Taxes

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Taxation of Spanish Property

Local Taxes

There are two local property taxes, which are both based on the property’s rateable value the “Valor Catastral” this value is set by the local Town hall, and is adjusted in line with inflation. The rates of tax will vary from region to region due to the varying rates of tax imposed by the regional and local governments.

Local property tax (Impuesto Sobre Bienes Inmuebles (IBI))
This is the main local property tax affecting owners of properties in Spain payable yearly to the Town Hall. The amount of the tax is calculated by reference to the valor catastral (official value of the property) registered in respect of all properties in Spain. The percentage charged varies from area to area, and is roughly 2% ( for properties, which have not been revised ) , and 1,1% for those that have been revised.

Local mains drainage and refuse collection tax (basura y alcantarillado)
This is a local tax payable by property owner and a related to rubbish collection and drainage. The amount to pay varies from area to area, and should be paid to the local Town Hall every 3 or 6 months. This tax should be between €175 and €300 per year.

Personal Taxes

As a non-resident property owner in Spain, you may be liable for income tax, value added tax, wealth tax, capital gains tax and inheritance tax. Individual situations vary considerably and it is best to seek specialist advice from a tax consultant who has knowledge of the Spanish tax system.

Income Tax (Impuesto sobre la Renta de las Personas Fisicas (IRPF))
The income derived on property in Spain should be declared in Spain. If you sell your Spanish property within one year of purchasing it, then the profit you make is considered an income and not a capital gain, and you would have to pay Spanish income tax on any profit made. If you rent out your Spanish property, then you have a “rental income” from the Spanish property and will have to pay Spanish income tax.

The rates of income tax payable by a resident and non-resident is different. An individual is considered a Spanish resident if they spend more than 183 days within a year in Spain. A non-resident is taxed at the standard rate of corporate tax at 35%. A resident is taxed in accordance to a sliding scale shown in the table below.

Income Tax Rate
Up to – €4000 15%
€4000 – €13,800 24%
€13,800 – €25,800 28%
€25,800 – €45,000 37%
Above €45,000 45%

Assumed or Deemed rental income tax (Rendimientos del capital inmobiliario)
If you are non-resident a “deemed rental income” is levied by the Spanish tax authorities for urban real estate not rented out or used as a second residence.

The yield to be declared is the entire amount that is received from the lessee, without deducting any expenses.

However, in the case of taxpayers resident in another Member State of the European Union and from 1 January 2015, also in Iceland and Norway, in order to determine the taxable amount, they may deduct the expenses provided for in the Tax Law The Income of Individuals, provided that it is proven that they are directly related to the income obtained in Spain and that they have a direct and inseparable economic link with the activity carried out in Spain.

This yield is understood to be accrued when it becomes due by the lessor or at the date of collection if it is earlier.

Type of assessment

As if it were a home for own use, from 2016, 19%, for residents of the EU, Iceland and Norway, and 24% for other taxpayers.

Wealth Tax (Patrimonial)
You will pay wealth tax (Patrimonial) at a percentage that depends on the value of your wealth (i.e. property plus savings in the bank, etc.).

Who has to file a Spanish wealth tax declaration?
Those with net wealth that exceeds 700.000 €, or those
With gross assets that exceed 2.000.000 €, even if net assets are less than 700.000 €.

How is net wealth calculated, and at what tax rates?
Net wealth is calculated by deducting total liabilities from total assets. Assets are usually valued at cost but there are some exceptions to this rule. Spanish residents are taxed on worldwide net wealth.

Non-residents (typically owners of holiday homes) are taxed only on Spanish net wealth. Non-residents can only deduct from gross Spanish wealth those liabilities directly related to the Spanish assets (e.g. a mortgage).

Capital Gains Tax
If you sell a Spanish property more than one year after purchasing it, then you are liable to pay Spanish capital gains tax (GGT) on the difference between the amount that you sell the property for and the amount that you declared having purchased it for previously, minus any inflationary gain. A non-resident will pay Spanish CGT tax at 21% and residents will pay at a rate of 21%. A resident may have the option to ”roll” the tax into another property provided that it is a single main residence.

Although the figure of 21% for non-residents sounds high, CGT is subject to an annual ”indexing” (“inflationary”) tax relief. This means that an inflationary “index” allowance is subtracted from the profit before the CGT rate is applied. A Non-resident who purchased their property before 1986 actually has no CGT tax to pay on sale. Whereas non-residents who purchased their properties between 1986 and 1998 have a complicated tax position as both the old formula (an indexing allowance of about 11 % per annum) and the new formula (an indexing similar to the rate of inflation, recently about 1 %) need to be considered.

Non-residents are liable for a “cautionary” retention tax of 3% when they come to sell their Spanish property. For example, when a non-resident sells their Spanish property their buyers pay 3% of the sales price (retention tax) directly to the Spanish tax authorities and will only receive 97% of the sales price. This retention tax is kept “on account” by the Spanish tax authorities until the non-residents capital gains tax is calculated. Once the capital gain is determined (i.e. the profit minus any inflationary considerations for the period that the property was owned) and the appropriate CGT is calculated, the Spanish tax authorities will deduct the retention tax from the CGT that is liable. If the CGT liable on the sale of the Spanish property is more than the 3% retention tax that is held “on account” then the non-resident has to pay the difference. If, however the CGT liable on the sale of the Spanish property is less than the 3% retention tax that is held “on account” then the non-resident is reimbursed the difference by the Spanish tax authorities.

The “purchase value” is the real price you paid for the property plus all costs and taxes related to the purchase, excluding interests paid by the actual vendor. Depending on the year that the property was purchased, this value will be corrected by using updating rates that are yearly stated in the National Budget.

Plusvalia Municipal
Plusvalia is a tax levied by the local Town Hall based on the particular area where the property is located, on the surface area of the land, on the Catastral value and on the date of the previous title deed. This tax is essentially a tax on the increase in value of the land may range from a few approximately £12 to tens of thousands, on larger properties owned for many years. By law the vendor (seller) is obliged to pay this tax but it is common practice for the parties to negotiate on who is to assume this liability.

Inheritance Taxation
Who pays Inheritance Tax in Spain?

Expats resident in Spain and paying tax are liable to pay Spanish Inheritance tax regardless of the country in which the inheritance is situated. Non-residents are liable to pay Inheritance Tax in Spain only on assets, which are physically located in Spain. There is no exemption on inheritance tax in Spain.

For a more in-depth guide, you will need to investigate the subject further and get professional financial advice.

There are ways to avoid and minimize Wealth Tax and Inheritance Tax

  • Buy jointly with spouse and children and or future inheritors, to spread the wealth.
  • Take out a mortgage loan on the property to reduce the Net wealth and liability.
  • Buying or owning through a Spanish limited Company.
  • Buying or owning through a EU company.
  • Buying or owning through a UK limited company.
  • Sell the property to future inheritors either fully or partly.
  • Organizing life insurance ensuring adequate funds to cover the Inheritance Tax bill.

For a more in-depth guide, you will need to investigate the subject further and get professional financial advice.

Disclaimer: The content of this document is provided for guidance only, and while every effort has been made by Noll and Partners SL to ensure the accuracy of the information and translations contained, no liability can be accepted for any errors omissions and inaccuracies, or for the opinions expressed herein.