25 May REAL ESTATE RELATED TAXES IN SPAIN

The Spanish property market keeps gaining momentum. Certain areas are, of course, particularly dynamic. But, in any case, to own a property in Spain makes many tax obligations appear that must be taken into account before any investment, being resident or non-resident.

Some taxes will arise from the investment itself, others from your subsequent ownership or from future transactions.

This is a brief guideline to show all the taxes that can be accrued and illustrative current rates.

When you purchase of a Spanish property:

(All applies to residents and non-residents.)

1. VAT on Property: Impuesto sobre el Valor Añadido or IVA:

VAT is the most complicated tax of all, next to the general rules there are lots of exceptions depending on the vendor condition but in summary the tax rates are as follows:

– New homes rate is 10% of the sole price (with garage and annex in the same sale).

– New social homes (VPO), new homes to rent with purchase option and new homes purchased by Companies to rent, is 4%.

2.Transfer tax on purchase of a property: Impuesto sobre Tramisiones Patrimoniales onerosas (ITP):

This payable in situations where is no VAT (second hand property).

General tax rate is 6% of the sole price but it depends on the region of Spain. *(can be also 7% or 8%)

3.Stamp duty on Notarial Deeds: Impuesto sobre Actos Juridicos Documentados (AJD):

This tax will apply if transaction is:

Subject to VAT

Exempt from VAT and the exemption is waived (with formalities)

Tax rates range from 0.5% to 2% and are applied to the value stated in the deed.

The tax payer is the buyer.

Stamp duty cannot be charged if transfer tax is charged on the same transaction.

When you own Spanish property:

1.Taxation of rental income:

Residents (IRPF): The rental income is added to total income and the tax is progressive.

Non-residents (IRNR): Rental income is taxable at the followings rates:

– Citizens/residents of EU countries, Iceland and Norway 19%

– Others 24%

2. Taxation of own use urban real estate income:

The income to declare is the amount resulting from applying, in general, a 2% to the cadastral value of the property.

• Residents (IRPF): The income is added to total income and the tax is progressive.
• Non-residents (IRNR): The income is taxable at the followings rates:

– Citizens/residents of EU countries, Iceland and Norway 19%

– Others 24%

3. Wealth tax: Impuesto sobre Patrimonio or IP.

After having been previously abolished in Spain in 2009, Wealth tax then re-introduced on “temporary” basis for years 2012 and 2013 and then again from 2015 onwards.

Tax rate is 0.2–2.5% on net assets.

The current tax-free allowance for non-residents is 700k.

4. Local property taxes: Impuesto sobre Bienes Inmuebles or IBI.

This is an annual tax base don the cadastral value of the property. The rates are set by the Local authorities.

This tax applies to residents and non-residents.

When selling a Spanish property:

1. By residents:

Capital gains rate (the higher worth when the property is sold versus its value when it was purchased, it is only realized when the asset is actually sold) taxes are the followings:

-First 6,000 euro is 19%

-6,000-50,000 euro is 21%

-More than 50,000 euro is 23%

Rollover relief for residents is available when the taxpayer re-invests the entire sale´s price, within two years of the sale, in a new main residence. The tax payer must have lived in the property for 3 years.

Absolute relief is available for resident taxpayer over 65 who have lived in property for at least 3 years.

2. By non- residents:

Capital gains rate tax is 19%.

From 1st of January 2015, rollover relief for non-residents (Citizens/residents of EU countries, Iceland and Norway) is also available.

A 3% of the declared price is withheld from the vendor at the moment of sale. This is paid by the purchaser (normally via solicitor) by submitting 211 tax form, within one month of the sale. The balance of tax payable/reclaimable is settled by the vendor on submitting 210 tax form within a further two month.

3. Local tax on the increase of value of urban land: Impuesto sobre el incremento de valor de terrenos de naturaleza urbana or IITVNU.

When a property is sold, the local authority charges a tax on the increase in value of the land. Now this tax is under litigation before Supreme Court due to unconstitutional articles of the Local taxes regulation.

In the cases of inheritance and gift tax: (Impuesto sobre Sucesiones y Donaciones or ISD)

Inheritance tax is the tax payable on any increase of wealth, obtained by reason of death of a third person and Gift tax is levied on the increase of wealth, caused by reason of gift while the transferor is still alive.

Inheritance and gift tax is progressive and the tax bases are determined depending on the circumstances.

Tax rates depend on region but generally go from 7% to 34%.

Some regions have updated their tax policies, resulting in many families not having to pay inheritance tax.

The Inheritance tax must be paid within 6 months from the transferor death and The Gift tax must be paid within 30 days after the date of the transfer.

The given information provides only a general overview; please contact for professional advice concerning your specific circumstances.