Spanish Taxes

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When you live and/or work in Spain and/or you own a property here you will need to pay tax like you would in any other country. Below you will find an overview of the different taxes you will come across. It is advisable to check with your financial advisor or accountant for taxes and rates that apply to you. Most rates vary from region to region as the regional and local governments regulate those.

Residents pay: Property Tax (IBI) and Personal Taxes.

Non- residents pay: Property Tax (IBI), an additional non-resident tax, and Personal Taxes.

Property Tax

The IBI (Impuesto Sobre Bienes Inmuebles), a local property tax payable yearly to the local Town Hall. The rates vary per region and can be from around 0,5% to 1.1% of the official value of the property (valor cadastral), which is not the same as the market value! You pay this tax when you own a Spanish property whether you are resident or non-resident.

Personal Taxes

The Basura y Alcantarillado (the Municipal Tax or Local Mains drainage and refuse collection tax) is similar to the county council tax as it is a local tax payable for rubbish collection, drainage and sometimes for water. This rate also depends on where your property is located and should be paid to the Local Town Hall every 3 or 6 months.

Personal Income tax is a national tax paid by residents (IRPF) and non-residents (IRNR). The IRPF for residents works with scales, so you pay different rates on different portions of your income. If you earn less than 21.000 € you do not have to pay this tax.

Most non-residents are also required to file income tax because they own a property and/or because they might have worked in Spain for a couple of months during the year. The income subjected to Personal Income Tax for non-residents depends on the fact whether a property is used for own use and/or for rental.

Impuesto sobre el patrimonio (Wealth Tax) is a regional tax on assets (your wealth, so it includes your property, savings in the bank, etc). Residents pay wealth tax on their worldwide assets while non-residents pay tax on their assets in Spain. The Wealth tax applies only to assets with a value above a certain amount. Check with your financial advisor for the different rates as the tax follows a cumulative scale.

When you buy a property in Spain you will have to pay Impuesto de transmisiones partimoniales y actos juridicos documentados (stamp duty or transfer tax). This is a regional tax and the rate depends on the fact if the property you are buying is a new or resale property. This tax also applies to commercial transactions.

When you sell your property in Spain you will have to pay Capital Gains Tax, which in Spanish is the “Impuesto sobre el incremento de los terrenos de naturaleza urbana (I.S.I.V.N.U.). Both residents and non-residents pay this tax over any profit you they have made on a property. If you sell your property within a year of purchasing it, it is considered an income instead of a ‘gain’, hence the reason you will then be paying income tax and no Capital Gains Tax.

The selling price of the property has to be exactly the actual amount received, and will be checked by the Tax agency several months after the sale has gone through. Currently it is still quite common practice to under-declare the value with the difference in price being paid in cash under the table. The government is clamping down on this and the Tax Agency is legally authorized to determine the real value of the property and penalize if the under valuation is believed intentional. Times are changing…

Hold on to any invoices for work done to the property, as there are allowable expenses over which you do not have to pay Capital Gains Tax.

The government’s new tax law for 2007 has changed the Capital Gains Tax drastically. The net gain, after deducting the acquisition price and certain expenses, will now be taxed at18% for both non-residents and residents (which is quite different to the 35% for non-residents before this new tax law).
Before the new law came in effect, long-term owners (property bought before Dec. 1996) did not have to pay Capital Gains Tax. This exemption however has been eliminated and now long-term owners must also pay. They will however only pay for the percentage of profits gained after January 20, 2006.

When the property is sold and the proceeds are invested in another ‘principal and habitual’ home then no Spanish Capital Gains Tax is payable (as long as the new purchase takes place within 2 years of the sale).

The taxable amount of the Additional property tax is calculated on the cadastral value, the value assessed by the Spanish Tax Office and the purchase price. Non-residents pay this tax only and a mortgage will not be included in the taxable amount.

Other Personal Taxes are:

Inheritance and Gift Tax, this regional tax is payable on assets (located in Spain) received above a certain value and is also payable by beneficiaries who are not living in Spain.

IVA, a national tax that is the added value taxes that is 16% and 7% for essentials like food, water and medicine.

Impuesto sobre vehiculos de motor is a local tax based on the age and power of the vehicle. In bigger cities this tax is higher.

It is advisable to check with your financial adviser about the (new) rules and regulations at the time of any purchase or sale. Any Capital Gain should be included in the UK Tax return for UK residents. The tax payed in Spain can be relieved against UK tax payable (according to the terms of the Double Tax Treaty with Spain).

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