Hey guys, welcome back to Verdin Property and our latest blog which is all about the property taxes our buyers have to remember when purchasing from us. We know you will enjoy this article, it’s sure to be informative and also relevant to a lot of you!
The cost of buying, owning, and selling a property in Spain: one-off and annual taxes and fees.
We know the property tax in Spain is lower than Europe’s average, although you still should be prepared for a number of taxes and fees, including annual taxes and also the tax implications of selling a house.
Moreover, the full cost of buying, owning, renting out, and reselling a property in Spain varies depending upon the type of property, your residency status, and the community where you buy a house.
In this article, we help you quickly navigate all of the nuances of purchasing and also owning a property in one of Europe’s sunniest countries.
So, let’s kick-off and give you a complete picture of property taxes and fees payable in Andalucia. We believe that explaining everything in simple terms will make the process much quicker!
The property taxes and fees to pay when buying a house
As many of you might know, there are no restrictions on foreigners to purchase real estate in Spain.
The costs are as follows.
Two primary property taxes exist for buyers in Spain. IVA (VAT) is the main tax assigned for newly-built houses while the transfer tax is the main extra payment on resale homes. In general, the buyer should plan for an additional 8 to 10% of the total sale price.
IVA accounts for 10% of the selling price of the new build. The property is considered a new-build if it’s sold directly by a developer.
The transfer tax (ITP) is currently set at 7% of the selling price in Andalucia as part of a progressive transfer rate. To give you an idea of the advantages of purchasing on the Costa Del Sol, let’s get more specific and compare the transfer tax rates in several Spanish communities.
We know the following:
Transfer tax on buying a property in Spain by region:
- Asturias, Catalonia, Valencia and Costa Blanca, Galicia: 10.1%
- Extremadura: 9.9%
- Castilla y Leon: 9.6%
- Cantabria: 9.5%
- Balearic Islands (Mallorca, Menorca, Ibiza): 9.2% average
- Castilla la Mancha, Murcia: 8.1%
- Aragon, La Rioja, Pais Vasco: 7.1%
- Canary Islands: 6.6%
- Madrid, Navarra: 6.1%
- Alava: 4.1%
- Ceuta, Melilla: 3.1%
Additionally, when purchasing a property, you should also take into account the following fees.
- Lawyer’s fee (0.7-1%)
- Notary fee (0.1-2%, depending on the property price)
- Property registry cost (0.02%-0.175% depending on the property price)
- Stamp duty tax, if you get a mortgage (1-2% of the mortgage amount).
Annual property taxes in Spain for EU and non-EU citizens
The property owner must pay two taxes annually: council tax (IBI) and also personal income tax.
The council tax on the property is calculated by the local municipal authority every year. This accounts for 0.2-1.5% of the cadastral value on January 1 of the current year.
The good news is that cadastral value is usually about 20 times lower than the true market value of a house.
Your personal income tax varies depending upon whether you rent out your house and where you have your primary residence.
If the property is rented out, Spanish residents and EU/EAA citizens pay 19% of the rental income, and non-EU/EAA citizens pay 24%. The rental income must be reported and taxes paid within one month after the rent is received.
EU/EAA citizens also can get an income tax reduction, due to expenses related to the Spanish property. To obtain this reduction, you need to provide all related deeds and documents.
If the property is not rented out, non-residents still must pay the Imputed Income Tax. This is the tax on the potential income this property could produce, which is about 0.4-0.5% of the cadastral value.
In addition to these two taxes, there is also a wealth tax on properties with market values exceeding €700,000. The general rule (applied to all non-residents) is the taxation of 0.2%-2.5% depending upon the value of the assets.
Tax implications after selling property in Spain
If you decide to sell your house, you’ll pay a capital gains tax on your profits from the sale (i.e. increase in the value of real estate above its purchase price).
Like personal income tax, it’s rate is also 19% for EU/EAA citizens and 24% for non-EU citizens.
There are some ways to secure tax relief. For instance, you can get a deduction if you have lived in the property for at least three years before selling it.
Another tax to bear in mind is Plus Valia.
This is taxation on the plot of the land where the property is situated. It’s calculated based upon the increase of the land’s value and also the number of years you were the owner. The exact figure is given by the local Town Hall (Ayuntamiento).
Other property-related taxes
We have mentioned the main property taxes above, although there are further payment obligations that homeowners might wish to know about.
Inheritance and gift taxes (or death duty taxes) levied on bank accounts, real estate, and art, have relatively high limits in Spain.
Andalucia implemented a 99% tax relief for EU/EAA-residents in 2019, becoming the first region to do so.
We ended up with rates as low as 0.5% for gifted amounts of up to €500,000! As a result, required payments dropped from €112,800 to just €1,100.
Many factors can increase taxation rates up to 82%. Some expats face double taxation! Both in Spain and also in the country of their primary residence. That is why inheritance and gift taxation are compelling reasons for consulting a local tax advisor. The tax man counts his pennies for us all unfortunately.
Disclaimer: We are not lawyers, accountants or financial advisors and we always recommend you receive proper legal consultation whilst buying or selling a property.
We are looking for British purchasers coming to Spain!
The beautiful scenery and also amazing properties of the Costa Del Sol need to be filmed! Verdin Property are teaming up with Channel 4 to film a new season of Sun, Sea & Selling Houses.
To this end, if you and/or your partner are of British/Irish nationality planning to visit us to purchase your new home, and are interested in having certain parts of your property tour being filmed and aired, then contact us directly!
We believe it’s a great opportunity for all of us!
Additionally, make sure to follow our social media and YouTube channels to keep up to date with our life in Marbella. Hundreds of people have found their new home with us, are you the next?