Both the purchase and ownership of real estate will be taxable in Spain. Small variations in the tax system may arise from the type of property being purchased (new building or secondary market), as well as the status of the buyer (tax resident or non-resident of Spain). Overall, property taxes in Spain for foreigners are calculated and paid according to a simple and standardized framework.
Some taxes have to be paid for the duration of tenure, but most of them are paid just for once in the moment of purchase and by title registration. It is this second part that creates a serious burden for the buyer, so we recommend that you do not neglect tax planning and calculating of all related expenses in the preparation phase of the purchase and by sale transaction.
Property taxes in Spain for British nationals: property ownership
The ownership of Spanish real estate is associated with the payment of two important taxes: Income Tax for Non-Residents and Property Tax.
Non-Resident Income Tax
Foreigners who own real estate in Spain, but are not its residents, are subject to a special tax – Tax on Income for Non-Residents (Impuesto sobre la Renta de No Residentes – IRNR). This is the so-called imputed tax. By default, non-residents of Spain are alleged to generate income from real estate, starting from the first real property purchased, regardless of whether this real estate object (or objects) is leased, and whether it brings the real profit to its owner. Tax assessment is based on the fact that the person owns real estate.
To make it not seem that it is an injustice, we will give a brief explanation. Tax residents of the country pay a similar tax on the second and subsequent properties owned by them. The first real property, which is usually considered the principal residence, is not subject to taxation. In the case of non-residents, it is understood that their primary residence is located outside of Spain, and in Spain, there is a second property – a holiday home is acquired. Therefore, it can be taxed.
If the property is rented out, all the income received will be taxed on the income of non-residents. In this case, it is mandatory to prepare and submit a quarterly declaration to the tax authorities. At the same time, it is noted, however, that property taxes in Spain for British nationals after Brexit will differ from taxes for European citizens. Non-EU residents are required to calculate and pay tax on gross income, while Europeans are allowed to accept net income, i.e. income less overhead costs, for calculation.
How did Brexit Change Income Tax for British Citizens in Spain:
- Brexit influenced non-resident tax rates in Spain for British nationals. From the 1-th January 2021, British citizens will be taxed on the non-EU rate, which is currently 5% higher than the EU rate.
- What does that mean: this tax will be 24% on the income if you are a non-EU citizen, and 19% if you are from the European Union.
If the property is not rented out, Non-EU residents are required to report on Income Tax for Non-Residents once a year. The Form 210 can be submitted throughout the year (the tax campaign lasts from January 1 to the third week of December), with the previous year being the reporting tax period.
In 2021, non-resident British will report for 2020. It is very important not to neglect the filing of declarations and to pay the tax on time.
Late payment threatens to:
- Penalty interest charges. Spanish tax authorities regularly conduct internal audits and calculate debtors who have bought property, but neglect their duty as a taxpayer.
- A negative decision on a residence permit. If foreigners who have bought a property in Spain want to get a residence permit in a future, it will be impossible to do this without making payment of the outstanding tax bills on Income Tax for Non-Residents.
Tax calculation could be accomplished pretty simply: 2% of the cadastral value of the property is calculated (the result obtained will be imputed income), and 24% is taken from this amount – the total amount of tax to be paid to the budget.
In some cases, 1,1% instead 2%, is taken from the cadastral value. This may happen if in the current year or during the previous decade the municipality was reviewing the properties and made changes to the cadastral register.
When calculating the tax, it is taken into account, whether the taxpayer owned this property for a whole year, or only for a certain period. In the second case, the calculation is carried out in proportion to the period of ownership.
If the property was rented out not for a whole year, but during certain months, the calculation shall be also con a prorated basis: all periods of downtime are reflected in the annual declaration, and the periods of renting out are reflected in the quarterly declarations.
Property Tax
Both residential and commercial real estate in Spain is subject to Property Tax – Impuesto sobre Bienes Inmuebles (IBI). By calculating and paying taxes, the status of a taxpayer is not taken into account, i.e. the taxation system is the same for both tax residents and non-residents.
This municipal tax is also calculated from the cadastral value of the property. Charging is accrued annually on January 1, but the tax campaign lasts from August to October. The taxpayer is a person who was listed as the owner in the Property Register on 1-st January.
The tax rate is set at the municipal level. The state regulates only the minimum and maximum allowable rates (0,4 and 1,3%), but within this framework, municipalities are granted full freedom.
Usually, in big cities, the rates are lower, since the municipal budget is replenished from many sources. Small municipalities, which budget depends largely on tax revenues from real estate, have to support relatively high rates.
Value Added Tax
The value added tax (Impuesto sobre el Valor Añadido – IVA) can be applied at two rates:
- The rate of 21% is applicable for assets under construction and not yet available for use, commercial real estate, as well as garage, parking spaces and storage rooms purchased separately (i.e. not reflected in the main bill of sale).
- The rate of 10% is applicable for new housing commissioned, as well as for garage, parking spaces and storage rooms purchased simultaneously with the main property and located in the same building or residential complex.
Transfer Tax
The property transfer tax is set at the autonomy level. Also, autonomous entities have the right to establish and apply tax benefits. In the Valencian Community, there are following:
- General Tax Rate (10%)
- Reduced Tax Rates (8% and 4%).
Young families purchasing their first housing, young entrepreneurs and some other categories of citizens can count on a reduced rate of 8%. The tax at the rate of 4% is calculated for large families.
Transfer Tax is calculated and paid if the purchase and sale of a property takes place on the secondary market, provided that the seller is a natural person who does not conduct any form of economic activity and who are not being a VAT payer in the register of economic activity tax.
Stamp Duty (Tax on Documented Legal Actions)
The stamp tax or the tax on documented legal actions (Actos Jurídicos Documentados-IAJD) is charged for transactions involving the payment of VAT. The tax is incompatible with the tax on the property transfer, so transactions on the secondary market are not subject to this tax.
The tax rate is set at the autonomy level. In the Valencian Community, the general tax rate is 1,5%. There are also rates of 0,1% and 2% for various official documents (for example, for the first copy of a notarized bill of sale, the first copy of a mortgage agreement, etc.).
