While it is an unfortunate certainty that we will all be subject to tax if we own property in Spain, what is uncertain are the different types of taxation and the level of that taxation, depending upon whether the person liable to the tax is resident in the EU, the European Economic Area, or neither. While most people who buy property in Spain are nationals of EU member states, including Brits for the time being, it is also useful to focus on the extent to which those who are not resident in the EU are treated differently from a taxation perspective, as that is the most likely position of UK nationals in the not too distant future.
Spanish purchase tax on resale properties:
A transfer tax is payable upon the purchase of any property in Spain. Depending upon where the property is located you can expect to pay between 6.5% to 11% of the purchase price. Happily, this tax does not vary no matter where the purchaser is resident. New build properties are taxed slightly differently, so that value added tax is payable, normally at 10% (or a 6.5% in the Canary Islands), in addition to a stamp duty of between 0.5% and 1.5%.
Spanish Capital Gains Tax:
In Spain this tax is applied at a rate of 19% on the difference in the value of the asset from the date of its acquisition to the date of its disposal. Again, this is a rate applicable to all non-residents, irrespective of country of residence.
If, however, you are not resident in Spain and you either sell or gift a property, then by law 3% of the purchase price will be retained by the purchaser and paid to the Spanish tax agency on account of capital gains tax or any other tax liability of the seller. If there has been no gain then the seller may be able to recover the 3% retention, although any tax payable in excess of the 3% retention will have to be paid within four months of completion of the sale.
Please see our note on Capital Gains Tax liability in Spain if you are expecting to sell your property in the UK once you are resident in Spain.
Spanish inheritance tax:
Liability to inheritance tax in Spain depends upon one’s relationship to the deceased and even one’s pre-existing wealth. Close relatives who are beneficiaries of an estate benefit from a nil rate band upon which no inheritance tax is payable. The rate of taxation depends upon the overall value of the estate inherited by each beneficiary. The nil rate bands vary depending upon the autonomous community within Spain in which the greater part of the estate is located. In some parts of Spain that means that inheritance tax is hardly ever payable.
As a result of a decision of the Spanish Supreme Court in February 2019, those who are resident outside of the area of the EU and the EEA will benefit from the same nil rate bands as those resident within it. If you have paid inheritance or gift tax in Spain recently and you are not an EU resident you may be entitled to claim a refund of the tax you paid.
Find out more about Spanish inheritance tax.
Spanish non-resident income tax:
This is a tax that is paid by property owners in Spain who are not resident in Spain. Spanish non-resident income tax is a tax on the rateable value of the property and is relatively low, as the taxable amount is 1.1% of the rateable value. The rateable value (or “valor catastral”) is almost always far lower than the market value.
Where a property is let by a non-resident, the rental income is subject to income tax, which should be paid quarterly. Quarterly income tax returns must be submitted. The reasonable expenses of maintaining the property can be deducted from the rental income received, provided the property owner is resident in the EU. In all other cases the tax is payable on the gross rental income received.
EU residents pay tax at a rate of 19%, while for non EU residents this tax is applied at a rate of 24%.
“Impuesto sobre Bienes Inmuebles” or IBI is a local tax, similar to Council Tax, paid annually to the local town hall. It relates to the property, not the property owner, so the amount of tax does not vary depending upon the residence of the property owner.
As with all matters concerning Spanish property, it is essential that you determine your likely liability to tax before you buy, so it is highly recommended that you seek good quality, independent legal advice in relation to any property purchase in Spain, wherever your Spanish property is located and wherever you are resident.
If you are affected by any of the Spanish tax issues set out above and you have questions or concerns we can assist. Contact us today for an initial consultation. You can reach us on 020 3478 1420 or by email at firstname.lastname@example.org.