Spain offers an amazing lifestyle, with beautiful scenery, year long sunshine and blue skies and great food, no wonder so many people choose to move here every year. But when considering your budget for buying a property in Spain, it is important to also take into consideration the taxes you will have to pay not only when buying the house, but also housing rates and local taxes you will have to pay each year.
Taxes for the Buyer
Taxes when purchasing a house, depend on whether the house is a new-build or re-sale property.
A new build is a property that is being sold for the first time, usually directly from a property developer or from the bank. The tax is 10% IVA if the house is finished or being built at the time of purchase. plus an extra 1.5% Stamp Duty in Comunidad Valenciana or 2% in Murcia.
A resale property is any property that has been sold before. In this case you don’t need to pay VAT or stamp duty, but are required to pay a Transfer Tax (Impuesto de Transmisiones Patrimoniales) which varies from region to region and is currently set to 8% in the region of Murcia and 10% in Comunidad Valenciana.
For purchase of land, commercial premises or parking spaces in garages – the VAT rises to 21%.
Taxes for the Seller
Captial Gains Tax
As a seller, you’ll have to pay capital gains tax on your profits from the sale if you sell a property more than one year after purchasing it. Capital gains tax is worked out as the difference between the amount that you sell the property for and the amount that you declared having purchased it for previously, minus any inflationary gain. The buyer normally withholds 3% of the total purchase price to make sure that the seller does not take the money and run. This amount counts towards the capital gains tax on the profit made by the seller at the time of the sale. Capital gains tax is 19% for non residents.
Capital Gains Tax for Residents is calculated on a sliding scale:
19% on the first €6,000;
21% on €6,000 to €50,000; and
23% on €50,000 and above
As a resident, you can however apply for tax relief; providing that you have lived in the property for at least three years before selling it.
Any seller who is over 65 and has been a legal resident in Spain for the last three years does not have to pay this tax.
Land appreciation tax (Plusvalía)
This is set by the local authorities and based on the increase of the value of the land from the date the owner acquired the property to the time of the present sale.
The amount of plusvalía is determined by local authorities and depends on the area where the property is located. Plusvalía should be paid for each property sale in Spain, Plusvalía tax is not affected by the market value or sales price of the property, but is calculated according to the rateable value of the property and how long the seller has owned it. Plusvalía tax is normally paid by the seller.
Taxes throughout the year for property owners
For local taxes, the amount you pay will depend on the “Valor Catastral” of the property, which is set by your local town hall. The rates of tax vary from region to region depending on the tax imposed by the regional and local governments.
As a property owner, you’ll need to pay property ownership tax (IBI) whether you’re a resident or a non-resident.
IBI Impuesto sobre Bienes Inmuebles – This is the main tax you pay each year to the local town hall and is similar to UK council tax. If you own a property and are living in it on the 1st January each year, you are liable to pay a local property tax called IBI. This amount varies depending on the area you live in, but is basically the rental value multiplied by a tax rate set by the local authorities roughly about 0.5% to 1%. This tax applies to residents and non-residents.Basura – Local mains drainage and refuse collection tax (basura y alcantarillado)
This is a once yearly rubbish collection and drains maintenance tax and usually costs around €200-€250 per year. Non residents also have to pay income tax on real or potential income from your property.
Income Tax – As a non-resident, you will only need to pay taxes on income generated in Spain, however this includes income from property. Impuesto sobre la Renta de No Residentes, (or IRNR for short) needs to be paid whether you make money from renting your property or not! If you do rent out your property, and you’re an EU citizen, you can deduct any rental expenses, including any interest you pay on a mortgage. Income Tax from property is currently set to 19% of your net rental income. Even if you don’t rent out your property, you’ll still be taxed on the “potential income” your property could generate if you had rented it out. Currently, this is 1.1% of your property’s cadastral value. And income tax on the “potential income” is 19% for EU citizens and 24% for citizens of other countries.
If you would like advice about buying a property in Javea or Spain generally, please feel free to contact us.