Taxes and expenses related to ownership of property in Spain
With the purchase of a property in Spain, it is important to know what taxes and other expenses are associated with the purchase itself and afterwards.
Expenses related to the purchase of real estate
Firstly, one should, as a rule, expect trading costs to be somewhere between 11 and 13% of the price. There is a difference between buying new construction and a second hand property.
When purchasing a new construction the following has to be paid:
- Stamp duty of 1.5% of the price plus 10% VAT.
When purchasing a second hand property the following has to be paid:
- Stamp duty of 8% of the price up to 400,000 euros. Stamp duty of 9% if the price is between 400,000 and 700,000 euros and 10% if the price exceeds 700,000 euros.
- If a mortgage is needed, an additional stamp duty of 1% is paid.
- In addition to that, there are expenses to the Notary and Registration, which depends on the price. One should expect somewhere between 0.5% and 1% of the price.
- Costs to an Attorney or other consultancy/expert services are typically in the range of 1% of the price.
Costs of ownership of real estate
IBI – Property tax
IBI is an abbreviation of Impuesto sobre Bienes Inmuebles (Property tax). It is a local tax that property owners pay to the municipality, whether you are a resident or a non-resident in Spain.
The tax is calculated as a percentage of the assessed value of the property.
IBI is paid once a year, or in two rates respectively spring and autumn. The payment of IBI can be arranged from the owner’s Spanish bank direct debit service.
Some municipalities include the costs of waste collection in the IBI (property tax) while other municipalities charge this tax separately as payment for this municipal service. There is a fixed fee which is paid regardless of how much you use the property and the amount of waste you produce.
Eligible income from real estate
This tax is levied annually and can be considered as a “substitute tax” to the state for the owners who do not rent their property out.
If the property belongs to several persons, every single person is treated as a separate taxpayer, and each needs to file a tax return.
The tax is calculated from the assessed value (official property valuation). The taxable income is 1.1% of the property valuation (2.0% if the latest update of the property valuation is before 1995). The tax rate for 2014 is 24.75%. The tax is due and payable the following year and latest by the end of December – i.e. tax for the year 2013 must be settled before the 31th of December 2014.
If you have not owned the property throughout the year, or if it has been rented out for periods of the year, the tax will only have to be calculated for the time you have had the property available or owned it.
Tax on rental income from the property
Revenue from rented properties have to be fully declared and is taxed in 2014 with 24.75%. Taxpayers who are residents in the EU though, will be able to deduct certain expenses that are directly associated with the rental of property, which leaves the net profit from the rental subject to tax. Only expenses which are directly related to the property and in direct proportion to the period the property has been rented out are deductible. The tax is calculated and paid quarterly.
As a non-resident property owner it may be a good idea to designate a person as tax representative in Spain. Normally it would be an accountant or lawyer, but it can be any resident person. Any messages from the tax office will then be sent to your tax representative’s address instead of the property address. And whatever request from the tax authorities you might get must be answered quickly (usually within 10 days).
The tax representative will be able to advise and assist in the calculation and reporting of the taxes.
Wealth tax has been temporarily reintroduced for the years 2011, 2012, 2013 and 2014. The taxable amount is reduced, however, in the form of a tax-free allowance of € 700,000 per. person. Those who have a net wealth in excess of 700,000 euros are required to pay and report the tax. Similarly, you must report if your wealth exceeds 2,000,000 Euro, whether you have to pay wealth tax or not.
Contributions to the Owners association and common costs
Most Spanish homes are located in Urbanisations with shared facilities, and each owner must pay his or hers proportionate share of the common expenses. The size of this contribution depends mostly of urbanization size and the facilities available.
When purchasing property in Spain, the purchaser should ensure that there is no debt to the owners’ association, and be aware of the statutes and the recent General Assembly resolutions, so that there is clarity about the commitments one have.
If in the driveway to the property, there is an entrance and exit directly to the street, it can be a good idea to apply the municipality for a ‘Vado Permanente’ (a “keep clear” sign), which gives a right at any time to drive in and out of your driveway. You pay for this “right” by an annual fee to the municipality.
As in most other countries and most Spanish cities there are charging zones for parking. These parking spaces are often marked with blue and nearby are the machines where to pay.
Electricity, water and gas
Taking up contracts with the electricity company and the water and gas supply is an expense that must be taken into account. If the installation can not meet the requirements of the latest standards and technical specifications there can be considerable expenses to reform them. Over the years, many new homeowners have chosen to continue with the previous owners’ contracts and just pay the bills from their own account. This solution may not any longer be recommended, as also the Utility companies are tightening up their systems with the purpose to regulate matters in order to bring clarity between the contract owner and the homeowner
It is not compulsory to take out home insurance or life insurance, but it is an expense that should be considered. There are many insurance companies in Spain and any of these can give quotations on price and coverage.
MW Services can help with home insurance and life insurance. Ask us for a quotation.
More and more homeowners choose to have alarm in their home through an associated alarm company. The price for this will usually be a setup fee and a monthly subscription service.