BUYING A PROPERTY IN SPAIN - TAX OBLIGATIONS
If you own a property or are planning to purchase a property in Spain it is important to be aware of your tax and legal obligations.
Depending on where you are a resident for tax purposes these taxes will vary. The use of the property also affects the tax implications be it an investment, rental, future sale or personal use second home.
When purchasing a property there are various expenses to be considered – Notary costs, Land registry charges, Tax based on increase in land value and Transfer or Stamp duty tax (ITP). The stamp duty is 7% at the Balearics for used houses of the declared purchase value. When a new property is purchased directly from a developer ITP tax is not applicable but VAT (IVA) is instead, also charged at 8% ( 4% up to the 31.12.2012 ) with a further 1% to be paid for the AJD ( Stamp Duty or legal document act ). The normal costs when you buy a property in Spain are about 10 % of the purchase price
Non-resident tax (IRPF) must be paid by all non-residents who own property in Spain and is submitted with tax form no.210. This applies if the property is not rented out and is payable in the subsequent tax year which runs from 1st January to 31st December. This tax is calculated using the “catastral” value as shown on the local council rates receipt. Tax paid in Spain on your Spanish property can be offset against any contributions on the property in the UK in order to avoid double taxation
Rental Income from your property in Spain as a non-resident must be declared by completing a tax form no. 215, and tax is charged on the rental income at a rate of 24%, although official expenses for the rented property can be deducted. Spanish residents will pay their tax on personal income and rental income at a progressive scale from 24% to 45%.
Other tax payable is the local council rates receipt known as IBI and rubbish collection. The amount due is based on the property’s “Catastral” value which is set by the Catastral office (Land Registry Office) and is calculated by adding the land and construction value of the property together. The bill is then issued by the local council where the property is situated and should be paid within the stated time period, failing to do so results in a 20% penalty fine.
Capital gains tax – This tax is applicable on the sale of your property. As a non-resident 3% of the sales value declared on completion will automatically be retained by the Notary’s office and deposited into an Inland Revenue account for the payment on capital gains using the tax form no.211. At a later date the exact capital gains tax due will be calculated and if the 3% paid is more than the amount owed a tax rebate can be claimed by submitting form no. 212. To the contrary, should the 3% already paid be less than the tax owed the difference should be paid to the Inland Revenue. Any request for a rebate will cause the tax office to automatically check their system to confirm that the non-resident (IRPF) declarations have been duly paid in previous years. Should they not be up to date any outstanding amount will be deducted from any rebate due, including penalty fines and interest.
Capital gains for UK residents is also taxable in the UK but again to avoid double taxation, any tax paid in Spain can be offset from the English tax declaration.
Any Spanish resident who has lived in their property for more than three years before its sale and is using the proceeds of the sale to purchase another home within a certain time period, or is over the age of 65 is generally exempt from the payment of capital gains.
This tax is applicable for non-residents and residents. Direct heirs if non-resident, or resident with less than five years residency, are entitled to a deduction of just less than 16.000€ per heir and the remaining inheritance is taxable on a scale of 7,65% to 34%. Taxes on indirect heirs are much higher.
Each Autonomous area (region) sets its own rules and regulations concerning Inheritance tax for residents
It is highly advisable that corresponding wills are drawn up before a notary. Non-residents may make a will solely for their assets in Spain and this considerably simplifies the procedure of inheritance when the time arrives, as well as not having to wait for British probate if there is no will available in Spain.
The above information has been provided as a guide based on laws and regulations that are presently in force, however in order to ascertain an accurate individual assessment it is advisable to request a personal review of your situation and circumstances. Laws are subject to change.