What taxes do foreign citizens buying or selling a property in Spain have to pay after the tax reform?
The number of non-resident foreign citizens buying property in Spain has increased gradually since 2010 even though the number of sales is still low: they represented 1.28% of total sales in the third quarter of 2014 according to figures from the Ministry of Development. However, properties are also sold so, as for any transaction, fiscal obligations exist. What taxes need to be paid for the purchase or sale of a property?
When a person, whether Spanish or foreign, makes the decision to buy a property in Spain, not only do they need to pay for the property, they also need to include other mandatory expenses, like the cost of having the property valued and the applicable taxes.
Taxes on the purchase of a property
There are two different taxes depending on whether the property is new or second hand.
- New properties
The tax on this property is 10% IVA (VAT). Therefore, on a property costing 250,000 euro, the tax would be 25,000 euro.
- Pre-owned properties
The taxation on this type of property is the Impuesto sobre Transmisiones Patrimoniales (ITP) (Tax on Property Transfers) that varies by Autonomous Community, but it ranges between 5% and 10% of the price of the deed (between 12,500 and 25,000 euro for the previous example). However, the Tax Office can claim a higher amount if it thinks that the property is worth more than what was paid for it. The Tax Office in each Autonomous Community has tables with minimum prices that it uses to calculate the minimum ITP a person would have to pay when buying a property.
Therefore, an uninformed person buying a pre-owned property may find that event though they have paid 7% tax on the purchase price to the Tax Office, they may find themselves obliged to pay another amount of ITP. This amount would be 7% of the difference between the value of the deed of the property and the minimum value of the property according to the Tax Office, plus the corresponding interest for the late payment.
For example, on an apartment purchased for 250,000 euro, the ITP would be 17,500 euro. If the Tax Office tables say that this property is valued at minimum 300,000 Euro and the corresponding ITP should be at least 21,000 euro, it will demand a payment for the difference: 3,500 euro, plus interest.
In some regions, discounts are applied to the ITP for large families. For example, in Madrid the ITP rate for large families is 4%, when this is the family´S main residence.
AJD - Stamp Duty
Both new and pre-owned properties are liable to another tax called Actos Jurídicos Documentados (AJD) (Stamp Duty), that represents 1% of the deed price of the sale, plus another 1% of the mortgage.
Taxes on the sale of an apartment
Elena Serrano, lawyer and founder of the firm Eslawyer, highlights that a seller who is not resident in Spain will have to pay several taxes: Impuesto sobre la Renta de No residentes (IRNR) (Non-resident Income Tax) and the Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU or plusvalía municipal) (Tax on the Increase in Value of Lots of Urban Nature (IIVTNU or municipal capital gains)).
- El IRNR
The tax reform that came into force on the 1st of January affects both non-residents and citizens since it brought changes to the IRNR. The monetary adjustment coefficients, which were used to correct for the effect of inflation on the value of properties have disappeared. This means that it will no longer take into account the fact that a euro today is not worth the same as it did ten years ago.
As for the abatement coefficients, they may only be applied to a maximum of 400,000 euro for transmissions made as of 2015, whether they are homes, stocks or any other property acquired before 1994. Above this limit, it will not be applied and taxes on the total capital gains from the sale of the property must be declared. The percentage that will be applied will depend on the type of property and the year in which it was acquired. This coefficient aims to deduct from the capital gains the huge increases in value of the oldest properties.
In short, when the sale of a property occurs in an environment in which the sale of all assets does not exceed 400,000 euro, the capital gains on the sale of this property generates a lower tax payment due to the reduction in the tax rate. However, when the sale of a property and other assets exceeds the limit of 400,000 euro, the tax rate applied is much higher.
The tax rate that applies to the transfer of property by non-residents in 2015 is 20% and in 2016 it will be 19%. Let's see an example of the IRNR amount that a non-resident has to pay:
A non-resident foreigner purchased a house in Spain in 2000 for 120,000 euro and sold it early in 2015 for 300,000 euro. The gross capital gains are 180,000 euro and the corresponding tax rate is 20% which means that the tax amount to be paid would be 36,000 euro.
This tax amount can be reduced. The purchaser is obliged to apply a withholding of 3% of the agreed sale value to prevent the non-resident from not paying this tax. As Elena Serrano points out "most of the time it is not easy to locate a non-resident, that is why this obligation is imposed on the buyer".
- La plusvalía municipal (Municipal capital gains)
The Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU), (tax on the Increase in Value of Lots of Urban Nature, better known as “plusvalía municipal” (municipal capital gains), is another tax that any foreigner who sells his house in Spain has to pay, just like residents do. Municipal capital gains are also applied to properties sold due to the increase in the value of the land. This is why it is necessary to determine the difference between the value of the land at the time of sale and the time of purchase. The tax that is applied on this difference will depend on the town/city where the property is located and it must be paid within 30 days after the sale is closed.
However, as Elena Serrano reminds us, in the event the seller is not in Spain, the buyer will be obliged to pay, as a substitute of the taxpayer.