Guide to Property Taxes in Spain
Buying a property in Spain involves dealing with a number of taxes, both those that have to be arranged during the buying process and those that have to be considered after the sale has gone through.
If you do not have a fluent command of Spanish then you are going to find it difficult to get a grasp of all of the taxes involved without professional help, which is always recommended.
However, having a good understanding of what it required of you can help to prevent problems from arising in the first place. This guide is therefore intended to provide you with the essential information you need in order to deal with the major taxes that you will encounter when purchasing a property in Spain.
Purchasing A Property
Property Transfer Tax and IVA
The property transfer tax, which is known in Spanish as the Impuesto de Transmisiones Patrimoniales y Actos Jurídicos Documentadas, is a tax that must be paid on a resale property or land transfer, but does not apply to new-build properties. The rate differs around the country, and is generally 6% or 7% of the total price of the property (in Andalucia it is 7%).
IVA, or VAT, is similar to the transfer tax but is only paid on new-build properties. The current amount is 7% for a private property.
Stamp Duty
The stamp duty only applies to new-build properties, and equates to between 0.5% and 1% of the value of the property. This must be paid by the buyer in front of a notary.
After Purchasing A Property
IRNR
After you have purchased the property, the most important tax is the IRNR (Impuesto Sobre la Renta de No Residentes), which is the income tax on the property.
This is a tax due on any profit that is made by you from the property, whether you are living in it yourself or renting it out to tenants, and irrespective of whether you live in the country or not.
The current amount that you will have to pay is based on the cadastral value (valor catastral) of the property, which is the valuation of the property by the municipal government. You will have to pay 24% of the tax base, which is currently 2% of the cadastral value of the property.
For property owners renting out their property to a tenant, the tax rate is also 24%, but the tax base will be the gross rent being made from the property.
IBI
The IBI (Impuesto de Bienes Inmuebles) is the annual real-estate tax due on the property. It is required by any property owners in Spain, and does not take into account what the property is being used for. It can be made in Spain by paying directly to the Town Hall in the region where the property is located, but foreign owners who live outside of Spain can also arrange for it to be paid via a Spanish bank.
Selling A Property
Capital Gains Tax
Although you will not have to pay a capital gains tax until you sell your property, you should still be aware of what it involves. The capital gains tax is essentially a tax on the increase in the value of the property since the time when you made the purchase. Up to 2007, this was 35% for non-residents, but following EU pressure on the Spanish government, this was reduced to 18% to bring it in line with what residents are required to pay.
It is a fairly complicated procedure working out how much capital gains tax is due, but essentially you have to work out the selling price minus the buying price and pay 18% of this in tax. However, there are relevant coefficients to take into account, as well as fees, expenses and improvements made to the property, so it is best to get professional help if you are unsure of the process.
There are some exceptions to capital gains tax for residents. If you are over 65 and are selling the home that you have lived in for over three years then you are exempt, and if you buy another property in Spain with the proceeds then you are also exempt. If you only use a part of the money from the sale to purchase another property in Spain then you will be entitled to a partial exemption.
Withholding Tax
When you sell a property in Spain and you are a non-resident then, regardless of whether the buyer is a resident or not, they must pay a withholding tax. This means that 3% of the purchase price will be withheld at the time of sale. This is essentially an estimate of the likely capital gains tax that you as the seller will have to pay upon selling the property. It used to be 5%, but the rules were changed in 2007.
Capital gains tax must be paid to the relevant tax authorities within the district that the sale is going through, and must be paid within one month of the purchase. If the initial 3% withholding tax is more than the capital gains due on the sale, then you are entitled to claim back the difference.
Residential Status
After 2007, the amount that foreign property owners were required to pay in taxes was brought in line with what residents had to pay. Most notably, capital gains tax went down from 35% to 18%, and withholding tax went down from 5% to 3%. However, there are still a few areas where residential status affects your tax payments, especially concerning exemptions to capital gains tax.
For this reason you should be aware of what your residential status is, for although you may not consider yourself to be a resident, you may be classed as such by Spanish law.
If you spend 183 days of the year in Spain, or your ‘centre of vital interests’ – your central income source – is in the country, then you will become a tax resident, so always check with a solicitor if you are unsure about your status and how it could affect your tax payments.
