Buying property in Spain? 6 tax issues you need to be aware of

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23.09.22
Buying property in Spain

Are you considering owning property in Spain? When weighing up the cost of a property, besides considering the asking price and running costs, you also need to be aware of the various tax implications – from purchase taxes to annual wealth tax, to capital gains tax or succession tax.

Whether you are buying or selling a property in Spain, it pays to familiarise yourself with the tax implications in advance.  This should prevent unexpected tax surprises in the future, for yourself and your heirs, and there may be steps you can take to lower your liabilities.

Depending on your plans for your property, some or all of the following six tax issues could affect you.

1) Purchase and local taxes

If this is your first property in Spain, the first tax aspect you need to be aware of is what tax you will pay on the purchase itself.

New build property – VAT at 10% (Impuesto sobre el Valor Añadido – IVA) – except in Canary Islands where a 6.5% sales tax (IGIC) is applied instead – plus stamp duty (legal documentation tax/Impuesto sobre Actos Jurídicos Documentados – AJD), generally between 0.5% and 1.5%, depending on region.

Pre-owned property – Property transfer tax (Impuesto sobre Transmisiones Patrimoniales – ITP). The rate varies on the region, often depending on the value of the property, as follows:

  • Andalucía: From 8% to 10%
  • Balearic Islands: From 8% to 11%
  • Canary Islands: 6.5%
  • Cataluña: 10% or 11%
  • Madrid: 6%
  • Murcia: 8%
  • Comunidad Valenciana: 10%

Most regions have some exceptions or lower rates, depending on circumstances.

Going forward, residential property is liable to the Spanish equivalent of council tax (Impuesto Sobre Bienes Inmuebles (IBI) each year, which is based on the official value of your property (valor catastral).

2) Spanish wealth tax

Spain imposes an annual wealth tax, calculated on the total value of your assets as at 31 December. If you are resident in Spain it applies to your worldwide assets, while for non-residents only Spanish assets are assessed.

Everyone benefits from a personal allowance, generally €700,000 but reduced to €500,000 in Cataluña in Valenciana. Residents receive an additional €300,000 home allowance. This is per person, so resident couples could potentially have a combined €2 million allowance if assets are in joint names.

The state wealth tax rates range from 0.2% for taxable assets up to €167,129to 3.5% for assets over €10,695,996.   The rates and allowances can vary per region:

  • Andalucía: a 100% relief means taxpayers here will no longer pay any wealth tax (as announced on 20 September 2022)
  • Balearic Islands: 0.28% to 3.45%
  • Canary Islands: 0.2% to 3.5% (the state rates)
  • Cataluña: 21% to 2.75%
  • Madrid: a 100% relief means taxpayers here do not pay any wealth tax
  • Murcia: 0.24% to 3%
  • Comunidad Valenciana: 0.25% to 3.5%

Unless you live in Andalucía or Madrid, this is always something to consider when buying Spanish property – or buying property abroad as a Spanish resident – particularly high-end properties or if you have substantial wealth.

Learn more by downloading our free “Guide to Taxes in Spain” now.

3) Capital gains tax

If the time comes for you to sell your property, the gain will be subject to tax in Spain.

If you are resident in Spain, the gain is added to your other investment income and gains for the year and taxed using the ‘savings income’ rates, currently:

  • Up to €6,000 – 19%
  • €6,000 to €50,000 – 21%
  • €50,000 to €200,000 – 23%
  • Over €200,000 – 26%

If you (as a Spanish resident) are aged over 65 when you sell a property that has been your main home, you will not have to pay tax 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 within the EU/EEA within two years.

If you are not resident in Spain, capital gains tax is charged at a flat rate of 19%.

You may also have to pay Plusvalía municipal when selling a property. This local land tax is payable on the increase in the value of the land (excluding buildings); the amount varying according to the size of the local population and length of ownership.

4) Income tax (rental income and notional rental income)

If you rent out Spanish property you will of course pay income tax on the income.

Residents pay tax at the general scale rates of income tax.  For long-term lets you could get a 60% tax reduction against the net rental income.

Tax for non-residents depends 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 –now including the UK – pay 24% on the gross rental income and cannot deduct any expenses.

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 period it is not rented out. This is generally based on 1.1% of the valor catastral (2% if the value has not been revised within ten years), which is then taxed at the income tax rates if you are resident in Spain; 19% if you are resident in the EU/EEA, or 24% if resident elsewhere.

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 you gift it to them during your lifetime).  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 inherited or gifted. There is no blanket exception for spouses.

Succession tax rates, allowances, and even some rules can vary significantly across regions, so take advice for your specific autonomous community.

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. Seek objective advice and carefully weigh the pros and cons.

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, and the rules change over the years, so take specialist wealth management advice to establish what you could do to lower your tax liabilities – you may be surprised by how much you can reduce your overall tax bill.

Blevins Franks has 45 years of experience supporting expatriates in Spain with specialist tax planning, as well as pensions, estate planning and investment management services. We have nine offices across the popular expatriate areas of Spain, with advisers living locally.  They have the cross-border expertise to make sure your financial affairs are in order so you can relax and enjoy your new home away from home in Spain.

Contact us today.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.