If you are thinking of buying a property in Spain, whether for your second home or as an investment, it is important to have a look at the different taxes that apply in this country.
1. Definition of the concept of tax residence in Spain
Usually you are considered a tax resident in Spain if one or more of the following apply to you:
- You have spent more than 183 days in Spain within a single calendar year regardless of whether you are formally registered.
- Your primary professional activities are conducted in Spain .
- Your family (spouse or children who are still dependent on you) live in Spain.
If none of the above conditions apply to you, then you will be considered a non-resident in Spain and liable in particular for the non-resident income tax (IRNR).
2. Taxes on buying a property in Spain
If you buy a property in Spain, whether you are a resident or not, you will be entitled to pay some taxes. These taxes depend on the nature of the purchase (new / resale) and on the location of the property.
A. Buying a new property in Spain
If you buy a new build property in Spain, you are liable for the following two taxes:
- the VAT which amounts to 10% of the sale price of the property.
- the tax on documented legal acts (AJD) which amounts to 1.5% of the value of the property in the case of the Comunidad Valenciana.
B. Buying a resale property in Spain
If you buy a resale property in Spain,you are liable for the Property Transfer Tax (or Impuesto de Transmisiones Patrimoniales, ITP). This tax differs depending on the region. In the Valencian Community, it corresponds to 10% of the value of the property except in specific cases for which it can be reduced to 8 or 4%.
3. Taxes on owning a property in Spain
If you own a property in Spain, whether you are a resident or not, you will be entitled to pay some taxes. These taxes include council tax, non-resident income tax and wealth tax.
A. The council tax or Impuesto sobre Bienes Inmuebles (IBI)
The IBI is common to everyone owning a property in Spain : resident or not. The IBI is the equivalent of the council tax in the UK and is calculated from the cadastral value of the property. It is managed directly by the municipality where the property is located and its value may vary from one municipality to another. In general, its value is between 0.3 and 1.3% of the cadastral value.
The cadastral value of a property depends on its characteristics such as:
- its location
- its value in the current market
- the urban characteristics of the land
- the cost of construction materials
- the age of the building
B. The income tax of non-residents or Impuesto sobre la Renta de No Residentes (IRNR)
This tax only applies to non-residents owning property in Spain. If you find yourself in this situation, you will have to declare annually or quarterly to Hacienda (the Spanish tax authorities) this tax which differs depending on whether you are renting your property or not.
- The property is rented
If you decide to rent your property, the income to report to Hacienda varies depending on your nationality:
- Citizen of a member country of the European Union or of the European Economic Area, this is your net income, i.e. all the rents received from which you can deduct many charges: bank interest, IBI, works, co-ownership fees, depreciation, etc. This income is then taxed at 19%.
- Citizen of a country outside the EU and EEA, you are taxed up to 24% of your gross income, ie without deduction of charges.
2. The property is not rented
If you decide not to rent your property, you will still have to pay the IRNR. Indeed, the Spanish Government considers that even if the property is not rented, it represents a potentially taxable source of income. The tax cost is low but mandatory, and it is based on the cadastral value of the property.
First, a hypothetical rent of 1.1% to 2% of the cadastral value of the property is simulated. On this rent, EU or EEA citizens are taxed at 19% while non-EU and EEA citizens are taxed at 24%.
Example: You are an Irish citizen owning a property in the Comunidad Valenciana with a cadastral value of 100,000 euros that you do not wish to rent.
Your hypothetical rent is 1.1% * 100,000 = 1,100 euros. Being a member of the EU you are then taxed at 19% on this hypothetical rent, i.e. 209 euros to be paid to Hacienda.
C. The wealth tax or Impuesto sobre Patrimonio (IP)
The Impuesto sobre Patrimonio concerns only a minority of people in Spain being the equivalent of a wealth tax. This tax is based on the net wealth of individuals, and is managed directly by the Autonomous Communities. Therefore the different regions decide on the minimum exemption, the type of tax and the various deductions and bonus applicable in their area.
In the case of the Comunidad Valenciana, all residents and non-residents with assets over 600,000 euros in Spain must declare this tax. The rates vary between 0.25% and 3.12% with different tax deductions possible. It is important to seek advice from a tax expert to calculate this tax.
The taxes on real estate in Spain are lower than those which can be found in some European countries, which is one of the reasons why this country attracts many foreign investors. The amount of taxes you are liable to pay depend on the location of your property and your personal situation.
For more information on property taxes in Spain, you can contact Vivre à Valencia at [email protected]