Property taxes in Spain
Any house purchase is guaranteed to involve taxes.
And it is a good idea – to avoid any nasty surprises – to have an estimate in advance of the taxes you will have to pay, both when you actually purchase the property and those paid on a yearly basis.
The first thing to point out is that transfer tax, VAT, and stamp duties are all payable by the buyer.
Stamp duty is 1.2% of the price; meanwhile VAT – which is only applicable for first hand (newly built) properties, and is paid in place of transfer tax – is currently at 4%.
Transfer tax however can be a little more complicated as it is based on the ‘minimum assessed value’ of a property calculated using a series of standardised rules.
This means – particularly in the current economic climate where house prices have fallen dramatically – the tax may be based on an unrealistic value much higher than the final purchase price.
The tax office will generally review the price in the deed and will often charge an extra tax on the difference if they consider the price to be below the market value.
This catches many buyers – particularly expats – unawares leaving them feeling they are being hit with a surprise double tax.
It can be challenged, often successfully; on the basis it does not show the real market situation.
But it is worth bearing it in mind before buying so that you can budget for it.
The rates for transfer tax are 8 % for the first €400,000, 9% up to €700,000 and 10% for the remainder of the price.
Meanwhile, the seller in turn has to pay two taxes: capital gains tax (set at 21%) and plusvalia tax (a municipal tax on the increase of the land value) which is around 0.5%.
There are also a series of annual taxes that must be paid on a property.
The first is IBI which is billed by the town hall once a year and is calculated using the catastral value of the property.
The catastral value, is the official value of the property, and is periodically assigned by the tax office and updated annually.
For a property worth €500,000 IBI is around €2,500.
But do bear in mind that the tax is on the property itself, so the buyer should check that payments are up-to-date as otherwise the tax office can charge them any outstanding amount irrespective of who the owner was at the time.
Non resident companies which own a property in Spain are also subject to an annual ‘special tax’ which is 3% of the catastral value.
They can be exempted from this if (a) they, and their shareholders and last beneficiaries, are all tax resident in an EU country or (b) they are listed in the stock market of a country with a double taxation treaty with Spain.
But this exemption must be applied for every year.
Property owners must also pay a wealth tax.
The first €700,000 of the value is exempt, afterwards it is taxed based on a sliding scale starting with 0.2% on the first €167.129 up to a maximum of 2,5%.
And finally, property owners must also pay income tax.
The law establishes a notional income on properties owned by non-residents equivalent to 1.1% of the catastral value (if this value has been revised since 1994), which is then taxed at a flat rate of 24.75%.
If the property is rented, the income from this is taxed at 24.75%.
Article based on interview with Adolfo Martos Gross abogados.
Posted on June 19th, 2012 filed under Property and Other News.