Taxes and Other Costs Associated With Owning a Property and Living in Spain
This article examines your obligations as a Spanish property owner in terms of taxes and ongoing costs that need to be paid. For more information on Tax Rates in Spain, consult the English language section of the Hacienda (tax authorities) site: http://www.aeat.es. There are certain benefits to being a resident, non resident or owning a company we suggest you read this article and the next (read article: Comparing the Costs of Owning Property) to gain a better understanding of your liabilities.
Taxes and Other Costs Associated With Owning a Property and Living in Spain
The good news is that running and maintaining a property in Spain is generally much cheaper than doing so in northern Europe. Your payment obligations are listed below:
1. Community Fees
2. Taxes
3. Utility costs
4. Property Insurance
5. Tases y Cargas
Community Fees
The Community of owners is a legal body set up to own and maintain the common grounds and buildings of the estate. Typically a president will be elected to ensure the smooth running of the Community, by law he or she must be an owner and serve unpaid.
Each owner within the estate is then expected to contribute to the running costs of the services that the community provides, typically these are things like security, repainting the buildings, ground and garden upkeep, building insurance etc. The budget for these works is set at the AGM and owners will approve the budget from a majority vote with contributions being set from size of the apartment or plot in proportion to the estate as a whole. There is no rule on how much community fees will be, but the more expensive the urbanization the higher the levy.
Taxes
If you own a property in Spain you will have to pay tax. Tax is handled by the Delagacion de Hacienda (The Spanish Tax Office). The basic rules of residence are that if you spend more than 183 days per annum in the country you become liable to taxation, whether or not you make a formal application for a residence permit or not. In Spain it’s the individual’s responsibility to obtain the relevant tax form and calculate his or her own taxes, submit the form and pay the amounts due. To make life easier our advice is to appoint a Fiscal Representative (either a Spanish Accountant or a Gestor) as they will do the work on your behalf for a reasonable fee. In general tax law is bureaucratic and complicated, be aware that joint ownership of assets even between husband and wife are complex issues and you should examine these with your appointed accountant or Gestor.
The principal taxes are as follows:
Impuesto Sobre Bienes Inmuebles (IBI) / Local Rates
This is the main property tax and is equivalent to local rates in the UK. Collected money is used to pay for local amenities and services, etc. The amount of tax is calculated by reference to the valor catastral (Ratable Value) registered in the tax office. The valor catastral takes into account the value of the land and buildings and reflects the position and use. Although in practice the value attributed is far less than the real value.
Properties are revalued every 10 years and the amounts valued increase annually according to inflation. Rates for IBI vary from area to area but typically are set between 0.2% and 0.4% of the valor catastral. The Spanish Government will be increasing valor catastral to keep it in line with current property prices, so although they are low at the moment, expect increases over the coming years.
Impuesto Sobre la Renta / Notional Letting Value Tax
Until recently this property tax has been rather overlooked by the Government; however it is starting to be enforced with the introduction of article 16 of the Spanish Income Tax Law, which specifically states that personal use of the property will be treated as income, notionally receivable on the 31st of December each year. This tax is based on notional letting value of your property and is applicable to non-residents and also to Spanish people with of second homes, but it is not applicable to commercial properties and land.
Notional rent values are set at 2% of the valor catastral value or 1.1% if the figure has been revised since 1994. This value is added to the income tax calculations for residents and collected at that time. For non-residents a flat fee of 25% of valor catastral is paid directly to the tax authority.
The return in respect of this notional income is made on a Form 214 (Impuesto sobre el Patrimonio y sobre la Renta de no Residentes), which is available from any local tax office.
Impuestos Sobre la Renta de las Personas Fisicas / Income Tax
You are obliged to file and sign a personal income tax return between May 1st and June 30th of the following tax year. For example, the tax return declaration due in May/June 2007 covers the period 1 January to 31 December 2006. Your accountant can help you with this, but the responsibility of finding out and presenting your taxes correctly is entirely up to you.
For non-residents the Hacienda (unless otherwise notified) is only interested in your activities that earn money in Spain. As a resident you are liable for tax on your worldwide income with rates starting at 15% and running up to 45% (these rates may be subject to change soon). The following activities are defined as income:
1. salary including share dividends, etc.
2. interests on bank balances, etc.
3. money derived from a business activity in Spain.
Non-resident property owners for tax purposes must still make an annual declaration for income tax. This information will then be declared to the British tax office but tax relief exists due to the treaty between Spain and the UK that resolves many of the double taxation issues.
Residents in Spain can have a tax break up to the first 3,300€ earned. People over the age of 65 receive a tax break on the first 3,900€ earned (for further information read article: The Benefits of Becoming a Resident in Spain).
Special Note: Any rental income arising in Spain is due under your annual income tax declaration. Recent government legislation requires tenants who make income tax declarations in Spain to list their landlord’s name and tax identification number on their income tax form.
Impuesto Sobre el Patrimonio / Wealth Tax
Both residents and non-residents are expected to make a declaration of assets in Spain on an annual basis. These typically are property, car and bank balance. The value used when declaring the value of the home is decided either from the greater of the valor catastral or the acquisition price on the title deed. Mortgages and debts registered against the property can be deducted from the value. The amount of the bank balance is the average cleared bank balance over the previous year, this information is supplied by your bank. Residents have a tax exemption of 150,253€ for the residents home. So a jointly-owned property between husband and wife provides as much as 300,000€ exemption.
Typically in Spain for the first 167,129€ in assets the wealth tax is set at 0.2%, then 0.3% on the next tranche to 334,253€, 0.5% up to 668,500€ and so on up to a top rate of 2.5% over 10,696,000€.
Utility Costs
Consumption of electricity and water is metered and the charges are roughly similar to those in the UK. Electricity is charged bi monthly and there are minimum rates applicable which relate to the potential power your property could use.
Insurace
Your community fees should cover the building insurance, but not the costs of contents. Generally premiums for property insurance are not dissimilar to rates charged in the UK. There are many good companies, both local and international, that offer complete packages.
Tasas y Cargas
Some municipalities raise additional taxation for the services they supply in the area. These may include rubbish collection, cleaning streets and beaches etc. Municipalities also have the right to raise a charge for the use of a vehicle in the area although not all do so. These amounts are not usually high.
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