Unbeknownst to most non-resident property owners, on buying property in Spain, you automatically become liable to pay IBI tax the following year. No one will give you the heads up on this tax, so it is up to you to find out how much you owe and comply with your local Tax Authorities. IBI tax is the Spanish equivalent of the UK’s council tax.
IBI tax is of crucial importance because it has associated a valuation for tax purposes of your home known as 'cadastral value' (valor catastral, in Spanish) which is used as the benchmark to calculate any, and all, property-related taxes. Non-payment will lead to dire consequences you should be aware of.
IBI Tax - Definition
The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents. In some parts of Spain, it is known as SUMA. All property owners must pay this tax every year.
This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum).
Importance
- IBI tax is used as the benchmark to calculate all property-related taxes.
- On selling, a buyer’s lawyer will demand copies of the IBI invoices for the previous 4 years.
When is it due?
- Town halls are empowered to rule on this, so it varies. Normally due once a year. By Law, whoever owns the property on the 1st of January is liable to pay this tax.
Consequences of non-payment
- It may lead to your property being impounded and sold off in a public auction. Spanish town halls, besieged by dropping revenue, are becoming increasingly adept at pursuing aggressively this local tax post-credit-crunch, particularly for high-end property.
- It is not possible to file and pay non-resident income tax (either quarterly, if you lease, or annually as imputed income tax), as it requires for its calculation a copy of an IBI tax invoice. This in turn will attract fines, delay interests and surcharges.
- On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax on the previous 4 years.
- As a seller, you may forfeit the 3% sales proceeds tax rebate (plus legal interests). When a seller is non-resident in Spain, a buyer must withhold 3% of the sales proceeds by Law and pay it into the Spanish Tax Office. Non-resident sellers may be entitled to a tax rebate on the 3% withheld (subject to criteria) if up to date with the taxman.