Taxation And Costs

On The Purchase

There are legal fees and taxes to pay on the transfer of a property.

There are fees which need to be paid to the Public Notary and the Land Registry. By law, the notarisation fees are split between the seller and the buyer and the registry fees are paid solely by the buyer. However, it is usual that the buyer pays all of the costs arising from the transfer.

The first tax to be paid depends on which type of property is being bought:

On the purchase of new properties

• VAT (Value Added Tax), at a the fixed rate of 7% of the declared value of the property.
• A.J.D. (Stamp Duties). This tax is in addition to above VAT above and is calculated at a rate of 1% of the declared value.

On resales

• Transfer Tax at a rate of 7% of the declared value of the property.
• The law states that the payment of the above mentioned taxes corresponds only to the buyer.
• The second tax due when purchasing a property is called PLUSVALIA, which is a tax on the increase of value of the land since its last sale. It is paid to the Town Hall where the property is located and by law corresponds to the seller. However, it is also usually agreed that the buyer will pay it.

Other Tax Obligations

Tax Obligations Of Owners Of Property Non-Resident In Spain

a) State taxes

These guidelines refer to the general case of a non-resident who owns just one property in Spain, which is simply for his private use. Other cases, require specialised advise from your solicitor. The taxes to be paid are:

* Income Tax (I.R.P.F.). The rate is 25% applicable to the result of calculating 2% of the cadastral value of the property. For the tax period starting 1st January 2008 the rate will be 24%.

* Wealth Tax (Patrimonio). This is calculated at the rate of 0.2% of the value declared in the Title Deed of the property purchased.

Both taxes are paid annually, corresponding to the natural calendar year.

b) Local tax on real estate (I.B.I.).

This is a direct tax on the property. Each Town Hall Council determines the percentage to be applied to the cadastral value of the property within the limits laid down by the law. This is also a annual tax.

Sale Of Real Estate By Non-Residents (Re-Sale).

From 1st January 2007, and as a general rule, should you decide to sell your property in Spain, the purchaser must withhold 3% of the declared value and deposit it with the Spanish Tax Office as guarantee on the seller’s taxes, which includes capital gains tax.

The rate applicable to the net profit resulting from the original purchase and current sale is 18%. A reduction coefficient can be applied to the profit gained, which depends on different factors including the number of years between the purchase and sale dates.

Please be aware of two MYTHS on this matter:

• Non-resident owners believe that if they sell a property and buy another one in the country, they do not need to pay capital gains tax. This is not correct. Non-residents always pay capital gains tax (if there has been a profit obviously) even if they re-invest that profit into the purchase of a new property. Only if you are tax-resident in Spain and you are selling your family home to buy another one, you are entitled to take this new purchase into consideration within your income tax.
• Unfortunately, you cannot deduct all improvements made to the property. In fact, only those which have been duly notarised, such as the construction of an extension can be brought into consideration. So unfortunately, no new fixtures & fittings, even new floor and wall tiles or iron grills on the windows etc. could not be considered - regardless of the expense.