There are 5 key taxes most applicable to non-resident property owners.
Income Tax
Every non-resident owner of a Spanish property has to pay an annual tax
to account for their "share" of the property. Although it's called an
"income tax" it's not actually based on your level of income, but on
a "deemed" or "notional" income, which is a percentage of
the rateable value of the property multiplied by the non-resident tax rate of
24.75%.
This tax is based on the calendar year and is always due within 12
months of the end of the tax year, so for the 2020 tax year, tax needs to be
paid before 31st December 2021.
Property or IBI Tax
Property rates in Spain
is referred to as IBI and, like the UK,
this tax will be levied by your local council in Spain. The council will assign a
rateable value to your property and then your rates or property tax will be a %
of this amount. The % will depend on your council, but in most cases it will be
somewhere between 0.5% and 1%. So if you had a rateable value of €50,000 and
your local percentage was 0.75%, then your annual rates bill would be €375.
This tax is also based on the calendar year but will normally be payable
between June and September each year, again this will be dependent on your
local council.
Rental Income Tax
Up until the end of 2009, rental income tax was 24% of the gross income
you received on any rentals. So if you generated €1000 by renting out your
property, then you would have to pay €240 in tax. You could not offset any
expenses - i.e. cleaning, utilities, insurance, mortgage interest, marketing,
management fees etc.
However, since January 2010, the rules have changed, which means
that you can now offset expenditure when calculating what income, or
effectively profit, will be subject to tax of 24.75%.
In theory rental income tax returns need to be submitted each quarter,
to account for income received in the preceding 3 months
Capital Gains Tax
When a non-resident owner sells their property, they will make a capital
gain or a loss upon the sale, which is the difference between what they paid
for the property and the proceeds of the sale. The buyer of the property should
always withhold 3% of the sales value and pay this to the Spanish tax office as
an "advance" of the buyer’s potential capital gains tax. It is then
up to the buyer to calculate their gain or loss, and if a gain has been made
this will be subject to 21% tax. The buyer should pay the 3% within 1 month of
the sale date, and the seller then has a further 1 month in order to submit
their calculation of a gain or loss and the corresponding tax returns.
Inheritance Tax
Inheritance tax for non-residents is a tax on the beneficiaries and not
on the deceased as it is in the UK.
The tax rates themselves can vary depending on the relationship of the
beneficiaries to the deceased, the amount that is being gifted, their age, and
even their wealth in Spain
and in the very worst situation tax rates can reach levels of 81%!
The other major issue for UK people is that transfers between husband
and wife in Spain are not tax exempt as they are in the UK, so if a spouse were
to die, then the surviving spouse, in most cases, will need to pay inheritance
tax (as well as probate) in order to take on the additional 50% share of the
property.
It will normally take approximately 6 months to deal with the probate
issues in Spain
and pay any outstanding inheritance tax, before the property deeds can then be
altered.
No Inheritance Tax is payable if the property is owned by a UK company,
since even if a shareholder dies, the company can continue in existence and the
shares passed on to a beneficiary under UK rules. This requires SPECIALIST
advice.
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This is a very basic outline of taxes in Spain, applying to non-residents.
Both residents and non-residents are always encouraged to seek professional
advice.
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You will note that the
leaflet does not contain the Spanish titles of the taxes, as it is aimed at a UK audience.
