Spanish Taxes

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 0.5% to 1%.

Local mains drainage and refuse collection tax (basura y alcantarillado)

This 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 €200 and €250 per year. Also, if your spanish property has a garage entry you are obliged to pay €18 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 (correct for 2005).

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

 

Note: The personal income tax law is undergoing significant amendments, which are still in the process of being passed by the Spanish Parliament. These amendments could slightly affect some of the contents of this article, and will also modify some aspects of the corporate tax law and the non-residents’ income tax law. However, the definite text of the amendment is not available yet.

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. Therefore, if your Spanish property is not rented out or not your primary residence (i.e. a holiday home), you will be liable for the “deemed rental income tax” even if you do not let out your Spanish property. The local town hall will charge you according to the valor catastral (rateable value) of the your Spanish property. They will assume you are making 2% of this value each year from letting your Spanish property and charge you 25% of that “income”, which equates to a total of 0.5% of the valor catastral (rateable value) of the your Spanish property. For example, if you own a Spanish property with a valor catastral (rateable value) of €100,000 and you are not renting it out, you will still be liable for 25% of €2000, which equates to €500.

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.). T

Who has to file a Spanish wealth tax declaration?

  1. Those with net wealth that exceeds 700.000 €, or those
  2. 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).

 

Tax rate band €

Cumulative wealth €

Tax Rate %

Tax on band €

Cumulative tax €

167.129,45

167.129,45

0,2%

334,26

334,26

167.123,43

334.252,88

0,3%

501,37

835,63

334.246,87

668.499,75

0,5%

1.671,23

2.506,86

668.499,76

1.336.999,51

0,9%

6.016,50

8.523,36

1.336.999,50

2.673.999,01

1,3%

17.380,99

25.904,35

2.673.999,02

5.347.998,03

1,7%

45.457,98

71.362,33

5.347.998,03

10.695.996,06

2,1%

112.307,96

183.670,29

Thereafter

d

2,5%

d

c

 

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 the which 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.

For properties sold in 2012, the rates are the following:

Purchase year Year
1.994 or before 1,3037
1.995 1,3773
1.996 1,3302
1.997 1,3037
1.998 1,2784
1.999 1,2554
2.000 1,2313
2.001 1,2071
2.002 1,1834
2.003 1,1603
2.004 1,1375
2.005 1,1151
2.006 1,0933
2.007 1,0719
2.008 1,0509
2.009 1,0303
2.010 1,0201
2.011 1,0100
2.012 1,0000

 

However, if the investment was made on the 31st of December of 1994, the applicable rate will be 1,3773.

For an applicable rate to be other than 1,0000 the investment must have been done more than a year before the sale of the property.

If the property that is being sold had been rented, the value will have to be reduced with the amount of the repayments corresponding to that period. These repayments are also updated depending on the year they were made.

The “sales value” is the real sales price less the costs and taxes related to the sale that have been paid by the vendor.

Well, the difference between “sales value” and the “purchase value” calculated as before will be the profit subject to taxation.

However, if the property is sold by a person that bought it before the 31st December 1994, the profit previously calculated will be reduced because a provisional tax system is applied.

If the vendor bought the property on two different dates or the property has been refurbished, then the calculation has to be done as if there were two profits.

A Spanish property bought and sold in a quick timescale will gain virtually no capital gains tax relief.

Plusvalia

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 practise 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.

Categories of Inheritors

Inheritors fall into four categories with the allowances conceded shown in brackets::

Group 1: Descendants and adopted children under 21. The older the child, the more tax to pay (15,956.87€).

Group 2: Descendants and adopted children over 21, spouses, parents and adoptive parents (15,956.87€).

Group 3: Brothers/sisters, nephews/nieces, aunts/uncles (7,993.46€).

Group 4: Relatives in forth degree or friends (No allowances).

Calculating Inheritance tax

Once the above allowance has been deducted the Tax authorities apply the following tax rates on the remainder of the inheritance, with Group 1 paying the least and Group 4 the most.

 

AMOUNT Percent (%)0 up to 7,993.46 €7.65Up to 15,980.91 €8.50Up to 23,968.36 €9.35Up to 31,955.81 €10.20Up to 39,943.26 €11.05Up to 47,930.72 €11.90Up to 55,918.17 €12.75Up to 63,905.62 €13.60Up to 71,893.07 €14.45Up to 79,880.52 €15.30Up to 119,757.67 €16.15Up to 159,634.83 €18.70Up to 239,389.13 €21.25Up to 397,55.08 €25.50Up to 797,555.08 €29.75Over 797,555.08 €34.00

 

Again, this is a very basic but uncomplicated guide to Inheritance Tax. 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 an EU company
  • Buying or owning through a UK limited company
  • Sell the property to future inheritors either fully or partly.
  • Organising 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.

Holmes Property Sales S.L. does not take responsibility for the accuracy of the information contained in this post, it may be out of date, incorrect or may not be applicable to your personal situation. It is meant to be used only as a guide. If you would like full detailed advise applicable to your own personal situation we recommend you speak to a professional legal and fiscal adviser.

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