Property Taxes in Spain

 

The following information has been updated by our highly recommended expert tax advisor, José Manuel Guillénin from Manzanares Lawyers in January 2024 to ensure the information is accurate and up to date.

Spanish property taxes are somewhat different to those in other countries, particularly those that UK buyers are familiar with. In the UK property sales are subject to Stamp Duty Land Tax. This tax is based on incremental tax bands and property price. It applies to residential property with a value of £125,000 plus in England, Wales and Northern Ireland (Scotland has a separate Land and Buildings Transaction Tax). It’s very simple to calculate and make the payment yourself. For example, if you buy a property for £850,000 you will pay no tax on the first £125,000, then 2% up to £250,000 and 5% on the remaining amount. Spanish property tax is different to the British model for both buyers and sellers. But, first, let’s deal with the taxes when you’re buying a property in Spain as they vary depending on whether you are buying a new build property, or a resale residence. These taxes need to be factored into your budget, in addition to the other buying costs associated with Spanish property purchases.

Spanish property tax on new build properties

There is a huge demand for new build properties across the most popular Spanish regions. When you are buying a new build, you must allow for paying VAT (IVA) at a rate of 10% of the purchase price. And there is an additional 1,2% tax (this only applies for Andalusia, in other regions it varies substantially) also based on the purchase price, to cover Stamp Duty.

ITP tax on Spanish resale property

When you are buying a resale property in Spain, you pay a transfer tax called Impuesto sobre Transmisiones Patrimoniales, which is shortened to ITP. In the case of resale properties there is no VAT or Stamp Duty to pay on the property, just the ITP, which in 2021 was reduced to 7%, again this only applies to Andalucia.

Non-resident property tax in Spain

If you are buying a resale property from a seller who is not a Spanish resident, which may often be the case in many parts of Spain, the buyer must withhold 3% of the purchase price upon completion at the notaries office and pay it to the Spanish tax authorities. Usually, the buyer’s lawyer handles payment of this tax.

Other taxes associated with Spanish property

Once you have bought a property in Spain, there are a number of other taxes associated with property ownership, including income tax on the property and capital gains tax, which applies to sellers.

Non-resident income tax

Property owners in Spain who are non-resident are liable for non-resident income tax. Owners have to submit an annual tax return even if the property is not rented out. The amount of tax payable is based on around 1.1% of the rateable value (valor catastral) and the tax rate applied is 19% for EU citizens, however it’s 24% for non-EU citizens, including British residents since Brexit came into effect. If you rent the property you will have to submit quarterly returns showing income and expenses. The tax rate applied on this income is 19% on your net rental profit for EU citizens, however for non-EU citizens the rate applied is 24% and you can’t deduct expenses, therefore you are taxed on gross rental income.

Capital Gains Tax on property in Spain

As a Spanish property owner, it is important to understand the Spanish Capital Gains Tax (CGT) system, which be significantly different from what you are used to. Most countries charge CGT when you sell a property and as the seller you pay tax on the profits. Spain has recently updated its CGT rules, and some foreign owners have been confused about what it means for them, especially as the rules differ for non-residents and residents.

Spanish Capital Gains Tax and non-residents

The majority of foreign buyers tend to have non-resident status, although not all, and we will look at the rules for residents as well. In 2016, Spain reduced CGT on property sales from 19.5% to 19%. The tax authority also withholds 3% from the sale, but the buyer pays this. What this means if that the seller receives 97% of the proceeds of the sale. The thinking behind the 3% retention is that on occasion some non-residents leave Spain without paying the CGT. If the CGT is not covered by the 3% retention, then there will be extra to pay. On the other hand, you might be due a refund, which you apply for using form 210H. It is advisable to get your Spanish gestor (Spanish version of a tax accountant) or lawyer to help with this. The form has to be submitted within four months of completing the sale and you will also have to send in your last four years of non-resident tax accounts.

CGT and Residents

The system for Spanish residents is slightly different. As a resident you declare the CGT in your annual tax return. In this way you are charged CGT according to your total income. And, there are some CGT exemptions for residents. For example, if you are over 65 and have been a tax resident in Spain for over three years and have lived in the same home for all of that period, you are exempt from paying CGT. A CGT exemption is also available if you have been a tax resident in Spain for three years and you reinvest the funds from the sale of your principal home in another property that you plan to live in as your principle home, provided you live in the new property for the following three years. This new property doesn’t have to be in Spain, it can be anywhere in the European Union, but you must spend all the proceeds of your sale in the new home. If you don’t use all of it, you will be liable for CGT in Spain on the difference. It is also worth noting that residents who don’t quite make the three-year threshold, but have a compelling reason to sell, can explain this to the tax authorities and they will take it into account. For example, if you become disabled and your current property is unsuitable for your needs, or if you are forced to relocate for work, are acceptable reasons for exemption. And, if you’re over 65 and a tax resident for three years, you will be exempt from CGT on the second property in Spain if you invest all the proceeds of the sale in an annuity.

Calculating Spanish CGT

The national Capital Gains Tax is collected by the National Tax Office. It is based on the net profit made when selling a property, which is calculated by deducting the original purchase price (including VAT, Land Registry fees, property transfer tax and legal and notary fees) from the final sale price (less costs incurred during the sale). For Spanish tax residents, the tax rate starts at 19% for the first €6,000 profit obtained and increases thereafter to 21% when the gain is between €6,000 and €50,000, 23% when the gain is between €50,000 and €200,000, 27% when the gain is between €200,000 and 300.000 Euros and 28% for any gain over €300,000. This applies for vendors under the age of 65.

Inheritance tax in Spain for non-residents

Non-residents with property in Spain need to consider how to handle the Spanish inheritance tax system. It is quite complex and can differ between the various autonomous communities, i.e. the rules in Andalucia may be different to those in Catalonia, which is why you need the advice of an experienced lawyer in the region where you own property. In Spain, inheritance government and regional authorities manage this tax, hence the differences between regions. The tax applies to:

• Taxpayers who usually reside in Spain
• Non-resident heirs who are inheriting property in Spain

Local property tax or IBI

Owners pay an annual tax based on the cadastral value of the property. UK buyers may compare it to Council Tax. The annual Impuestos de Bienes Inmuebles, or IBI, is calculated on the value of your property and its location. Generally, it is between 0.5% – 1.2% and depending of each Townhall it is paid between June and September each year. This tax is used to pay for local services and infrastructure, such as roads, street lighting and general maintenance.