Mastering Property Taxes in Spain
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Essential Tips For Property All Buyers!
When buying or selling a property, there are specific implications a person must fulfill to complete the transaction. Like most countries, local municipalities and tax authorities in Spain levy taxes on property transactions. Thus, understanding property taxes becomes as crucial as assessing the property's price.
Whether you are buying or reselling a property, whether it’s property for sale in Marbella or elsewhere, you will need to calculate tax implications. Tax calculation depends on various factors, including mortgage, residence status, location, etc. Let’s explore the concept, the differences between taxes on new developments and resales, and ways to reduce transfer taxes in Spain.
What is Spanish Property Tax?
There are different tax regimes for buying, selling, or owning a property in Spain. Regarding buying a property in Spain, the property tax varies from 8% to 11.5%, depending on the type of property. If the property is newly built, the tax is in a different bracket than a resale property. There are primarily two types of property taxes levied by the Spanish government. Let’s discuss them below:
VAT
When a buyer purchases a new development, the government levies VAT, also known as IVA in Spain. The current VAT is 10%, accompanied by a 1.2% stamp duty on the property purchase price. This transaction occurs when the owner of the new development pays IVA to the promoter, who is responsible for paying it to the government.
ITP (Impuesto Transmisiones Patrimoniales)
The tax regime for resale property is slightly different from that for new development. When a person purchases a resale property, they must pay ITP sales transfer tax. This transfer tax depends on the value of the property and generally varies from 6% to 13%. For instance, in Andalucía, the ITP is 7%.
The difference in transfer tax is because of the local property tax system in Spain. The buyer must pay the transfer tax to the local tax office within one month of the purchase. This transfer tax varies from region to region and depends on whose name you buy the property. For instance, if an individual buys a property in the company’s name, the transfer tax is reduced from 7% to 2% in Andalucia.
Tax on Rental Income
Renting out a property in Spain attracts a separate tax obligation. Once you become an owner and rent the property, you must file a few taxes.
These property taxes do vary between residents and non-residents in Spain. If you are an EU resident, the tax on rental income comes under personal income tax, which varies from 19% to 47% in Spain. However, if you use the same property as the main residence property, EU residents can avail 60% of the benefits.
Property owners who are not residents must pay non-resident tax, which is usually paid quarterly. However, the law has changed this year, and non-residents must file taxes annually. Corporations using property in Spain must pay corporation tax, which is 25% of the profit.
VAT on Rental Income
If you are renting out a property, it is generally exempted from VAT. However, if your property is being used for buying, selling, or any other business activity, there is an obligation to deduct VAT. In such cases, you can add 21% VAT (IVA) to the agreed rent.
Tax Concessions
There are certain tax concessions one can avail on a property in Spain. Let’s navigate:
Wealth Tax
At the end of 2022, the government of Spain created an exemption concerning wealth tax. Residents and non-residents were required to pay tax on overall wealth, including property. After the exemption, there is no tax if the property’s value exceeds €700,000 (though only €500,000 in Cataluña).
For residents, the wealth tax covers all assets worldwide. As for non-residents, wealth tax applies only to Spanish assets. For instance, if a non-resident has a property valued under €800,000, there will be no wealth tax.
Solidarity Tax
Created a year ago, the solidarity tax is a tax that a resident has to pay if the assets are more than €3 million.
Inheritance Tax
Inheritance tax applies to both residents and non-residents. Also known as succession tax, it is payable on receiving an inheritance. Although central government rules exist, Spanish inheritance tax varies from region to region. For instance, if a person dies and has property in Andalucia, there is an exemption of 90% in the 99% inheritance tax.
Tax on Profit from Selling the Property
Like other countries, there is a capital gains tax on gain or profit derived from selling a property in Spain.
- For residents, the tax rate on capital gains varies from 19% to 28%.
- Non-residents have to pay only 19% tax on the capital gains.
- In the case of companies, if a company sells a property, it must pay 25%.
Conclusion
The government of Spain has delegated its legislative power to regions to set property tax rates, which differ from region to region. Thus, these are the several tax implications of buying or selling a property in Spain. However, every situation differs, and proper care must be taken while determining the final property tax liability.
Watch our video on Mastering property taxes in Spain to learn more about tax-saving tips!
