Spain Property tax: Understanding the tax system in Spain

Moving to Spain is a dream for many people around Europe. Spain’s south coast offers individuals the chance to escape their cold weather residents and relocate to a region that is warm and sunny for much of the year. It isn’t just the south coast of Spain that draws foreigner as other regions of Spain are also attractive. Not only do individuals want to relocate to Spain, but they aim to own property, work, and experience the country just as other residents.

Owning property in Spain can be exciting and there has been a myriad of television programs created showcasing individuals house hunting in the Iberian country. On average, Spanish property tax is lower than the rest of Europe. However, Spain has its own intricacies when it comes to property tax and the laws that surround it.

Spain enforces a number of fees and taxes on properties. These fees include annual taxes and taxes upon selling the property. Making the Spanish property tax system even more complex is the fees around buying, reselling, renting out, and/or owning a property. These fees are dependent on an individual’s residency status, the community in which the house is located and the type of property it is.

There are plenty of nuances to buying a property in Spain. But prospective buyers shouldn’t be put off by the tax laws and fees associated with purchasing properties in one of Europe’s most sought-after countries to live in.

Can a non-Spanish resident buy a property in Spain?

A non-Spanish resident can buy a property in Spain. While some countries do not allow this financial transaction to occur, or at least only wealthy individuals are permitted the opportunity, Spain gives foreigners the chance to purchase and own properties. Following the United Kingdom’s Brexit vote, Spanish tax law was passed allowing non-EU/EEA residents the right to buy properties.

Spanish property laws ensure that non-residents can buy houses and/or apartments, which enables foreigners to relocate to the country. Buying properties allows foreigners to invest in Spain and the subsequent tax and fees continues that investment.

There are two main property taxes that exist in Spain buyers must be aware of. These taxes are VAT and transfer tax. The two taxes are different and important for any foreigner seeking a property in Spain. Before buying a property, house hunters should be aware of these taxes and how they will impact the buying experience.

What is IVA property tax?

When buying a house in Spain, VAT (also known as IVA in Spanish) will account for 10% of the price on a new-build property. New-build properties receive the designation if they are sold by the developer directly to the buyer. An individual seeking a newly built house, apartment, or villa can expect to pay 10% in VAT if they buy from the company that developed the property.

What is transfer tax in Spain?

Transfer tax is different than IVA and takes into account the region in which the property is located. Transfer tax accounts for 7% to 11% of the selling price. In some popular areas of Spain, where non-Spanish residents flock such as the Balearic Islands and Andalucia, transfer tax is progressive and fluctuates due to the property.

As transfer tax is different depending on the region in which a property is located.

Current property transfer tax rates in Spain:

• Asturias, Catalonia, Costa Blanca, Galicia, and Valencia: 10%
• Extremadura: 9.9%
• Castilla y Leon: 9.6%
• Cantabria: 9.5%
• The Balearic Islands: around 9.2%
• Andalucia: around 9.1%
• Castilla la Mancha, Murcia: 8.1%
• Aragon, La Rioja, Pais Vasco: 7.1%
• The Canary Islands: 6.6%
• Madrid, Navarra: 6.1%
• Alava: 4.1%
• Ceuta, Melilla: 3.1%

Additional fees for purchasing a property in Spain

VAT or transfer tax are the biggest fees a prospective home buyer will make in Spain. However, VAT and transfer tax are not the only fees that must be paid. Buyers will need to pay lawyer fees which range from 0.7% to 1.0%. There is also a notary fee that varies from 0.1% to 2.0%. The notary fee is dependent on the price of the property.

Buyers seeking a mortgage will pay an additional 1.0% to 2.0% of the mortgage amount in stamp duty tax when purchasing a property. Meanwhile, a property registry fee must be covered. The property registry fee is depended on the price and ranges between 0.02% and 0.175%.

Can property investors buy from non-Spanish residents?

An individual seeking property in Spain can buy from a non-Spanish resident. However, as Spain has a variety of nuances that affect property tax and fees, purchasing from a non-Spanish resident also has its own implication.

A non-resident must withhold 3.0% of the purchase price of a property to pay Spanish tax authorities. This fee has to be paid within one month of the contract being signed at the notary office. The 3.0% fee is an Income Tax Retention fee; therefore, buyers should apply the ITR fee to the price of the property.

A foreigner or non-resident selling a property must be aware of Plusvalia and captail gains tax. Plusvalia is a fee dependent on the percentage of the property’s sale. This fee is complex as it is in regards to the value of land the property sits on. The Plusvalia goes up each year in spite of real-world market values movement. Unfortunately, a seller may realize the Plusvalia has increased despite selling the property for a loss.

Capital gains tax ranges between 19% and 24%. The good news is that a seller can apply for tax relief if they have occupied the property for three years or more prior to the sale.

Spain Property Tax Conclusion

Buying property in Spain can be a dream for many, but when the full extent of Spain’s property tax laws is revealed, it can leave buyers feeling overwhelmed. There are intricacies to Spain’s property tax laws that are not apparent on the surface.

Knowing the laws can prevent aspiring property owners from being blindsided later on, especially when selling the property. Knowing the intricacies of the laws before purchasing can save a prospective buy money over the course of their investment.