How much are Spanish taxes when buying, letting and selling property in Mallorca, including stamp duty, capital gains, income and wealth taxes?
When weighing up the cost of a Mallorca property, as well as the asking price and running costs, you should be aware of the various tax implications, including purchase taxes, wealth tax, capital gains tax and Spanish succession tax.
Mallorca has so much to offer, with its natural beauty, beneficial lifestyle, property options to suit everyone and welcoming people. If you are looking to buy your dream home on the island, or already own property here, you will find it very rewarding.
Of course, you need to do your homework before purchasing property and this includes understanding what the various tax implications will be. Taxation depends on where you are resident and how you use the property, with different rules for a main home, holiday homes or investment properties. Owning real estate could also bring you into range for Spanish wealth and succession taxes.
The good news is that with careful planning, you can avoid costly mistakes and make the most of tax-efficient opportunities.
Spanish wealth tax
If you are resident in Spain, you are liable to wealth tax on your worldwide assets every year; for non-residents only Spanish assets are assessed for this tax. So this is always something to consider when buying 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 May 2020).
Both Spanish residents and non-residents receive a €700,000 personal allowance, and residents also benefit from a main home allowance up to €300,000. Resident couples owning a property in joint names could have a total tax-free allowance of up to €2 million.
Spanish income tax (rental income and notional rental income)
If you rent out your Mallorca property you are liable to Spanish income tax on the income.
The general scale rates of income tax apply for residents, ranging from 19% to 47.5% in the Balearics (as at May 2020 but the rates could change later in the year once the 2020 budget is approved). 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.
If you own a Spanish holiday home or a property not used as your main home, tax is 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 in Spain
If the time comes for you to sell your Mallorca property, the gain will be subject to Spanish tax.
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: 19% up to €6,000, 21% to €50,000 and 23% above this (as at May 2020).
If you are aged over 65 and Spanish resident when you sell 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.
Spanish succession and gift tax
You should think about what tax your beneficiaries will pay if they inherit the property on your death or you gift it to them during your lifetime. 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. 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 Spanish property through a company
Changes over the years have diluted the tax advantages of owning Spanish property through a company.
‘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. So seek objective advice and carefully weigh up the pros and cons.
Purchase and local taxes in Spain
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 property transfer tax (Impuesto sobre Transmisiones Patrimoniales) for other residential property acquisitions. In the Balearics this ranges from 8% to 11% depending on the value (some exceptions apply).
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).
Tax planning for Spain
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 personalised, expert 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
All advice received from any Blevins Franks firm is personalised and provided in writing; this article, however, should not be construed as providing any personalised taxation and/or investment advice. 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; an individual is advised to seek personalised advice.