Taxes on Property in Spain
Local Taxes
There are two types of local tax on property which are based on the theoretical rent receivable from the property, based on what values are stated in the local registry. This is adjusted for in accordance with inflation. The percentage of tax varies according to the region in Spain and any local variation, which can be made by local authorities.
Tax on Real Property (Impuesto Sobre Bienes Inmuebles) (IBI)
This is the principal local tax which affects all property holders in Spain, and is paid annually to the municipal council. The amount to be paid is calculated according to the catastral value of the property registered. The tax works out between 0.5% and 1% of the catastral value of the property per year.
Local Taxes for drainage and rubbish collection (Basura y Alcantarillado)
This is a local tax which is paid by the proprietor and is based on amounts collected to pay for drainage and rubbish collection. This needs to be paid to municipal council every three or six months, and, although amounts vary depending on the area, could total some €200 to €250 per year. Any garage space is also subject to a tax of €18 per year.
Personal Taxes
A property owner who is non-resident in Spain, is responsible for paying income tax (Impuesto sobre la Renta), Value Added Tax (Impuesto sobre Valor Añadido), Wealth Tax (Impuesto sobre el Patrimonio), Capital Gains Tax (Impuesto sobre la Plusvalía) and Inheritance Tax (Impuesto sobre Sucesiones). Individual situations are complex, and we invite you to consult us on these areas.
Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas) (IRPF)
The capital gains on property should be declared in Spain. If the property is purchased and sold in the same year, the gain is considered to be income and not a capital gain, and needs to be declared on the annual income tax declaration. If a property is rented, then income which is derived from rents needs to be declared on the income tax declaration.
The income tax which residents pay, is different from that on non- residents. A person is considered resident in Spain if they are in the country more than 183 days in the year. A non-resident is taxed at the same rate as for Corporation Tax, which could be 35%.
Tax on Property Rental (Impuesto sobre la Renta Inmobiliario)
If a person is non-resident, a hypothetical rent tax is collected on owned property not being rented or being used as second residences. The amount to pay depends on the catastral value of property. The municipal council assumes that a property owner is earning some 2% of the value of the propertyin rental income, and therefore income of 0.5% of the catastral value of a property is imputed to be rental income.
An example of this, is that if somebody is owner of the a Spanish property, which has a catastral value of € 100,000 which is not actually rented, they will be subjected to a charge on imputed rent of 25% of 2% of catastral value; which means a charge of € 500 per year.
Wealth Tax (Impuesto Patrimonial)
The percentage of tax payable depends on the value of a persons' estate (property, bank savings etc.). The wealth value of a property is based on the value at the date of purchase. If a person is resident, the first € 108,182 of value of a person's estate is not subject to tax. In addition, there is an exemption of € 150,253 for the principal private residency.
Capital Gains Tax (Impuesto sobre Plusvalías)
If a property is sold more than a year after it is purchased, then there is a capital gain on the difference between the purchase price and the sale price, less any indexation for inflation. The capital gains tax can be 35% over the real gain for non-residents and 15% for residents.
Although 35% seems high, this tax is subject to relief for inflation, over the purchase price of the property, when the property was first bought by the taxpayer.
A person who is not resident, who bought the property before 1986 does not have to pay this tax over the sale, while anyone who bought between 1986 and 1998 has to take into account that two reliefs for inflation need to be used: the older one (which allows for an 11% reduction) and a newer one (which uses indexation close to the true rate of inflation).
Spanish citizens who are not resident in Spain are responsible for retaining and paying over a withholding tax of 5% when they sell a property. For example, when selling the property, the buyers pay 5% of the price of sale directly to the tax authorities and the seller only gets 95% of the agreed price. This withholding tax is withheld by the tax authorities, and deducted from any capital gains due by citizens who are non-resident. If there is more tax due after taking into account the retention, then the shortfall has to be paid by the non-resident citizen. If the 5% is more than what is owed, then the money can be reclaimed from the tax authorities.
A Spanish property which is bought and then sold within a year, cannot get any relief for inflation when calculating any gain on sale.
Local Capital Gains (Plusvalía)
A local capital gains tax is payable to the municipal council; with the tax based on where the property is located, the surface area of the land, the catastral value and the date stated in the previous purchase deed. This tax is effectively a tax on the increase in land value and can be as high as 12% in cases where the property occupies a lot of land. Legally the seller is obliged to pay this tax, although this can be negotiated as part of the purchase-sale agreement, and the obligation is assigned to the buyer.
Inheritance Tax (Tributación de Herencia)
It is the beneficiaries who are responsible for payment of taxes on the inheritance of property, and the tax can be between 15% and 50% of the value of the inherited amount, except in the case of a house (or half a house) which is inherited by the spouse of the deceased (in cases where the deceased only had one property), and where there is a discount of 95% of the tax due. The tax is based on the value of the property at the moment of the death of the owner, from which property is inherited.