Congratulations, you are now the proud owner of a Spanish property!
It’s understandably a time to be giddy and excited. But has anyone bothered to tell you about the ongoing maintenance costs and taxes of owning a Spanish property? Probably not.
Unbeknownst to most non-resident property owners, upon buying property in Spain, you automatically become liable to pay IBI and rubbish tax in the following year. No one will give you a heads-up on these two local taxes, so it is up to you to find out how much you owe and comply with the local tax authorities.
Failure to pay IBI tax has associated nasty consequences, which range from having a charge placed against your property for falling into arrears (which makes it unsellable) to even having the property seized and sold by your local town hall. This happens all the time.
IBI tax is also of crucial importance because it has a home valuation known as 'cadastral value' (or valor catastral, in Spanish). This value is the tax benchmark used to calculate all property-related taxes in Spain.
What is IBI tax?
The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents alike. In some parts of Spain, such as Valencia, it is known as SUMA.
ALL property owners must pay this tax every year, whether resident or non-resident.
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). This is Spain’s equivalent of the United Kingdom’s Council Tax. It varies from one town hall to the next. It is based on the rateable value of your property.
For cheap properties (think rural land) it can be as low as a few euros, whereas posh pads, in sought-after prime locations, such as Marbella or Mallorca, command several thousand euros/year.
Over the last few years, most town halls in Spain have significantly increased the amount of this local tax (especially in Madrid). This can be achieved in two ways:
By updating the cadastral value of a property to make it more in line with the market value.
Spain is undergoing a property bubble with property prices increasing by an average of two digits every year. This has prompted town halls to update the cadastral values of properties, resulting in a higher tax to pay.
- By increasing the rateable value applicable within a sliding scale (0.4 – 1.3%) of the cadastral value. Most town halls have voted to raise this tax rate.
What is the cadastral value of a property?
It is the assessed value local Tax Authorities give to a property. It used to be well below the market value, but as explained above, this difference has been greatly reduced in recent years with updated cadastral values.
This rateable value is used as the taxable base to calculate a series of taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI).
Be aware that a storage room or parking may be regarded legally as a distinct separate entity from your main home and therefore subject to its own individual cadastral values. A cadastral value, in general terms, is 20 to 30% below the current market price of a property. So, it does not equate to a property's true market value.
Importance
- IBI tax is used as the benchmark to calculate all property-related taxes.
- On selling, a buyer’s lawyer will demand copies of IBI and rubbish tax invoices to prove a seller is up to date.
Rubbish collection tax
As its own name implies, this is a refuse charge. It’s the tax you need to pay so local waste management professionals collect and dispose of your trash every day.
When are these two taxes due?
Town halls are empowered to rule on this, so it varies widely. Normally, it is payable once a year, typically from August through to September. But some town halls have voted to fraction payment in instalments to make it easier on taxpayers.
The golden rule is that whoever owns a property on the 1st of January is liable to pay IBI and rubbish collection tax for the full year. This rule is of great importance when selling property. However, in practice, it is normally agreed that the tax is paid on a pro rata basis contingent on completion day at the notary.
Consequences of non-payment of IBI tax:
It may lead to your property being impounded and sold off in a public auction by local authorities.
Spanish town halls, besieged by falling revenue, are becoming increasingly adept at pursuing this local tax aggressively, particularly for high-end property.
It is not possible to file and pay NRIT (non-resident income tax) and NRIIT (imputed income tax), as it requires the IBI tax for its calculation.
This in turn attracts fines, delay interests, and surcharges on top.
- On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax.
As a seller, you may forfeit the 3% sales proceeds tax rebate (plus legal interests).
When a seller is non-resident in Spain, buyers must withhold by law 3% of the sales proceeds and pay it into the Spanish Tax Office.
Non-resident sellers may be entitled to a tax rebate on the 3% (subject to criteria).
Larraín Nesbitt Abogados can assist you with domiciling both taxes wherever your property is located in Spain. Give us a call, and you can have a friendly chat with one of our staff.
LNA-related services:
- Domiciling IBI tax (town hall rates) and refuse collection (basura)
- Conveyancing in Spain – Buying
- Conveyancing in Spain – Selling
At Larrain Nesbitt Abogados (LNA), we have over 23 years of experience specialising in property conveyance and taxation. We also assist clients with immigration & residency visas (digital nomad visa), and inheritance procedures (probate). You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 0754 3838 218 or Spanish line (+34) 952 19 22 88, or by completing our contact form.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarising, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Ní neart go cur le chéile. Voluntas omnia vincit.
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