Many people have doubts about the taxes they will have to pay when buying or selling a home in Spain. This article seeks to explain the resident and non-resident tax on the purchase and sale of property in a simple way, with the help of economist and tax advisor José Miguel Golpe Saavedra. We’ll look at the capital gains tax and other taxes that must be paid to the Spanish State, Autonomous Communities or Municipalities.
When buying a home in Spain, all natural persons must pay the following taxes:
- VAT: This tax has to be paid by anyone who buys a newly built home in Spain. Generally speaking, a home is considered to be a new build when it is sold directly by the property developer, with some exceptions such as when the property has been rented. The amount of VAT will be calculated as 10% of the sale value, the final closing price, as it appears in the title deed.
- ITP (Property Transfer Tax): The ITP is applied to properties to which VAT doesn’t apply, which basically means that it is paid by those who buy a second hand/used home or, when after the construction or rehabilitation of the property, a person other than the developer sells the property. In this case, the ITP must be paid in the Autonomous Community in which the property is located. The percentage to be applied to the final price varies by Autonomous Community and the taxpayer's personal situation.
Anyone who owns property in Spain will have to pay the following annual taxes:
- IBI (Tax on Real Estate Assets): This is a tax that must be paid by all individuals and legal entities that own property on 1st January of the corresponding year. It is a municipal tax that must be paid to the Town Hall (Ayuntamiento) where the property is located. The amount of the IBI to be paid is calculated based on the cadastral value of the property, which means the percentage the amount of tax you have to pay will be different depending on the place where the property is located and the personal situation of the property owner.
- IRPF (Personal Income Tax): When an individual who is a resident for tax purposes in Spain (normally, when he or she resides in Spain for more than 183 days) is the owner of a property, he or she is obliged to declare this in their IRPF Income Tax Returns.
- If it is your habitual residence, there is no tax to be paid.
- If the property is empty and it is not the taxpayer's main residence, an imputation of income is applied, the value of which will depend on the cadastral value of the property and when the last time the cadastral value was updated.
- If the property is rented, the income obtained and the expenses incurred must be taxed according to the yields of real estate capital.
- If you decide to sell your home, you will have to determine whether you have made a gain or loss in equity. If you have obtained a material profit, this is your habitual residence and you reinvest that money, or part of it, in the purchase of a new primary residence, you will be able to apply the tax exemption for reinvestment in a main residence (provided that you meet the legally established requirements).
- IRNR (Non-residents’ Income Tax): When a person who is not a tax resident in Spain is the owner of a home there, they must also pay their taxes by submitting the corresponding forms individually or through a property manager or other representative in Spain. An individual who is not a tax resident in Spain will pay 19% or 24% (depending on where he or she resides) on the income they obtain from renting their property in Spain. However, if the holder is resident in the EU, Iceland or Norway, a deduction of the taxes for the expenses pertaining to the property may be applied.
When selling property in Spain, there is one crucial tax that both residents and non-residents should be aware of:
- Plusvalía (Capital gains tax): When a property is sold, there is an obligation to pay the "Plusvalía" for the increase in the value of the property. It is a tax that will be paid to the local authorities by the person who sells a property. At present in Spain, this is a very controversial tax because there have been cases where it has been levied even when the owner obtains losses from the sale of their property.