Comprehensive guide to Spanish Property Taxes for Non-Residents

Purchasing a property in Spain is an appealing investment, particularly for non-residents seeking a holiday home or a rental property. However, navigating the complex Spanish tax system can be daunting. Understanding the various taxes involved in buying, owning, and selling real estate in Spain is crucial to making informed decisions and avoiding unexpected costs.

At IberianTax, we recognize the challenges non-resident property owners face. That’s why we've created this comprehensive guide to simplify the process for you. This guide is designed to provide you with clear, concise, and thorough information on all aspects of Spanish property taxes. With our expert insights, you’ll be well-equipped to manage your investment effectively and ensure compliance with Spanish tax laws.

Whether you’re purchasing your dream holiday home, investing in a rental property, or planning to sell your Spanish property, this guide will help you understand the tax implications at every stage. Let’s dive in and explore the essential tax information you need to know.

1. Taxes on property purchase

When acquiring a property in Spain, several taxes must be paid at the time of purchase. These taxes vary depending on whether the property is new or second-hand.

Here’s a detailed look at the taxes you’ll encounter at the time of purchase:

A. Taxes on the purchase of new properties

Value Added Tax (VAT)

If you purchase a new property in Spain, VAT at a rate of 10% is applicable. This rate applies to the property itself and up to two parking spaces (Article 91.1.7º LIVA). 

Stamp Duty

Stamp Duty, also known as AJD (Actos Jurídicos Documentados), is another tax that is is applicable hen purchasing a new property. The rate varies between 0.5% and 1.5% depending on the region. For instance, in Andalusia, the rate is 1.5%, whereas in Madrid it is 0.75%.

B. Taxes on the purchase of second-hand properties

Property Transfer Tax (ITP)

For second-hand properties, the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales, ITP) must be paid instead of VAT. The rate varies depending on the autonomous region where the property is located, generally ranging from 6% to 10%. For example:

• In Madrid, the rate is typically 6%.
• In Andalucia, the rate is typically 7%.
• In the Balearic Islands, the rate ranges between 8 to 13%.
• In Catalonia, the rate can be as high as 10%.
• In C.Valenciana, the rate ranges between 8 to 10%

Additional costs

In addition to the taxes, there are other costs associated with purchasing a property in Spain:

• Notary Fees: These are fees for the notary who certifies the purchase deed. The cost depends on the property price and the complexity of the transaction but it usually represents a small percentage of the property price (0.2 to 0.5%)
• Land Registry Fees: After the notary signs the deed, it must be registered in the Land Registry. The registration fee is based on a scale and usually represents a small percentage of the property price (0.1 to 0.25%).
• Mortgage Arrangement Fees: If you are financing your purchase with a mortgage, there are additional costs such as the bank’s arrangement fee, property valuation fee, and sometimes mortgage insurance.

2. Taxes during property ownership

Owning a property in Spain involves ongoing tax obligations. These include both non-resident taxes and local taxes.

A. Non-Resident Income Tax 

The Non-Resident Income Tax, known in Spanish as "Impuesto sobre la Renta de no Residentes" (IRNR), is a national tax applicable to non-resident taxpayers who own property in Spain. 

A non-resident is an individual who does not reside in Spain for more than 183 days in a calendar year and whose primary economic interests are not based in Spain. Non-residents include foreign citizens who own property in Spain but live abroad, either using the property for personal use or renting it out.

Imputed Income Tax

• What is Imputed Income Tax?

Imputed Income Tax applies to the potential rental income a property could generate while it is vacant. This tax is based on the notional income of the property, meaning it is a hypothetical income calculated even if the property is not actually rented out.

• How is Imputed Income Tax calculated?

The tax is calculated based on the property's cadastral value, which is an official valuation used for tax purposes.The base rate is 1.1% or 2% depending on whether the cadastral value has been reviewed in the past 10 years under a General Collective Valuation procedure.

• • 1.1% if the cadastral value has been reviewed in the past 10 years.
  • 2% if the cadastral value has not been reviewed in the past 10 years.

The tax rate is 19% for EU residents and 24% for non-EU residents.

• What form is used to declare Imputed Income Tax?

Non-residents must use the Modelo 210 tax form to declare Imputed Income Tax.

• When is the filing period for Imputed Income Tax?

Non-residents must file the Modelo 210 tax form annually to declare this tax. The filing period is from January 1st to December 31st of the following year.

Rental Income Tax

• What is Rental Income Tax?

Rental Income Tax is applicable to non-resident property owners in Spain who rent out their property. It taxes the rental income earned from the property.

• How is Rental Income Tax calculated?

EU residents can deduct expenses related to the rental from their income, and the tax rate is 19% on the net rental income. Non-EU residents cannot deduct expenses and are taxed at a rate of 24% on the gross rental income.

• What form is used to declare Rental Income Tax?

Rental income must be declared using the Modelo 210 tax form.

• When is the filing period for Rental Income Tax?

Starting from 2024, rental income must be declared annually between January 1st and January 20th for the previous year.

B. Wealth Tax

The Wealth Tax is a national tax, but the tax rates and exemptions are regulated by each autonomous region, resulting in variations across Spain. This tax is applied to the net assets you hold as of December 31st each year, exceeding the minimum threshold exempt from taxation. For example:

• In Catalonia, the exemption threshold is €500,000, with tax rates ranging from 0.21% to 2.75%.
• In Andalusia, the exemption threshold is €700,000, and from 2022, this tax has been abolished.
• In the Balearic Islands, the exemption threshold is €3,000,000 with tax rates ranging from 0.28% to 3.45%.
• In Comunidad Valenciana, the exemption threshold is €500,000, with tax rates ranging from 0.25% to 3.5%

If your property exceeds the exemption threshold, you must file Modelo 714.

C. Great Fortunes Tax

Introduced in December 2022, the Great Fortunes Tax is a wealth tax targeting individuals with significant net wealth in Spain. This tax is designed to ensure that those with substantial assets contribute a fair share to public finances.

• Who is subject to the Great Fortunes Tax?

Individuals with a net wealth in Spain exceeding €3,000,000 are subject to this tax. It applies to both residents and non-residents with substantial assets in Spain.

• How is the Great Fortunes Tax calculated?

The tax rate ranges from 1.7% to 3.5%, depending on the total net wealth.

• • 1.7% for net wealth between €3,000,000 and €5,347,998.
  • 2.1% for net wealth between €5,347,999 and €10,695,996.
  • 3.5% for net wealth exceeding €10,695,996.

• What form is used to declare Great Fortunes Tax?

Great Fortunes Tax must be declared using the Modelo 718 tax form.

• When is the filing period for Great Fortunes Tax?

Great Fortunes Tax must be declared annually between July 1st and July 31st for the previous year.

D. Local Taxes

In addition to national taxes, non-resident property owners must also pay local taxes. These local taxes cover various municipal services and obligations, ensuring the upkeep and development of the local community.

Typically, local taxes and service fees are paid via direct debit from your bank account. Setting up a direct debit ensures that these payments are made automatically, preventing missed payments and potential penalties. It's advisable to coordinate with your local municipality or your bank to establish these direct debit arrangements.

Impuesto sobre Bienes Inmuebles (IBI)

The Impuesto sobre Bienes Inmuebles (IBI) is an annual property tax based on the property's cadastral value. This tax is similar to a council tax and is used to fund local services and infrastructure.

The IBI is collected by local authorities, known as Ayuntamientos, or by other institutions responsible for tax collection in specific regions, such as SUMA in the Alicante region or Patronato de Recaudación in the Malaga region.

Other local services

In addition to the IBI, non-resident property owners will need to pay for various local services such as rubbish collection and waste management. These services are essential for maintaining the cleanliness and functionality of the community.

3. Taxes on property sale

When selling a property in Spain, several taxes must be considered:

A. Non-Resident Income Tax: Capital Gains Tax

When you sell a property in Spain, you are required to pay tax on the profit made from the sale, known as Capital Gains Tax. 

• How is Capital Gains Tax calculated?

The profit, or capital gain, is calculated as the difference between the purchase price (including any expenses related to the purchase) and the sale price (after deducting any costs related to the sale).

The tax rate for both EU and non-EU residents is the same: 19% of the capital gain.

• What form is used to declare Capital Gains Tax for non-residents?

Non-residents must file the Modelo 210 tax form to declare the capital gains tax. 

• What is the filing deadline for the Modelo 210 form for Capital Gains Tax?

The filing term for this form is within 4 months from the date of sale.

• What is the 3% Withholding Tax?

When the seller is a non-resident taxpayer, the buyer is required to withhold 3% of the sale price to cover potential capital gains tax. This is done by submitting Modelo 211 tax form, which must be filed within 1 month from the sale date. The buyer must provide a copy of Form 211 to the seller, who will need it to complete their capital gains tax declaration.

The 3% withholding tax will be deducted from the final tax liability.

• What if the property is sold at a loss or the capital gains tax is less than 3%?

If the property is sold at a loss, the seller can claim back the 3% withholding tax. Additionally, if the actual capital gains tax liability is less than the 3% withheld, the seller can claim the difference.

B. Local Tax on the Increase in the Urban Land Value (Plusvalía Municipal)

The Plusvalía Municipal, officially known as "Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana" (IIVTNU), is a local tax on the increase in the value of urban land since its purchase. This tax is in addition to the national Non-Resident Income Tax and is levied by the Ayuntamientos (municipal authorities).

• When is the Plusvalía Municipal tax applicable?

You must pay this tax when you sell a property if the land's value has increased since the purchase. If the sale results in a loss, you are exempt from paying this tax but must inform the town hall (Ayuntamiento).

• Who is responsible for paying the Plusvalía Municipal tax?

Typically, the seller is responsible for paying this tax. However, when the seller is a non-resident, the tax is withheld directly from the selling price, and the buyer is responsible for depositing this tax with the Ayuntamiento.

• How is the Plusvalía Municipal tax calculated?

As of the changes implemented in November 2021, there are two methods to calculate this tax, and sellers can choose the one that is most favourable to them:

• • Objective Method: Based on the increase in the cadastral value of the land during the period of ownership.

              Cadastral land value × Coefficient (based on years of ownership)

              The taxable amount is then multiplied by a coefficient set by the municipality, with a maximum rate of 30%.

• • Effective Method: Based on the actual increase in the property's value, calculated as the difference between the sale price and the purchase price. The formula is:

              (Sale price − Purchase price) × (Cadastral land value/Total cadastral value)

              This amount is then multiplied by the municipal coefficient, up to a maximum of 30%.

The final tax rate for the Plusvalía Municipal depends on the municipality where the property is located. Each Ayuntamiento sets its own rates and calculations.

C. Additional Costs

Apart from the taxes mentioned, you should also budget for fees related to legal services, real estate agents, and other professionals involved in the selling process.

Conclusion

Navigating the Spanish tax system can be complex, especially for non-residents. Understanding these taxes will help you manage your property investment more effectively and avoid unforeseen expenses. For personalized assistance and to ensure compliance with all tax obligations, consider using IberianTax. Our platform offers high-quality tax filing services at a reasonable cost, backed by excellent customer support. IberianTax can help you manage your tax obligations online easily.