Property Taxes In Spain
When buying a house in Spain it is important to estimate the taxes you will have to pay, not only when you actually purchase your Spanish property, but also local taxes and housing rates which are paid on a yearly basis by all home owners in Spain. Spanish housing yearly rates depend on the value of the house and the area it is in, but here is a rough guide to all the tax expenses you will need to take into account when deciding what house to buy
Taxes Payable at the Time of the Purchase
Re-sale purchase tax: House buyers of re-sale property (as opposed to brand new) are required to pay the Impuesto de Transferencia de Propiedad - Transfer Tax - which is now 7%.
New Properties purchase tax: buyers of brand new houses in Spain are liable to paying 7% IVA (VAT) if the house is finished or is being built at the time of the purchase, plus an extra 1% stamp duty. However, if you buy land in Spain, commercial premises or parking spaces in garages, then the VAT payable rises to 16%.
Increased patrimony tax payable to Spanish Treasury: When a property sale in Spain takes place, a capital gains tax must be paid by the seller. According to Spanish fiscal law, the buyer withholds 5% of the total purchase price to make sure that the seller does not take the money and run. This amount represents a capital gains tax on the profit made by the seller at the time of the sale. That is the difference between the current (official) sale price and the price paid by seller when he/she originally purchased the property + the value of any reforms and improvements carried out since then (the seller must produce receipts as proof of improvements carried out).
The capital gains tax is payable to the Spanish Treasury (Tesoro Público). The estimated amount retained at the moment of the sale is payable once everything has been presented to the local registry and the new deeds are available. This means that property sellers not living in Spain will have to arrange for their Lawyer to see to the necessary paperwork and to formalise the tax payment about a month after the sale. If there is a very big difference between the price you are selling for and the price you originally paid, it might be worth applying for residency before you sell (nationals of EU member states are automatically granted residency, although the paperwork can be a bit tedious) in order to be eligible for the reduced percentage for residents.
Capital Gains Tax (non-residents)
A non-resident seller is liable for payment of a 35% Capital Gains Tax on the profit of the sale of their property unless it was bought before January 1st 1987. However, there are exemptions available for those who have owned their property since 1994 and before. Also, the vendor can offset against the gain made on the sale other costs.
A vendor will be able to mitigate his tax exposure by three different ways:
• Reductions on when the property was purchased.
• Those who bought a property after the 31st of December of 1994 will not be entitled to any reductions.
• Those who bought in 1987 of after will enjoy of a reduction of 11.11% on the net gain for every year they have owned the property before the 31st of December 1996 after taking the first two years. This means that a seller starts benefiting from this reduction, his first 11.11%, if he bought in 1994, 22.22% if he bought in 1993 and so on.
• Those who bought before the 31st of December 1986 will be pay not tax, as the cut-off point is 1996.
Reductions on the inflationary movements
This reduction is obtained by applying a percentage to the l purchase price, raising the original price to the level of the value of the peseta today. This inflationary correction factor is applied to the entire purchase price, as well as to all costs surrounding the purchase. Likewise, improvements and extensions on the property will have to be updated inflation-wise.
The correction factor to be applied will be the following:
Reductions on the inherent costs of the purchase, works done on the property and others.
• Costs of the purchase: these would include VAT of Transfer Tax, Plusvalía Tax (where paid by the buyer), Land registry and Notary fees, Lawyer’s and real estate agent’s fees, where applicable.
• Extensions and improvements done on the property. These should not be confused with maintenance and conservation costs, as these are not deductible. In practice, there is no clear cut distinction between one and the other.
Examples of not deductible costs are repair or maintenance works, such as painting, repairs on heating systems, lifts, plumbing and so on. Also, the installation of iron bars, doors, double glazing windows and similar works on the property.
Examples of deductible costs are the installation of iron bars, doors, double glazing windows and similar improvements on the property.
Please note also that you need a NIE to pay this tax. 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. Residents and non-residents who purchased the property they are now selling before December 1986 are also exempt from the capital gains tax.
What is the Plusvalía Tax in Spain?
The Plusvalía Tax is a tax 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 local authorities determine the amount of Plusvalía to be paid for each house purchase in Spain, depending on the area where the property is located. The market value or sales price of the property does not have an effect on the Plusvalía tax.
Normally, but not necessarily, the seller pays the Plusvalía tax. However, this will depend on the sales agreement. The tax is calculated according to the rateable value of the property and the number of years it has been in the ownership of the vendor.
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