs incurred in improving or adding to the property may be deducted before applying the tax. A special deduction applies to any homes purchase before 1994 and applies differently depending on when the property was sold. Perhaps the most important exemption for Spanish residents that exists is the 'exención por reinversión' or exemption where the proceeds of the sale of a property are reinvested in another property. In order for the exemption to apply the property must have been your habitual residence (as legally defined) and the proceeds must be reinvested within a period of two years following the sale of the old property. Those over the age of 65 when selling the property and who have lived in the property for the prescribed period of time will benefit from this exemption regardless of whether they reinvest it or not.
This is a tax payable upon income derived from the sale of property. The tax is payable on the increase of the value of the property as compared to when it was bought.
Who should pay pay this real estate tax?
Normally the seller of the property has the responsibility to pay the tax and so once again care should be taken that there is no clause in the contract for purchase that states that the buyer is responsible for the plusvalia tax, unless of course this agreed to. The tax is payable within 30 days of the purchase taking place and is calculated as follows: The tax rate is 30% of the rateable value ie: The value of the property multiplied by the number of years held multiplied by local coefficient (between 2.8% and 3.7% depending on number of years the property owned).
Exemptions to Plusvalía
There are some important exemptions from paying the plusvalia tax. For example the transfer of a property pursuant to a court order in a divorce does not attract the payment of tax. If you bought the property before 1986 or if the property is your habitual residence and you are more than 65 years old then you are exempt from the tax. Discounts are also possible such as when a property is inherited by a close family member. In such a case any plusvalía tax payable may be reduced by 95%. There are conditions attached to this discount such as not selling the property for a period of time following the death of the original owner.
Spanish Income Tax
When a property is not rented to third parties, the property owners who are not tax resident in Spain have to pay a non resident property tax which is 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, for tax purposes 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 form is called Modelo (Form) 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 form is called Modelo 714 and the deadline for the payment is on 30 June each year.
Spain, similar to other mainland European countries has a much higher proportion of apartment style properties than in the UK or Ireland. When multiple proprietors share common parts of a property such as the lifts in the building, porter facilities, the building edifice, the car-park or swimming-pool there is a cost associated with the upkeep of such shared amenities. Accordingly each proprietor is required to contribute financially to the upkeep by way of a community charge, known in Spain as 'la comunidad'. The amount payable varies from building to building or urbanization to urbanization but will also be determined by the property owned within the building (some properties are larger than others and therefore should pay a larger share). For purchasers of property, an important point to note is that the purchaser of a second-hand apartment within a building or community assumes the debts and pending community charge for the previous and current years. For this reason the seller is required to present the purchaser with a certificate of proof of payment of the community charge unless the purchaser has expressly waived this requirement.
In addition to the main taxes and charges outlined above it may be necessary to make provision for other ancillary charges such as rubbish collection and water rates. If a community charge is being paid then this will most likely include the charge for collection of rubbish but if the property is a separate building such as a villa with its own rubbish bins then it may not be. Likewise the supply of water may be included in any community charge but in the absence of one will need to be paid for as is the case with other utilities. Some autonomous communities are introducing water meters in an effort to reduce consumption.
As can be seen, there are a number of important tax implications when purchasing a Spanish property. The specific tax liability will be determined by the individual circumstances of each new Spanish property owner: will they be Spanish tax resident? (Note: if your tax residency is considered to be in Spain, which you will be subject to income tax on your worldwide income). Of course, by speaking to a professional you can explore the possibilities of obtaining a tax reduction. While taxes are extremely important, they are not the only consideration. Here are 10 pitfalls when buying a property in Spain you should know about.