If you are thinking of purchasing a holiday home in Spain, either for personal use or as an investment then here are some important things to know …
What will I need to purchase a property in Spain?
As a foreigner, you will need to obtain a NIE (Número de Identificación del Extranjero), which is a unique tax number. If you are not able to apply for this in person in Spain or via the Consular Office in your country of residence, then you can appoint a representative by granting them a power of attorney. You will then be able to open a bank account in Spain, which you will need to pay the utilities invoices, community fees and mortgage monthly repayments if applicable.
What are the taxes involved when purchasing a new build?
You will be charged VAT (IVA in Spain), which is 10% of purchase price or 7% in the Canary Islands (IGIC) plus a stamp duty (AJD) of 1% of the purchase price, however this may vary depending on the region the property is located.
What are the taxes involved when it is a resale from a private individual?
You will be charged a transfer tax (Impuesto sobre Transimisiones Patrimoniales – ITP), which will depend on the region the property is located. This can range between 6% and 10% and is based on the reference value or purchase price (the higher of the two). The reference value (Valor de Referencia) has come into effect from 1st January 2022 and it is the value the Tax Authorities use to calculate the Transfer Tax, the Inheritance Tax and Gift Tax.
Ask the experts!E.B.F Consulting has over 20 years’ experience assisting expats with their move to Spain. Please do not hesitate to contact us email@example.com and we will be pleased to help.
Phone: +34 928 513 311 / +34 928 513 300
What costs are involved when purchasing a property?
Fees relating to the Estate Agent, Notary, Registry, Translator and lawyer will vary in each region and the professional. You should estimate approx. 14% for a new build and 11% for a resale, which includes the taxes.
Once I have purchased the property, do I have to pay tax if I do not rent it out?
If you remain a non-tax resident of Spain (you live permanently and are tax resident in another country), there is an annual private use tax (deemed income tax) based on the official rateable value of the property (valor catastral). This value is detailed on your local rates receipt (IBI) and the tax is 24% of 1.1% or 2% of this value. However, if you are an EU/EEA tax resident then the 24% is reduced to 19%.
Where do I pay the tax on my rental income?
Tax is paid in Spain each quarter, irrespective of where you have received the income. Additionally, you will need to include the income in your Annual Income Tax Return presented in your country of residence and offset the tax paid in Spain as a credit.
How is the tax calculated?
If you are an EU/EEA tax resident, then you can offset expenses related to the rental income. Some expenses such as electricity, water, local rates, community charges etc. will be proportioned in accordance with the number of days the property has been rented out. Other costs directly related to the income received, like agent commission and cleaning are 100% deductible. The profit is then taxed at 19%. If you are receiving the income from a property management agent in Spain who deducts costs related to the management of the property (not just commission) then they should be withholding the tax at source, in which case you do not submit the quarterly return.
If you are not an EU/EEA tax resident, then you are can not offset any expenses and you are pay 24% tax on the rental income. For more information refer to our article.
Is there additional tax to pay on my rental income?
If the property is subject to long let and considered the tenant’s home then this is not subject to IVA or IGIC (value added tax), however if it is a holiday let then you may find that you will have to charge the corresponding rate of IVA/IGIC and file quarterly returns.
Do I have any other obligations, should I decide to rent out my property?
You will have to register with the local Guardia Civil (civil guard) and inform them of the guests staying in the property; they will need their full names and passport details. Although the registration must be done in person unless you authorise someone to represent you, the notification of guest’s details can be completed online. Most property management agencies offer this service. In addition, you should have authorisation from the tourist board; the requirements for this vary depending on the region.
What are the tax implications should I decide to sell the property?
Capital gains derived from the sale of a property is subject to 19% tax. There is no tax exemption for selling over the age of 65 nor for re-investing in another property.
When you sell the buyer will withhold 3% of the sales price and pay this to the Tax Authorities within one month of the purchase-sale after signing in front of the Notary. It is important they give you a copy of the receipt (Form 211) so that you can present your capital gains tax return, which must be filed within four months after the sale.
Another tax to be paid when you sell is based on the increase of the value of the urban land (IIVTNU) otherwise known as the “plusvalia municipal”, a local council tax. The Supreme Courts have ruled that if there is no increase in value then there should be no tax should be charged.
Are the tax implications the same if I decide to move to Spain and live there for more than 183 days?
Should you decide to live in Spain for more than 183 days then you will not be liable for the private use tax. Instead, you will be obligated to file an annual income tax return to declare worldwide income and worldwide wealth.
Ask the experts!
E.B.F Consulting has over 20 years’ experience assisting expats with their move to Spain. Please do not hesitate to contact us firstname.lastname@example.org and we will be pleased to help.
Phone: +34 928 513 311 / +34 928 513 300
“If you are thinking of buying in Spain, contact email@example.com, experts in international investment”.