Financial Advice – Property Taxes in Spain
Wealth Tax – Inheritance Tax – Capital Gains Tax – Plus Valia (local tax)
We have already covered basic purchase cost (see Buying Property in Spain >>), but the various additional taxes on property purchases can become quite confusing. Below is a brief introduction to the various taxes that apply here in Spain, but you should always seek qualified legal and financial advice when buying or selling property and arranging for the various taxes to be paid.
At the time of the property purchase, you will need to pay IVA and Stamp duty. The rate is dependent on the type of property you buy – i.e. new property carries a 7% IVA tax and 1% stamp duty, resale property is 7% for the transfer tax, and plots of land or commercial property 16% IVA plus 1% stamp duty. A Spanish mortgage >> also carries a 1% arrangement fee
Plus Valia is like a capital gains tax. Levied by the local town hall, who calculates the increase in the value of the land since its last sale (you or your lawyer should be able to get this information from the town hall in advance of the purchase), this can be paid by either the purchaser or the seller so it is important to decide in advance who is paying it. The plus valia tax can be anything from 10% to 40% of the increased value of the land depending on the type of property and the length of time since the last sale. A recently sold property will have minimal plus valia, but a property that was purchased by the owners 20 years ago wil incur quite substantial taxes.
Capital Gains Tax - Once you become the owner of a property in Spain, there are other yearly taxes which have to be paid. The rates depends on whether you are classed as resident, or non resident. A resident is normally someone who spends more than 183 days a year in Spain, or if you have a Spanish based business. Non residents have to pay a higher rate tax than a Spanish resident of 35%. If you are a Spanish resident, the capital gains tax rate is fixed at 15%. However, on the sale of your property, you must be able to prove to Hacienda (the tax office), that you pay taxes in Spain to be entitled to the Residents level of taxes. If you run a business with an office in Spain, but pay taxes in the UK, you may not qualify. Owners over 65 who are resident in Spain and have owned their property for 3 years or more, are exempt from paying Capital Gains Tax.
Wealth Tax– is levied on all assets and property in Spain during the year up to 31st December each year. Alongside Personal Income Tax, Spanish property owners are liable to Wealth Tax (Impuesto sobre el Patrimonio). Both taxes should be declared at the same time.
Non-residents: All Spanish assets only - no deductions. This means that anyone owning property in Spain will pay a tax of 0.2 per cent on everything they own and keep in Spain, whereas Residents must declare worldwide assets with the following deductions:
Individual allowance: €108,182.18 (€216,364.36 for a married couple)
Own home individual allowance: Up to €150,253.03 (€300,506.06 for a married couple with the house in joint names)
Provided that taxpayers' principal wealth is normally their home, most resident taxpayers do not pay this as the first € 108,182.18 is exempt.
Income Tax – Income tax is payable on all income for UK residents in Spain, but the rate is dependant on the local rates. If you live in Spain for more than 183 days in one calendar year, whether resident or not, you are liable for Spanish income tax. If you own a property from which an income arises, i.e. the property is rented out, you will be taxed at a flat rate of 25%.
IBI (Impuesto de Bienes Inmuebles) is the name of the local Spanish property tax, which must be paid in one payment between 15th September and 15th November every year, and is around 0.5% of the value of your property.
Withholding Tax – If you are buying a property from a non resident of Spain, 5% of the purchase price must be withheld. This amount is then paid to the tax office within 30 days of signing the Escritura, and used to cover any outstanding capital gains tax owed by the vendor. A percentage may be refunded if the amount is more than the payable tax. This should all be calculated and explained by your legal representative.
Spanish Tax laws can be difficult to understand, so getting professional financial advice is important.
