The Law in Spain - Annual property and income taxes you need to be aware of
If you are a property owner in Spain, you could be liable to pay several separate taxes each year:
Property Owner’s Imputed Income Tax
This tax doesn’t apply to a resident owner’s principal home, but WILL apply to any second home you have. If you are a non-resident, then the property is not classed as your main home (understandable reasoning really – either become a resident in Spain and avoid this tax, otherwise the authorities will always deem you a non-resident and, therefore, owner of another principal property elsewhere) and thus will be taxed on a yearly basis.
This rate of tax is payable at two per cent of the rateable value of the property, reduced to 1.1 per cent if the property’s rateable value has been raised since 1994. It is calculated as a fictitious income from rental, even if you don’t rent it out. Hence, it is classed as a notional income, and must therefore be taxed. A non-resident is always taxed at the flat rate of 24 per cent on any income earned in Spain. This tax must not be confused with the capital gains tax, which applies to profits from a sale of an asset.
Spanish residents and non-resident property owners are liable for wealth tax, but the threshold is extremely high. It is called ‘patrimonio’ tax in Spain, which means the same – you are taxed on assets, not income, and it is based on the real sale value declared in the title deeds, not the lower ‘valor catastral’.
It was abolished in 2008 but reintroduced for the tax year running 2012-13, so if you are looking to buy or sell now, it’s relevant, and affects residents and non-residents differently.
As a resident… you are required to declare worldwide assets.
As an non-resident… you only have to declare in property and assets in Spain.
Here’s the good news – the new laws on Spanish wealth tax mean that the first €700,000 of one’s assets are exempt from the tax.
Annual Real Estate Tax (IBI)
Remember the ‘valor catastral’? Well, this valuation determines how much IBI – or municipal tax – you must pay. It is pegged to inflation, and rates can vary from town to town.
If you are a non-resident in Spain, the best thing to do is to have this tax paid annually by standing order. Your bank will have the appropriate forms that authorise such a transaction, and the local council will be satisfyingly mute on the matter if you set up payment in this manner, because taxes will be paid on time, and it also acts as an official identification of your property and ownership.
Non-Residential Rental Tax
Whether resident or not, you can legally rent out your property in Spain with few problems. However, any rental income must be declared to the tax authorities, and you must declare this income within 30 days of receiving it. However, if you set up quarterly tax declarations, then the authorities are kept happy.
Non-residents are liable for 24 per cent tax on all profits, and are not eligible for the 50 per cent reduction that resident landlords are. However, as a resident, it is advisable to include your rental income with your general income when making your annual Spanish income tax declaration. One tip is to register your property as a tourist letting operation, which means you can charge the maintenance expenses of your property as a business expense, and thus offset it against tax.
If you are a non-resident in Spain and you own a single property there, you no longer need to appoint a fiscal representative who is resident in the country. If, however, you own two or more properties as a non-resident, then you need one – and can be fined €5,000 for failing to appoint one.
A fiscal representative guarantees the Spanish tax authorities that there is a reliable, permanent contact residing in the country to represent the non-resident taxpayer. It is normal for a non-resident’s tax consultant or lawyer to be their fiscal representative. But remember – only if you own two or more properties.
By journalist, editor and former