If you are buying property in Spain, be aware of all the tax implications. Spanish property taxes include purchase taxes, the annual IBI, wealth tax, income tax if you rent it out or notional rental tax if not occupied all year, as well as capital gains tax or succession tax in future.
Searching for your new home in Spain is exciting, as you find that perfect property and look forward to moving in and the memories you’ll make. You will have many factors to consider, but don’t overlook taxation. Understanding and planning for the various taxes you face saves you from unwelcome surprises.
Here is a summary of the key taxes to be aware of when buying, selling or renting out property in Spain.
1) Purchase and local taxes
The first taxes you’ll come across are those you pay on the purchase itself.
- New build property – VAT at 10% (Impuesto sobre el Valor Añadido – IVA), except in Canary Islands where a 7% sales tax (IGIC) is levied instead. Stamp duty (Actos Jurídicos Documentados – AJD) is also paid, generally between 0.5% and 1.5% depending on region and circumstances.
- Pre-owned property – Property transfer tax (Impuesto sobre Transmisiones Patrimoniales – ITP), which varies according to region and property value. Rates are typically between 6% and 10% but can more for high value houses.
Going forward, residential property is liable to an annual local council tax, Impuesto sobre Bienes Inmuebles (IBI). Rates typically vary from 0.4% to 1.1% depending on your municipality, levied on the official value of your property (valor catastral).
2) Capital gains tax
You may not be thinking about selling your new property right now, but it’s good to be aware of the taxes you will pay if that time comes. In any case, tax residents of Spain are also liable for Spanish tax if you sell an overseas property.
The gain made on the sale of property is added to your other investment income for the year and taxed at the ‘savings income’ rates:
Up to €6,000 – 19%
€6,000 to €50,000 – 21%
€50,000 to €200,000 – 23%
€200,000 to €300,000 – 27%
Over €300,000 – 30%
If you, as a Spanish resident, are aged over 65 when you sell your main home, no tax is due provided certain requirements are met. If you’re younger than 65 you may also be eligible for this relief if you use the full proceeds to buy another main home in the EU/EEA within two years.
If you are not resident in Spain, capital gains tax is charged at a flat rate of 19%. The purchaser must withhold 3% of the price to pay the tax office on your behalf, as payment on account.
You may also have to pay Plusvalía municipal when selling property. This local land tax is levied on the increase in the value of the land (excluding buildings); the amount varying according to size of local population and length of ownership.
3) Income tax – rental income and notional rental income
If you rent out Spanish property you will of course pay income tax on the earnings. Residents pay the general scale rates of income tax which vary a little across regions. They tend to start at 18/19% with the top rate falling between 45% and 54%. For long-term lets, where the property will be used a main home, you could get a 50% tax reduction against the net rental income.
Tax for non-residents depends on where you live. EU/EEA residents pay a flat 19% tax rate on the net income, after deduction of some expenses. Non-EU/EEA residents pay 24% on the gross rental income.
More surprisingly, if you own a Spanish holiday home or property not used as your main home, tax is also payable on ‘notional rental income’ for the periods it is not rented out. This is generally based on 1.1% of the valor catastral and taxed at the income tax rates if you are resident in Spain; 19% if you live in the EU/EEA, or 24% if elsewhere.
4) Spanish wealth taxes
One extra tax to be aware of is wealth tax, though the majority of residents and property owners are not affected.
Spain currently imposes two annual taxes on wealth, the standard ‘wealth tax’ which is adjusted by the regions and a ‘solidarity tax on large fortunes’ set by the state which only applies to wealth over €3,000.000. You only pay whichever amount is higher. Both are levied on worldwide wealth for residents of Spain and on Spanish assets for non-residents.
Andalucía, Madrid, Murcia offer a 100% credit on the main wealth tax, while the Balearic Islands and Comunidad Valenciana increased the individual allowance from €700,000 to €3,000,000 and €1,000,000, respectively. Residents also each receive a €300,000 main home allowance. State wealth tax rates range from 0.2% to 3.5%, but they can vary across regions.
Solidarity tax only effectively applies to individual wealth above €4,000,000.
5) Spanish inheritance tax
Since we never know what the future holds, you also need to think ahead and consider how much tax your beneficiaries will pay if they inherit the property on your death or as a gift. Spanish succession and gift tax is always due on Spanish property, regardless of where you and your heirs are resident.
Tax rates depend on who the beneficiary is and the amount received. Many Spanish regions (Andalucía, Balearic Islands, Canary Islands, Madrid, Murcia and Valenciana) now offer 99%-100% relief for spouses, children, grandchildren and parents.
Succession scale tax rates at state level start at 7.65% and reach 34%, but can be adjusted by the regions. Multipliers based on level of kinship and pre-existing wealth can increase the liability.
6) Owning property through a company
Finally, in the past some wealthy expatriates chose to own their Spanish property through a company, but changes over the years have diluted the tax advantages – indeed, this form of ownership may now be a disadvantage. ‘Enveloped’ property today attracts savings income tax on profits and is liable for wealth and succession taxes without being eligible for any of the main home allowances. Spanish corporation tax may also be due in some cases.
Tax planning
Spanish tax is complex, especially if you also have to consider the tax regime in your home country and how the two interact. Everyone’s situation is different, with rules changes over the years, so take specialist wealth management advice to ensure you are aware of all the tax implications and to protect yourself and your heirs from paying any more tax than necessary.
Blevins Franks has 50 years’ experience supporting expatriates in Spain with specialist tax planning, as well as estate planning, pensions, and investment management services. We have offices across Spain, with advisers living locally who have the cross-border expertise to ensure your financial affairs are in order so you can relax and enjoy your new home away from home in Spain.
Contact Blevins Franks today.
