Buying a property in Spain is appealing; whether you'd love to retire or spend part of the year in the warm Spanish climate, are keen to invest in a rental property to earn a secondary income or would like a holiday home you can use for ad hoc breaks.
One of the complications is that the costs of overseas ownership extend beyond the initial purchase price, maintenance and travel, and understanding your ongoing tax obligations is key to ensuring you budget accurately.
Chase Buchanan Wealth Management, a global network of finance specialists assisting expatriates from around the world, shares insights into the elements that will impact the tax you pay as a Spanish property owner to ensure you have clear oversight.
Spanish Property Taxes Explained
Most expatriates or non-resident property owners will appreciate that there are varied costs associated with buying and retaining real estate in Spain, in much the same way that we pay council tax for UK properties and service charges for leasehold flats and apartments.
However, the system in Spain varies because although the Impuesto sobre Bienes Inmuebles (IBI) is comparable to council tax, you could potentially be liable to pay additional taxes, and your obligations may vary between regions.
That is because, unlike the UK, where tax rates apply nationwide or are fixed within England, Wales, Scotland, and Northern Ireland, Spain has no less than 17 autonomous communities and 50 provinces, which have a degree of independence about the tax rates they set.
Income tax is a good example because everybody in Spain is liable to pay income tax on their earnings with a static federal income tax rate starting at 9.5%. The municipal income tax levy is added to that, and although many municipalities apply the same 9.5% rate, arriving at a bottom tax bracket of 19%, that isn't necessarily the same everywhere.
In Murcia, the municipal tax rate is 9.6% on earnings up to €12,960, whereas, in Valencia, residents pay 9% income tax on their first €12,000 of income and a lower 8.5% in Madrid on taxable income up to €13,362.
Therefore, the total income tax payable could range from 18% to 19.1%, with variances in the thresholds to which the lowest income tax rates apply.
The Spanish IBI Property Tax
IBI is the annual property tax comparable to council tax, but this equally depends on how your property is valued by the land registry, using a valuation process that assigns a valour catastral or cadastral value.
That valuation might differ from the actual price paid for your property and is typically lower than the market value. It is used to calculate a range of property taxes, including capital gains, income tax, and IBI.
Spanish administrations arrive at a valuation based on the value of the land, location, size of the property, number of rooms and bathrooms, age of the building, and the cost of construction. Knowing the cadastral value and the arising property tax is important for budgeting.
The actual tax rate you pay also depends on the IBI rates applied by the local municipality, which can range from 0.4% to 1.3%—meaning your location could significantly impact your annual tax obligations.
Tax Residency Status
Residents who live permanently or more of the time in Spain are normally categorised as tax residents, which means they are liable to pay Spanish taxes on their worldwide income and assets.
For property owners, that means they are more likely to be exposed to wealth tax since this is assessed against the value of all real estate owned in any country.
We’ll explore wealth tax shortly, but the contrast for non-tax residents is that, while some property taxes remain payable, other incomes, revenues and assets in different jurisdictions are not taxable in Spain.
Non-resident property owners who buy investment, holiday and rental homes, for instance, are typically subject to the Impuesto sobre la Renta de No Residentes, or non-resident income tax, charged against the rental earnings generated through their property instead of paying personal income tax at the standard rates.
Value of Real Estate Owned in Spain
The valuation of your property will dictate the taxes you pay, but it can also mean you may fall into the threshold that means you are exposed to wealth tax—more likely if you are a resident, as explained.
In brief, the Spanish annual wealth tax applies to those with assets worth €700,000 or more, including worldwide assets for residents, and only those within Spain otherwise.
There are allowances against primary residences, and couples can combine their allowances, but if you own several homes, have a large international property portfolio, or own one property with a high valuation, you may need to pay wealth tax.
Note that while some municipalities have exempted all residents from wealth tax, a new solidarity tax has been extended into the 2024 tax year, reducing the variances in wealth tax liabilities between autonomous regions.
Residential vs Investment Properties
Finally, the property tax you pay in Spain will depend on whether you are buying a home to live in all or some of the time, purchasing a holiday property you rent out on a short-term basis when not in use, or investing in a rental property you do not use personally.
Rental income is subject either to personal income tax or the non-resident income tax, as mentioned, with flat rates of 19% for non-residents from other EU countries and 24% for third-country nationals.
Independent Guidance on Spanish Property Tax Liabilities
Knowing how these tax obligations will impact the cost of property ownership and how your tax residency position, overall income, and property values will dictate your exposure to specific taxes is essential to making informed decisions.
For more information about any of the tax schemes, allowances, and factors covered in this guide, you are welcome to contact either of our local Spanish teams in Marbella and Javea or our UK Administration Centre to arrange a convenient time to talk with one of our experienced Spanish property specialists.
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About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
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