Taxation in Spain

You will need a Spanish NIE (Número de Identidad de Extranjero) before you can purchase a property in Spain because you are not permitted to complete a significant financial transaction without one, either as a resident or a non-resident.

NIE (‘Número de Identidad de Extranjero’)

The NIE is a tax identification number that must be applied for personally at the Foreigner’s Office or National Police Station. Where appropriate, a residency certificate can be applied for at the same time.

“It [NIE] is a requirement by law, and is required for everything from buying a car to opening a bank account,” remarks Jonathan Goodman, founding member of Spectrum, the independent financial advisors.

New and resale taxes

The purchase taxes payable are dependent on whether the property is new or resale.

New-build homes generally command IVA (VAT) of 10% and AJD (stamp duty) of 1.5%, while there is up to 10% IPA (transfer tax) to pay on resale homes. However, these taxes are dependent on where the property is located.

Where a resale property is sold by a non-resident it is usual practice for 3% of the purchase price to be retained by the lawyer acting on behalf of the buyer. This is a legal requirement and is paid to the Spanish tax authority on account of capital gains tax. Where the seller has not made a profit, it can be claimed back.

The ‘plusvalía’

Both new and second hand properties are also subject to plusvalía. This local (municipal) tax charged by the town hall on properties when they are sold is paid on the increase in the value of the land; the exact percentage is decided by the local tax authority, and is dependent on location, the time elapsed since the last transfer of title and the land size. The plusvalía is legally the responsibility of the vendor.

Complementary tax

Be aware of the possibility of a complementary tax (liquidación complementaria) which is sometimes levied following a sale when the price declared on the Title Deed is below that considered the real value by the Spanish Tax Authority.

If you do receive a demand you can appeal in writing to the local authority. It is usually best to get your lawyer or Spanish tax advisor to prepare the paperwork for the appeal, which must be made within 30 days of receipt of the demand.

Tax obligations

The issue of taxes in Spain is a complex area and professional advice is recommended, because the obligations can vary depending on whether you are non-resident or resident.

Focusing on purchasing a property as a non-resident in Spain, you would have to pay non-resident income tax and a local property tax. This is achieved by filing an annual nonresident income tax return.

Goodman comments: “Tax will be due based on any income generated by the property. This can be if the property is rented; the net income after expenses. But this needs to be looked at carefully because the current tax rate is 24.75%.

“If left empty an imputed income based on the valor catastral [registered value], or purchase value if there is no valor catastral, is due.”

Double taxation treaty

Britain has a double taxation agreement with Spain to ensure people do not pay tax on the same income in both countries. In accordance with Spanish and international law, all residents in Spain (nationals and non-nationals alike) are required to declare assets or groups of assets held outside Spain. Assets may include bank accounts, securities, rights, insurance, annuities and property. The declaration is a separate exercise to the annual tax return.

To reinforce this obligation, and as part of Spain’s anti-fraud law, the government requires all residents in Spain to file an annual informative declaration of assets held overseas by 31 March each year. Severe penalties for incorrect, incomplete or late reporting can be incurred and the legislation also means that criminal charges can be brought in the case of non-compliance.

Utilities and taxes check

If there are outstanding payments on utilities the debts must be settled before services can be reconnected or transferred into your name. Outstanding taxes must be paid before you can take ownership of the property. Therefore, it is important that a check is made of electricity, water, community fees, refuse
collection, council tax and plusvalía tax.

In addition, other local taxes will apply, eg for rubbish collection. These (IBI, Impuesto de Bienes Inmuebles) are similar to the UK Council Tax and are calculated and due annually based on the value of the property. In general, the tax is around 2%.

Continue to section 4: Mortgages

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