Taxes in Spain

When you purchase a property in Spain you could be liable for two different types of taxes, which are the following: "Impuesto de Transmisiones Patrimoniales" (I.T.P.) and "Impuesto sobre el Valor añadido" (IVA).

 

In order to establish which tax you are obliged to pay we should focus on the seller of the property:

If the seller is a private owner: 7% (I.T.P.)
If the seller is a Company (Promoters): 7 %(I.V.A.) + 1% (A.J.D.).

 

A) Private sale - Transfer Tax (Impuesto de Transmisiones Patrimoniales)

As mentioned above, this is a tax payable when the property is purchased from a private owner. The rate is 7% of the declared value as stated in the Escritura de Compraventa (Title Deeds).

 

This has led people to be tempted to under-declare the value of the property, which is a usual practice in Spain, although according to the Spanish Tax Law, you should pay your transfer tax according to the purchase price.

This practice is widely extended in Spain as it is possible to obtain the "valor fiscal" (fiscal value) of the property from the Spanish Fiscal Authorities. By declaring up to this "valor fiscal" an inspection would not be carried out. Though this practice is widespread, it has to be emphasized that is not strictly legal.

 

B) Property Developers sale - Impuesto de Valor Añadido (IVA) VAT

This tax is payable when you buy from a Promoter rather than a private individual. The rate charged is variable depending on the kind of property you are buying:

 

House and any associated buildings: 7%
Plots (rustic or urban without house): 16%
Garages, Premises, Warehouses: 16%

 

In addition to IVA you will also have to pay a document tax or stamp duty (IAJD) at 1% of the purchase price, on signing the Title Deeds from a developer. (This document tax is non liable when paying Transfer Tax)

 

Mortgage Tax
This tax rate is 1%. It is based on the fact that the bank is "keeping" the property as a guarantee for the money granted to be refunded. That means, by the constitution of the mortgage, the property supposes the guarantee of the capital granted by the bank, plus an extra amount for interests and costs. By adding all these quantities we get the total amount known as Garantía Hipotecaria.

Notary (Purchase and mortgage)
The amount payable varies according to individual circumstances, especially the amount of the transactions and the number of pages of each Deed.

 

Land Registry
The amount depends on different circumstances, especially the amount of the transactions and the number of pages of each Deed, as mentioned above.

According to the Usual Agreement, the purchaser should pay all the above expenses.

COMMON VENDOR EXPENSES

 

Local tax on increase value of real estate (plusvalia):
This is a tax that should be paid by the seller each time the property is sold. In any case, an agreement can be reached in order for the purchaser to pay.

This is a tax which is increased according to two variables:

 

1) Value of the plot where the property is located. This value is known as Catastral Value of the plot, and is included in the Council Tax receipt (I.B.I.).

 

2) Depending on the number of years of ownership the tax increases up to a maximum of twenty years, where the tax increase is no longer applicable. The first year of ownership is tax free.

Common disbursements to be expected once the property is owned

	Property Tax (I.B.I - Impuesto de Bienes Inmuebles): This tax has to be paid annually by the owner of a property to the Town Hall.
	Electricity: This bill is paid every two months and has a standard charge, depending on the power contracted plus the consumption.
	Town Water: Is payable every three months.
	Refuse collection charges: These charges have to be paid periodically, depending on the area that you have your property, normally every two months, six months or yearly.
	Community charges and extraordinary expenditures: These charges are agreed by all the owners at a General Assembly Meeting that normally takes place every six months or once a year and where the members of the community approve an annual budget of the expenditure foreseen in the maintenance of the communal areas. Each co-owner has to contribute to the complex in accordance to his/her own proportion or part thereof the community. Apart from the referred charges every Community of Property owners have extraordinary expenditures which are passed at a General or an Extraordinary Assembly Meeting.Every proprietor will contribute in accordance to his/her own proportion.

 

Capital gain tax
This is a tax payable to the Government and you are liable when it comes to your Income Tax Declaration for the year in which the gain occurs.
Capital Gains Tax varies, depending on whether the person is a Resident in Spain, with his current Residence Documentation or a Non - Resident.

Non-residents
In general, the rate charged is of 35% on the profit obtained.
It is important that you bear in mind that a corrector index is affected so to adjust the inflation effect. For example, a Property Purchase Operation is completed in 1.992. In 2.002 the property is sold. Every year the Spanish Government will publish the coefficient to consider the pesetas value of 1.992, comparing it to the current one.


Residents- There is two options:

Main residence
As long as the profit obtained from the sale of your main residence is reinvested and you plan on purchasing another property in Spain within two years, the profit obtained is FREE OF CAPITAL GAINS TAX.

Other properties
In the case the person in question owns more than one property in Spain, it depends on the period of time he has owned the properties.

a) If the property is sold before one year from acquisition, the liability would be on the corresponding rate according to the "Impuesto de la Renta de las Personas Físicas" (Income Tax) as regular income. The rate could reach a high point as it would increase as the profit increases. It could be of 48% on profits higher than 54.000 Euros.

b) If the property is sold after more than one year and one day from acquisition (from a tax point of view, this is considered as two years), the rate would be 18% on the profit obtained. This is a common case as it is preferable (for the seller) to wait this period of time as the tax implications are considerably reduced.