How is the Value of Your House Determined for Tax?

Owning a property in Spain as a non-resident comes with certain tax obligations, and understanding how the value of your house is determined is an important part of this process. Whether you’re filing Imputed Income Tax or Rental Income Tax, the taxable value of your property directly impacts how much you’ll need to pay. This blog will explain the different ways your property’s value is assessed for tax purposes and how this affects non-resident homeowners. 

Understanding Property Value Assessment for Non-Resident Taxes

When it comes to determining the taxable value of your property in Spain, you’ll need to understand the different types of values that are used by the Spanish tax authorities. These include the cadastral value, market value, and reference value. Each of these values plays a different role in your overall tax calculation.

Cadastral Value (‘Valor Catastral’)

The cadastral value is an administrative value assigned by the Spanish government based on factors such as the property’s location, size, age, and the quality of the building. It’s not directly linked to the market value, but it serves as the primary value used to calculate several taxes, including Property Tax (IBI) and Imputed Income Tax for non-residents. Generally, the cadastral value is lower than the market value and doesn’t fluctuate as frequently.

• How It’s Used: For non-resident taxes, the cadastral value forms the basis for calculating Imputed Income Tax. This tax is essentially a notional rental income applied to properties that are not rented out and are used for personal enjoyment or left empty.

Market Value

The market value represents the estimated price at which the property would sell under current market conditions. While this value is not used for annual tax calculations like the Imputed Income Tax, it comes into play when calculating capital gains tax during the sale of the property or assessing inheritance tax.

• How It’s Used: The market value is more reflective of what your property would actually be worth if you were to sell it. It’s often used in property transactions and for capital gains tax purposes, but, generally, it’s not relevant when it comes to non-resident taxes. 

Reference Value (‘Valor de Referencia’)

The reference value is a newer measure introduced by Spanish tax authorities to bridge the gap between the cadastral value and the real market conditions. This value is based on recent market data and provides a more accurate assessment of the property’s value compared to the traditional cadastral value.

• How It’s Used: The reference value is mainly used for calculating the taxable base of certain taxes, such as the Property Transfer Tax (ITP) and the Inheritance and Donations Tax (ISD).

How the Value of Your House Affects Non-Resident Taxes

As a non-resident property owner in Spain, you’re subject to different taxes depending on whether you’re using your property for personal use or renting it out, both fully and partially.

Imputed Income Tax

If you’re not renting out your property and it’s used solely for personal purposes, the Spanish government considers that you could have potentially rented it out, and therefore, it levies an Imputed Income Tax. This tax is calculated as a percentage of the cadastral value of your property. The deadline for filing this tax is December 31st each year, covering the previous year’s tax obligations. 

Let’s look at an example to understand how the tax is calculated:

• Cadastral value of the property: 65956.23€
• Applicable imputed percentage: 2% (used when the cadastral value has not been updated in the past 10 years under a general collective valuation)
• Taxpayer’s country of residence: United Kingdom (non-residents from EU/EEA countries are taxed at 24%)

Step-by-step calculation:

1. Imputed income:
   Imputed income = 2% of 65956.23€ = 1319.12€
2. Tax due:
   As a UK resident (subject to the 24% tax rate), the tax due is:
   Tax due = 1319.12€ × 24% = 316.59€

Thus, the taxpayer would need to pay 316.59€ in Imputed Income Tax for the year.

Rental Income Tax

For non-residents who rent out their property, either partially or fully, a Rental Income Tax Return must be filed. This applies to both short-term holiday rentals and long-term lets. The income generated from renting your property is taxable, and you’re responsible for declaring this income, regardless of the duration of the rental. Previously, this tax had to be filed quarterly, but recent changes earlier this year mean that it’s now an annual obligation. The filing window for Rental Income Tax is between January 1st and January 20th, covering the income earned in the previous year.

When calculating your taxable rental income, you can deduct certain allowable expenses, and one of the most significant deductions is depreciation costs. Depreciation is calculated as 3% of the highest value between the cadastral value and the acquisition value (typically the market value at the time of purchase). However, according to accountancy rules, depreciation only applies to the building’s value, not the land.

The depreciation amount is adjusted based on the proportion of the cadastral value attributed to the building, as shown in the property’s cadastral report. For example, if 70% of the cadastral value corresponds to the building and 30% to the land, the 3% depreciation would only apply to that 70%.

Important: Depreciation costs, along with other allowable deductions, can only be claimed if the taxpayer is a resident of an EU or European Economic Area (EEA) country. Non-EU residents are not eligible for these deductions and must report their gross rental income without applying for depreciation or other expense-related deductions.

Why Register Now?

Although the filing period for Rental Income Tax doesn’t officially open for submissions until January, you can still get ahead. With our newly updated platform, you can already access the Rental Income form for 2024 submissions and start preparing your tax return right now! 

Pre-filling your Rental Income tax return early with IberianTax ensures that you have all the necessary documentation and information ready, making the filing process smoother when the time comes. We’ll also send you handy reminders, so you’ll know exactly when to file. It couldn’t be easier! 

Using IberianTax

Navigating Spanish tax laws can be complex, especially when you’re managing your property from abroad, but this is where IberianTax comes in. Providing a fast, secure, and cost-effective solution for non-resident property owners, here’s why IberianTax is your preferred choice:

• Fast and Simple Process: IberianTax’s online platform allows you to file your taxes from anywhere in the world, eliminating the need for in-person meetings or complicated paperwork.
• Multi-Language Support: Available in English, German, and French, so you can complete your taxes in your preferred language.
• Certified and Compliant: IberianTax is fully certified by the Spanish tax authorities (Agencia Tributaria), ensuring your tax filings are accurate and compliant.
• Affordable Pricing: With prices starting as low as €34.95, IberianTax offers a highly competitive alternative to traditional tax advisors and accountants.
• Secure Data Handling: All personal and financial data is securely encrypted, ensuring your information is safe and confidential.
• Free Tax Calculation: Use our FREE tax calculator to see how much you owe ahead of submitting your taxes.
• Referral Program: Earn when you refer your friends! They’ll receive a 10% discount, and you’ll receive €10 credit on your account!

Ready to File Your Taxes? Start with IberianTax Today!

If you’re a non-resident property owner in Spain, now is the time to start getting your tax filings in order. Visit IberianTax’s website to get started, and let our user-friendly platform guide you through the process of filing your Modelo 210. From calculating your taxes to submitting your forms, IberianTax ensures a seamless and stress-free experience—helping you meet your tax obligations with confidence and ease.