Seven Taxes Levied in Spain

The following are types of Spanish Tax that expats or Spanish house buyers might need to be aware of when buying investment homes in Spain.

Impuesto Sobre el Valor Añadido - IVA (V.A.T)

is a tax on consumption in general which applies to the following: the supply of goods and services, imports and the acquistion of goods from other EU members.

The standard tax rate is 16%. A reduced rate of 7% is applied to the supply of certain goods and services for example: property, foods in general, household supplies, etc. There is also a further reduced rate of 4% for essential food products, bread, milk, eggs etc, medicine and pharnaceutical products, books and newspapers.

Capital Gains Tax (Impuesto Sobre el Patrimonio)

is levied at a rate of 35% for non residents after various allowances. Gains from assets held for less than one year are treated as income tax and taxed accordingly. In the case of selling a property, Spanish law does not stipulate who is liable for this tax so it’s important this is negotiated by your solicitor prior to signing any contract. Due to the Double Taxation Treaty CGT is not duplicated in the UK, but any profit must be declared.

There are considerable advantages for residents as far as Capital Gains Tax is calculated. CGT is generally charged at a rate of 15% of net profit, and up to 100% relief can be obtained when selling your main residence and reinvesting the profits into a new property within a two year time scale. If only half the gain is reinvested, then only half is taxable. Also if you are a Spanish tax resident of 65 years of age or older, have lived in your main residence for over three years, then any gain, when selling your property, is exempt of any tax. A very attractive option for people looking to retire to Spain.

More about Capital Gains Tax in Spain

Wealth Tax (Patrimonio)

A resident in Spain is required to declare his worldwide assets, while a non-resident declares only his property and assets in Spain* For a property, it is based on the price of the dwelling, as shown in the title deed (Escritura) and depending on this value, the percentage payable varies form 0.2% to 2.5%. On an asset valued at €150,000, based on last year’s Wealth Tax rate, the amount payable is approximately €300.

*Taxable assets can include yachts, bank deposits, stocks and shares, ownership of businesses, etc.

Income Tax (Renta)

is presently taxed at 25% for all income generated by non residents, before allowances. Income tax is also charged against a property on a yearly basis. It is set at 1.1% or 2% of the Valor Catastral (assesssed value of the property), depending on whether the Valor Catastral has been revised since January 1994. This amount is considered as an imaginery yearly income and taxed accordingly at 25%. Any income has to be declared in the UK, but due to the Double Taxation Treaty, taxed income in Spain is not liable for income tax in the UK.

IBI (Impuesto obre Bienes Inmuebles)

is paid if you own a property, this annual tax is based on the valor catastral (official rated value of a property for tax purposes). The amount can vary greatly, depending on where you live and the type of property you own, as it is a municipal tax. It is raised on a yearly basis in line with inflation and can vary greatly depending on the type of property and the location.

Inheritance Tax

is paid to the Hacienda (Tax Office) on the value of any assets in Spain on the date of death. It is a complex calculation based on an individual’s inheritance and not based on the estate as a whole. This means that if two people are inheriting the property, they will be taxed separately, based on their personal circumstances. Rates of tax payable vary from 7% to 35%, depending on one’s relationship with the deceased and the inheritor’s pre-existing wealth in Spain. To avoid any unnecessary, and potentially very expensive, complications later, it is strongly advised that you draw up a Spanish will simultaneously to purchasing your property in Spain.

Corporation Tax

is levied at a standard rate of 35%, and at 30% on the first €90,151 for companies with a turnover of less than €5m. Corporation tax credits are allowed for job creation, investment in research and development, environmental investment, and investment abroad. Buying through a company is only tax-effective if you are a Spanish tax resident.

If you are going to live in Spain permanently, it is worth considering setting up a variety of trusts in order to minimise the amount your assets are taxed and create flexible vehicles for investment purposes. But this is one for you to decide on with your tax advisor.