property tax in spain
All property owners in Spain are required to pay three different taxes each year.
If you are a resident, you are subject to Income Tax (including Capital Gains Tax) and Real Estate Tax (IBI).
If you are a non-resident in Spain, you are subject to Income Tax (including Capital Gains Tax), Property Tax, plus an additional Non-resident Property Tax.
In this article we will review all the property taxes you need to pay when buying a property in Spain.
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non resident tax in spain on property
If you are a non-resident, you are the taxes on property are 3:
- Income Tax (including Capital Gains Tax).The Income Tax for non-residents only takes into account income from property; since income from wages must be declared in your country of residence. If the property is for your own use, you must pay a certain percentage of your property; if you rent the property, you must declare the amount you receive as rent.
- Annual Real Estate Tax: Read more below.
- Additional Non-resident Property Tax.
In order to pay these taxes, you must apply for a NIE (Número de Identificación de Extranjero), which is your Spanish tax identification number. Non-Spanish residents of all nationalities also have a number. You should request this number when buying your property. This number identifies you with the Spanish authorities and is necessary when taxes are paid or you have to resolve an issue with the Inland Revenue.
Annual real estate tax in spain
This property tax is based on the cadastral value and for the same type of property can vary greatly from one city to another, as it is a municipal tax. This real estate tax is called the IBI, “Impuesto sobre Bienes Inmuebles”. The tax increases every year depending on inflation.
For a non-resident, the best solution is to pay the tax by direct debit. The bank will provide you with a form authorising the bank to pay the tax and a copy of the form will be deposited with the local council. This will ensure that taxes are paid at the right time, just like other utility bills owned by you. In addition to the appraised value of your property (cadastral value), the IBI also takes into account your reference cadastral number, which identifies your property at the cadastral office. This can be important in the purchase and sale of properties, because sometimes the physical description does not agree with the description on the title deed. These three taxes cannot be avoided, as the Spanish Tax Agency (Hacienda) will audit the accounts at the time of the sale of the property. A deposit of 3% will be made on the total price of the sale, this being a guarantee against Income Tax and Wealth Tax in the previous four years, as well as a guarantee against your tax debt on Capital Gains. At the time of signing the sales contract, you will also be asked to present the current real estate tax receipt, the IBI.
The wealth tax is a direct and personal tax that is applied individually, not on annual income or transactions, but on the personal wealth of persons, and is calculated based on the value of all the assets of the taxable person. Wealth tax only applies to properties with a purchase price of more than 700,000 euros.
Spanish income tax
Spanish Income Tax does not apply to the principal residence of a resident owner. However, it does apply to a second residence. In the case of a non-resident, as this property is not considered a principal residence, the tax must be paid on an annual basis. The tax payable is 2% of the cadastral value of the property as fictitious rental income. It can be reduced to 1.1% if the cadastral value has been raised since 1994 – and in many cases it has been. For residents, this tax is paid as if it were a profit. For low income, the percentage to pay is 15% and for high income, the percentage is 30% or even 40%. A non-resident is always taxed at a fixed rate of 24% on any income arising in Spain. This 24% income tax should not be confused with the 21% capital gains tax on profits from the sale of assets, such as a house or shares in a company.
buying a house in spain: taxes and expense planning
When buying a property in Spain, taxes play a big role in the planning process. If we take into account the valuation of the house, the notary, the registry and the corresponding taxes (VAT, ITP…), the experts recommend having savings between 10% and 12% of the price of the house. All of them are obligatory expenses that revolve around the purchase and sale of a property, although the ‘invoice’ to be paid will depend on whether it is a new or used house and the amount of the same.
TAXES TO RENT A PROPERTY IN SPAIN
Wether you are resident or non-resident of Spain, renting your property is legal. However, you must remember that you must report your rental income to the tax authorities. You are actually required to report the income within 30 days of receiving it, but you can request to do so on a quarterly basis to simplify the paperwork. It is true that almost all landlords who rent their properties do not declare this income to the Spanish tax authorities and the chances of being caught are slim. However, Spanish Income Tax takes into account the benefits arising in Spain.
If you are a non-resident, you must pay 24.75% for rental income. You cannot reduce 50% as in the case of resident owners. If you are a resident, you must include your rental income with your other income when making your annual Spanish tax return. If you register your property as a tourist rental, you can charge the cost of maintaining your property as a business expense and offset it against the property taxes.
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