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Mallorca property

Mallorca offers properties to suit all budgets, but you need to look beyond the asking price to work out the overall tax costs – from purchase taxes to capital gains tax when selling, as well as Spanish income, wealth and succession taxes.

If you are looking for your dream home in Mallorca, enjoy the search. There are so many wonderful properties here, to suit all budgets and personal preferences, that you may be spoiled for choice.   

But when weighing up the cost of a property, besides considering the asking price and running costs, you should also be aware of the various tax implications, from purchase taxes, to annual wealth tax, to capital gains tax when you sell it or succession tax if passed on to your heirs. 

Purchase and Local Taxes

When buying property in the Balearics, you will need to pay either 10% VAT (Impuesto sobre el Valor Añadido (IVA) if it is a new build, or a purchase tax of 8% to 11% (Impuesto sobre Transmisiones Patrimoniales) for others.

You will also need to pay Actos Jurídicos Documentados (stamp duty) which is generally 1.2% of the property value in the Balearics. 

Each year you will also need to pay the local council tax known as Impuesto sobre Bienes Inmuebles (IBI) on Spanish residential property, with the amount based on the official value of the property (valor catastral).

Annual Wealth Tax

If you are resident in Spain, you are liable to wealth tax on your worldwide assets every year. If you are non-resident, only your Spanish assets will be assessed for this tax. So this is always something to consider when buying a property in Spain, particularly high end properties.

Wealth tax rates in the Balearics range from 0.28% for taxable assets up to €170,472, to 3.45% for assets over €10,909,915 (as at April 2019).

Both Spanish residents and non-residents receive a €700,000 personal allowance, and if you live in Spain you receive an extra allowance of up to €300,000 for your main home. So resident couples who own a property in joint names could have a total tax-free allowance of up to €2 million.  

Income Tax 

Rental income

If you rent out your Mallorca property you will be subject to income tax on the rental income.  

The general scale rates of income tax apply for residents, ranging from 19% to 47.5% in the Balearics (as at April 2019). 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 currently 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 (no deductible expenses). 


In March 2019, the European Commission initiated an infringement procedure against Spain, asking it to eliminate this discriminatory tax treatment for non-residents. But it may be a few years before this results in any change, if indeed it does. 

Notional rental income

If you own a Spanish holiday home or a property not used as your main home, tax is also payable on ‘notional rental income’ for the period a property is not rented out. It is generally based on 1.1% of the valor catastral (2% if the value has not been revised within ten years). This is added to other general income for the year and taxed at the progressive income tax rates for Spanish residents. For non-residents it is taxed at 19% for EU/EEA residents and 24% for others.  

Capital Gains Tax

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

If you are resident in Spain at the time, the gain is added to your other investment income and gains for the year and taxed using the ‘savings income’ rates: 19% up to €6,000; 21% to €50,000 and 23% above this.

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 are 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 of the sale. 

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

When selling a property, you may also have to pay Plusvalía Municipal, which applies to residents and non-residents alike. This is a local land tax payable on the increase in the value of the land (excluding buildings), with the amount varying according to the size of the local population and length of ownership. 

Succession and Gift Tax

Finally, you should think about what tax your beneficiaries will have to pay if they inherit the property on your death or you gift it to them during your lifetime. This 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. In the Balearics, rates for spouses, direct descendants and ascendants range from 1% to 20%; for others they vary between 7.65% and 34%

The main home reduction here in the Balearics is 100% for properties up to €180,000 for spouses, descendants and ascendants. Additionally, there are some personal reductions: €25,000 for close relatives; €8,000 for other relatives and €1,000 for non-family.

Owning property through a company

Owning Spanish property through a company was tax-efficient in the past, but recent tax changes have diluted the benefits in Spain.

‘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. Therefore, you need to carefully weigh the pros and cons to determine if this approach would be suitable for you.

Tax planning 

Spanish tax can be highly complex, especially if you have to consider the tax regime in your home country and how they interact together. Everyone’s situation is different, so take specialist tax planning advice to establish what you could do to lower your tax liabilities.  

Blevins Franks has decades of experience supporting expatriates in Spain with specialist tax planning, as well as pensions, estate planning and investment management services. Our locally-based advisers 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 beautiful Mallorca.  

Contact us to arrange a local consultation

 

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.