So you have negotiated the right price on your perfect home, you’ve calculated your mortgage payments, got the best deal on renovating the garage and found the cheapest moving company to bring over your furniture, but do you know what taxes you will be elegible to pay on your new property?
Once you have bought your property in Spain there are taxes related to this purchase of which you need to be aware.
Firstly, there is a local tax payable to the Town Hall in the area where your property is located, which is automatically calculated by the authorities. This tax is known as “IBI” or “contribución” and is similar to the Council Tax in the UK. You need to look out for the bill in the first year and pay it manually (e.g. at your bank) and, thereafter, you can set up a direct debit to pay it automatically via your bank account. This tax is payable by both residents and non-residents.
However, for those people who do not have tax residency in Spain (i.e. they pay their taxes in a different country) there is another tax payable to the State called “Tax on Non-Residents”, that is not automatically calculated by the authorities. In order to pay this tax, you have a legal obligation to complete the relevant income tax return each year.
The following income has to be declared for this tax:
- Economic activities
- Personal work
- Interests paid by banks operating in Spain on your non-resident accounts
- Gains from selling properties
- Owning a property in Spain: this is actually a fictitious source of income, established by law, and is the most common reason why you will have to complete a non-resident tax return.
You will most likely need help to complete these tax returns but, if the only income you have is that of owning a property in Spain, the charge from an accountant (Asesor or Gestor) will generally only be a small amount (in most cases less than €100).
If you have other sources of revenue, the fees will depend on the complexity of your tax return.
How much tax will I have to pay?
How much tax should I have to pay for owning a property in Spain?
The fictitious revenue that comes from this ownership is estimated by law as 1.1% of either 50% of the purchase price or of the value given by the Town Hall, and a 24% tax is then applied to that amount. (19% for residents of the EU in 2019).
Example: a new property bought for €286,000 – 50% of the price is €143,000, 1.1% of this amount gives you the fictitious revenue: €1,573. The tax payable is 19% of €1,573 so the final figure is €298.87.
In 2015, the 1.1% was increased to 2% in the event that the cadastral value hadn´t been reviewed during the last ten years.
Wealth Tax: in Spain wealth tax is payable on the value of your assets on the 31 December each year but there is an allowance of €700,000, so you won´t pay anything unless you exceed that threshold.
If your wealth exceeds the €700,000 threshold you will be liable for wealth tax of 0.2–2.5% on net assets, although variations exist among different regions. In addition to the €700,000 tax-free allowance, homeowners are also allowed a further €300,000 to off-set against the value of their main residence.
In accordance with the British-Spanish Treaty to avoid double taxation, if you are charged for similar taxes in the UK that include these revenues, you may be able to deduct any amounts paid in Spain in your UK tax return, so check with your tax advisor back in the UK.
When to make the tax declaration
If you only own a property in Spain and have no other income in Spain, the period for submitting the declaration and paying the non-resident tax is between 1 January and 31 December of the year following the year in question.
Be aware that if you decide to sell your property, the Tax Office will require you to pay this tax for any previous unpaid years. At the time of the sale, if the seller is not a tax resident in Spain, it is mandatory by law for the buyer to retain 3% of the purchase price from the seller as capital gains tax. If you wish to reclaim this 3%, in the event that you have not made any profit on the sale, any unpaid non-resident tax (for the previous 4 years) will be deducted before any monies are returned. Bear in mind that these taxes will be higher than if you paid them in the appropriate years, due to the penalty interest that will be levied on the sums payable.