The non-resident, pensioner, and ex-pat resident homeowner’s guide to tax in Spain.
When you own a property in Ibiza or Spain, you are liable to pay several taxes. They consist of personal income tax on property or any rental income, capital gains tax when you sell a property, and inheritance tax, where applicable. Furthermore, in Spain, there is an additional tax that has no equivalent in the UK, the Spanish wealth tax.
You will always be advised to keep digital and hard copies of all invoices relating to your purchase. In the event that once you have bought your property, and you have to carry out any building work or renovation projects, be sure to keep copies of your building licenses and invoices. You can balance expenses against your capital gains liability when reselling and, in this way, reduce your capital gains tax.
Below we list a complete description of the taxes related to owning a house in Spain.
Personal Income Tax (Impuesto de la renta de no residentes, declaración ordinaria, (IRNR).
While you are a non-resident, this tax applies only to the income from the property. Income from salary or self-employment will be declared in the country where you are a resident for tax purposes.
You are subject to personal income tax if the following conditions apply:
• you do not reside in Spain
• you are a homeowner in Spain
• the property is for personal use or rental purposes
• you have no other source of taxable income in Spain
The income subject to taxation varies depending on what the property is used for. Here’s a breakdown:
PERSONAL USE OF THE PROPERTY
If you are a non-resident whose only taxable property in Spain and is exclusively for personal use, you may elect to use a single form (form 210A, and indicate income type 02) to declare both property tax and personal income tax on the estimated income from the use of that property.
The tax base is 2% of the ‘cadastral’ value of the property – which you will find on the IBI receipt or 1.1% if the cadastral value has been adjusted since 1st January 1994. Tax rate: 24%.
The form has to be filled in between January 1 & December 31 of the following year.
PROPERTY OWNED BY A MARRIED COUPLE
If you are a married couple or you own your property with other people, each person is considered a separate taxpayer and must file tax returns separately.
RENTAL USE OF THE PROPERTY
This is the regular “IRPF” income tax paid by most people living in Spain. The personal Income Tax (IRPF) is a national tax.
If you are a non-resident and you rent your property in Spain, you will have to pay income tax on the rent instead of the imputed tax. If you rent your property to a Spanish company, they will deduct the tax at source and pay it to the tax authorities themselves.
For ordinary return – form 210: by using the general section 210-A, and indicating income type 01. Complete form 210 one month after the date on which the rent is due.
For collective return – form 215: also indicate income type 01.
Complete form 215 (filed for each quarter) in the first 20 days of the month, following the end of the quarter.
In this case, you should declare the total net rent collected from the tenant, deducting any expenses. The tax rate is 24% of this income.
Wealth Tax (Impuesto sobre el patrimonio)
All property owners in Spain (both residents and non-residents), have to pay this annual tax. It’s based on the net value of your total assets in Spain (after the deduction of the mortgage) and collected annually by the regional government.
If you are a resident, the wealth tax is paid on your worldly assets – with generous tax-free allowances.
If you are a non-resident, you will pay it on your net assets in Spain – with less generous allowances.
If you are not a resident in Spain but own only one property in Spain and it is for personal use only, you can deal with both personal income tax (IRNR) and wealth tax (Patrimonio) jointly with form 214. For wealth tax alone use form 710.
There is a tax-free allowance of €700,000. After that, the tax rate works on a sliding scale starting at 0.2% and raising to 2.5%
Local property tax in Ibiza – IBI (Impuesto sobre Bienes Imuebles)
If you own an Ibiza property, IBI is a municipal tax, which has to be paid annually at the town hall. The amount is based on the ‘cadastral’ value of the property. The tax rate which has been approved by each Town Council – and which is the same for all properties within the municipality – will be applied to this value.
Form 714, is the same as for resident taxpayers. Filing period: May 1 – June 20 of the following year.
Regardless of the value of the property, every non-resident who owns a property in Spain must file the tax forms on December 31 of each year.
The tax is calculated based on the highest of the following three values:
1. The ‘cadastral’ value, as reflected in the property tax receipt for the year to which the return refers.
2. The value assessed by the Spanish Tax Office for purposes of other taxes.
3. The purchase price.
The taxable amount is based on the value plus any charges or liens on the property minus any mortgage the property has.
Each individual must file a separate return; if a property is owned by a married couple or by various people, each of them must file a single return for the portion of the house owned (usually 50%).
IF YOU RESELL YOUR PROPERTY IN IBIZA:
Capital Gains Tax (Plusvalía)
This is a municipal tax paid on the increase in value of the land when you sell a property and bears no relation to the value of the property or buildings on the land, as rated in the ‘cadastral’ value. It is an administrative value that is usually considerably lower than the market value of the property. It is calculated on the increase in value of the land on which the property sits and the number of years since the property changed hands.
It is paid by the vendor at the town hall within 30 days of the date of sale of the property.
If the vendor is a non-resident, it is common for the buyer to withhold the funds and pay the Plusvalía tax themselves, and protect themselves against liability in the event that the vendor does not pay.
If you own property in Spain, or if the beneficiary resides in Spain, then you will be liable for inheritance or succession tax.
The main difference between the UK and Spanish inheritance tax is that there is no exemption between husband and wife. When one dies, the other is liable for inheritance tax on worldly assets. A surviving spouse may be left a `life interest´ in the property instead.
Tax rates range between 7.65% and 35% and beneficiaries are graded into 4 categories whereby the more distant the relationship, the lower the tax allowance and the higher the tax.
If you are UK domiciled you are liable to pay tax in both countries, but these liabilities can be offset against each other. An offshore trust can mitigate inheritance tax and further protect your assets.