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Taxation of Spanish property

Local Taxes

There are two local property taxes which are both based on the property's theoretical rental value according to the local land registry, 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.

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.). The wealth value associated to a property is based on what the declared value of the property was when you purchased it. For residents, the first €108,182 euro is not taxable. There is also a €150,253 exemption on main home for residents. This wealth tax increases on a sliding scale as shown in the following table.

Wealth Bracket Tax Rate
Up to€167,129 0.20%
€167,129 - €334,247 0.30%
€334,247 - €668,500 0.50%
€668,500 - €1,337,000 0.90%
€1,337,000 - €2,673,999 1.30%
€2,673,999 - €5,347,998 1.70%
€5,247,998 - €10,695,996 2.10%
Above €10,695,996 2.5%

The wealth tax sliding scale above is "cumulative". For example, if you purchased a property for €300,000 then you would be liable for wealth tax every year according to the following calculation:

The first €167,129 at 0.2% is €334.26 plus the remaining €132,871 (€300,000 - €167,129) at 0.3% is €389.61 . Therefore the wealth tax on an Spanish property worth €300,000 is €732.87.

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 35% and residents will pay at a rate of 15%. 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 35% 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 5% when they come to sell their Spanish property. For example, when a non-resident sells their Spanish property their buyers pay 5% of the sales price (retention tax) directly to the Spanish tax authorities and will only receive 95% 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 5% 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 5% retention tax that is held "on account" then the non-resident is reimbursed the difference by the Spanish tax authorities.

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 as much as £12000 on larger properties with a lot of land. 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

Your beneficiaries will become liable to pay the somewhat horrendous death duties that are applicable in Spain (usually amounting to a figure between 15 % and 50 % of the value of the gift to each beneficiary) except in the case of the gift house (or half of a house) by a deceased spouse to his/her survivor (in the case only of the single main residence) where a tax discount of 95% is available. The duty is based upon the value of the property at the date of death.


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