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Tax: Spanish Property Taxes

Blevins Franks – May 2006

When considering buying property in Spain you should take into account the property taxes that will be levied on residents and non-residents alike.

If you own a residential property and use it yourself (or have it available for your use) then you will have to pay “Impuesto sobre Bienes Inmuebles” (IBI). It is paid by the person who occupied the property on 1st January in any year and is not usually apportioned if they later move.

The tax is raised and spent by the town hall (ayuntamiento) of the area where you live, and is calculated on the basis of the notional rental value (valor catastral) of your property. You can appeal against the valuation decision, but the sums involved are usually so small it is not worthwhile. You should check when payment is due, as the due date can be changed and there is no legal requirement to advise you of the new due date.

The amount you will be charged will be the rental value multiplied by the tax rate fixed in your locality.

If the IBI is not paid by the previous owner of a second-hand property, the local town hall has the power to charge the new owner for unpaid IBI for up to a maximum of five years arrears plus penalties of up to 20%.

When buying a property, you should ask to see the latest IBI receipt to confirm that this has been paid, and it may be a sensible precaution to insist upon seeing the receipts for the previous five years, in order to ensure that you are not liable to pay any arrears.

When selling a property, you will need the latest IBI receipt, and as a sign of good faith, you may wish to show receipts for the previous five years. You should also confirm that the ownership information has been changed at the registry, or you may continue to be liable for the IBI on a property you no longer own.

Also, the current IBI receipt will be required by the Notary, as it contains the “catastral” reference number.

Ownership taxes

A property that is not let and which is not the main home is subject to a deemed income tax. You will have to pay tax at the appropriate rate on 2% (usually) of the highest of:
a) “valor catastral” (rateable value) or
b) acquisition cost or
c) the tax man's value or
d) the actual rental income

Residents pay tax on only 50% of any actual net rental income (the gross income less allowances for day-to-day expenses, repairs, maintenance and the IBI, for example) at the normal tax rates of 15-45%. For non-residents the tax rate is a fixed 25% of gross income with no deductions. These same rates apply to any deemed income.

Plusvalia

This is also a local tax levied by Spanish town halls on the increase in the value of urban land (i.e. excluding the value of any buildings) when it is sold or otherwise changes hands. The full name is “Impuesto Sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana” but is abbreviated to “Plusvalia” which literally means ‘capital gain’. The real growth in value of the land is reflected by giving a realistic allowance for inflation, unlike the more nominal allowance in Spanish mainstream capital gains tax.

Some transactions are exempt including transfer between husband and wife, changes in ownership within the immediate family due to from Court Judgements in matrimonial proceedings, and certain technical ownership changes involving rights of way etc. However, it remains payable on the disposal of your main residence, even if you are Spanish tax resident.

The tax rate varies depending upon the size of the local population and the length of ownership. For a town of more than 100,000 inhabitants the minimum tax rate is 20% and the maximum 30%, with the town hall fixing a rate within this.

Because of the increase in land values over the past twenty years, despite the realistic allowance for inflation, the amount of tax payable tends to be much higher the longer the property has been owned. The inflation-enhanced cost is still only likely to be a small figure compared to the current value if it has been owned for twenty years rather than five years, say.

A declaration must be made by the vendor (or purchaser) within thirty days, but in practice the town hall usually calculates the tax based on the property values entered in the local property register from the Deeds of Sale, and this figure is obtained by the notary (or gestor) appointed by the vendor (or purchaser) in order that they can make the required declaration.

Property transfer taxes

Spanish VAT called “Impuesto sobre el Valor Añadido” (IVA) at 7% is payable on new build properties (e.g. acquired from a developer), or resold unregistered properties (i.e. an off-plan property acquired from another individual prior to being registered). There is no VAT in the Canary Islands; instead, a sales tax (the IGIC) of around 4.5% is levied. In addition to IVA, a document fee – “Impuesto sobre Actos Jurídicos Documentados” (AJD) - is levied, of 0.5% (1% in Andalucia) which is similar to UK Stamp Duty.

“Impuesto Transmisiones Patrimoniales” (ITP) is Spanish property transfer tax (similar to the UK Stamp Duty Land Tax) levied on all other residential property acquisitions (i.e. once the property has been registered). ITP is levied at 6% (7% in Andalucia) of the value declared in the contract.

More pages

Page 1: Blevins Franks – May 2006
Page 2: Refuse tax

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