Taxes and Other Costs Associated With Owning a Property and Living in Spain

The good news is that running and maintaining a property in Spain is generally much cheaper than doing so in  the UK and your payment obligations are:

1. Utility costs
2. Property Insurance
3. Taxes
4. Community Fees (if applicable)

Utility Costs

Consumption of electricity and water is metered and the charges are roughly similar to those in the UK. Electricity is charged bi monthly and there are minimum rates applicable which relate to the potential power your property could use.

Property Insurance

If you have a mortgage it is compulsory to have building insurance and the bank will insist on being the beneficiary of the policy, they have the right to see these policies to ensure the wording is correct. Generally premiums for property and contents insurance are not dissimilar to rates charged in the UK and there are many companies offering comprehensive policies in English, we work with AXA insurance and are happy to give you a quote.

Taxes

If you own a property in Spain you will have to pay tax. Tax is handled by the Delagacion de Hacienda (The Spanish Tax Office). The basic rules of residence are that if you spend more than 183 days per annum in the country you become liable to taxation, whether or not you make a formal application for a residence permit or not. In Spain it’s the individual’s responsibility to obtain the relevant tax form and calculate his or her own taxes, submit the form and pay the amounts due.

To make life easier we offer a  Fiscal Representative service and will do the work on your behalf. In general, tax law is bureaucratic and complicated, be aware that joint ownership of assets even between husband and wife are complex issues.

The principal taxes are as follows:

Impuesto Sobre Bienes Inmuebles, or IBI (SUMA) – Local Rates
Impuesto Sobre la Renta – Notional Letting Value Tax
Impuestos Sobre la Renta de las Personas Fisicas - Income Tax
Impuesto Sobre el Patrimonio – Wealth Tax

Impuesto Sobre Bienes Inmuebles (IBI/SUMA) / Local Rates

This is the main property tax and is equivalent to local rates in the UK, the collected money is used to pay for local amenities and services, etc. The amount of tax is calculated by reference to the valor catastral (Ratable Value) registered in the tax office. The valor catastral takes into account the value of the land and buildings and reflects the position and use. Although in practice the value attributed is far less than the real value.

Properties are re-valued every 10 years and the amounts valued increase annually according to inflation. Rates for IBI vary from area to area but typically are set between 0.2% and 0.4% of the valor catastral. The Spanish Government will be increasing valor catastral to keep it in line with current property prices, so although they are low at the moment, expect increases over the coming years.

Impuesto Sobre la Renta / Notional Letting Value Tax

Until recently this property tax has been rather overlooked by the Government; however it is starting to be enforced with the introduction of article 16 of the Spanish Income Tax Law, which specifically states that personal use of the property will be treated as income, notionally receivable on the 31st of December each year. This tax is based on notional letting value of your property and is applicable to non-residents and also to Spanish people with second homes, but it is not applicable to commercial properties and land.

Notional rent values are set at 2% of the valor catastral value or 1.1% if the figure has been revised since 1994. This value is added to the income tax calculations for residents and collected at that time. For non-residents a flat fee of 25% of valor catastral is paid directly to the tax authority.

The return in respect of this notional income is made on a Form 214 (Impuesto sobre el Patrimonio y sobre la Renta de no Residentes), which is available from any local tax office.

Impuestos Sobre la Renta de las Personas Fisicas / Income Tax

You are obliged to file and sign a personal income tax return between May 1st and June 30th of the following tax year. For example, the tax return declaration due in May/June 2008 covers the period 1 January to 31 December 2007. We can help you with this, but the responsibility of finding out and presenting your taxes correctly is entirely up to you.

For non-residents the Hacienda (unless otherwise notified) is only interested in your activities that earn money in Spain. As a resident you are liable for tax on your worldwide income with rates starting at 15% and running up to 45% (these rates may be subject to change soon). The following activities are defined as income:

1. Salary including share dividends, etc.
2. Interests on bank balances, etc.
3. Money derived from a business activity in Spain.

Non-resident property owners for tax purposes must still make an annual declaration for income tax. This information will then be declared to the British tax office but tax relief exists due to the treaty between Spain and the UK that resolves many of the double taxation issues.

Residents in Spain can have a tax break up to the first 3,300€ earned. People over the age of 65 receive a tax break on the first 3,900€ earned

Special Note: Any rental income arising in Spain is due under your annual income tax declaration. Recent government legislation requires tenants who make income tax declarations in Spain to list their landlord’s name and tax identification number on their income tax form.

Impuesto Sobre el Patrimonio / Wealth Tax

Both residents and non-residents are expected to make a declaration of assets in Spain on an annual basis. These typically are property, car and bank balance. The value used when declaring the value of the home is decided either from the greater of the valor catastral or the acquisition price on the title deed. Mortgages and debts registered against the property can be deducted from the value. The amount of the bank balance is the average cleared bank balance over the previous year, this information is supplied by your bank.

Community Fees

In certain areas there is a Community of owners, a legal body set up to own and maintain the common grounds and buildings of the estate. Typically a president will be elected to ensure the smooth running of the Community, by law he or she must be an owner and serve unpaid.

Each owner within the estate is then expected to contribute to the running costs of the services that the community provides, typically these are things like security, repainting the buildings, ground and garden upkeep, building insurance etc. The budget for these works is set at the AGM and owners will approve the budget from a majority vote with contributions being set from size of the apartment or plot in proportion to the estate as a whole. There is no rule on how much community fees will be, but the more expensive the urbanization the higher the levy.

For more information on Tax Rates in Spain, consult the English language section of the Hacienda (tax authorities) site: http://www.aeat.es.