You’ve undoubtedly got this idyllic image of Spain in your head that’s led you to wanting to get a property there in the first place.
It’s not fun to talk about, but unfortunately there are a bunch of Spanish tax rules and bureaucracy to handle before you get there. Any expat needs to understand these before committing and moving abroad.
From property tax in Spain to wealth tax and capital gains, there’s quite a lot to unpack here. But we’re going to break down some of your core responsibilities throughout this article so you can start purchasing property in Spain without getting lost in jargon.
Understanding Your Status and Tax Liabilities
Before you start comparing regions along the Costa or scouting city apartments, clarify your non-resident status. Australia and Spain share a tax treaty, but if you spend fewer than 183 days a year there, you generally face non resident income tax rather than full Spanish income tax.
That’s basically just so the Spanish tax authorities know how to treat your earnings and your annual taxes on any foreign income. Yeah, unfortunately, even if you never set foot in an office, owning a holiday home triggers tax liabilities that you’ve got to face.
What you can do, however, is prepare for this early on. That will save you a bunch of headaches when the Spanish government mails your tax bill.
The Basics of Purchasing Property
Right, so once you’ve settled where you want to live (or rent out) you’ll need to negotiate a purchase price and perhaps sign a promissory contract.
At this point, you’ll pay a deposit while awaiting the final contract. The property’s cadastral value (which is maintained by municipal registries) may differ from your purchase price, but both of these figures can actually sway your transfer tax and annual real estate tax bills.
That said, the transfer tax you’ll end up paying usually varies by region. But expect rates somewhere between 6% and 11% of the declared price. It goes without saying that that tax rate alone can add tens of thousands to your outlay, so definitely factor it in before making an offer.
Annual Real Estate Tax and Municipal Charges
As to be expected, you’ll have regular bills that you’d get anywhere once you own some Spanish property. The annual real estate tax, known locally as IBI, depends largely on the property’s cadastral value.
Each municipality sets its own municipal tax rates, so your seaside villa might draw a higher bill than an inland apartment.
On top of that, some towns levy a council tax-style charge for services like rubbish collection or street lighting. These levies run year to year – just make sure you don’t miss a payment as it can lead to penalties or liens against your property ownership.
Wealth Tax: A Different Angle
You’ll end up facing wealth tax if your Spanish assets and global net worth surpass a certain threshold. Naturally, we get that not every owner is going to fall under this bracket, but in regions like Catalonia or Madrid, it kicks in for net assets above around €700,000.
That includes:
- The value of your Spanish home
- Other real estate
- Financial investments
The Spanish government actually changes these rates every so often, so double-check the current band before assuming you’re safe. Of course, not everyone is going to see a bill, but it’s one of those things that catch many buyers out who thought they only had to worry about once-off purchase costs.
Capital Gains Tax When Selling Property
Should you decide to exit the property market, you’ll need to pay capital gains tax on any profit. To calculate your gains, you basically just compare your purchase price plus documented renovation expenses against the sale price. Then apply the current tax scale, which ranges from 19% for smaller gains up to 26% on anything substantial.
Non-residents face a flat withholding of 3% at sale closing, but that’s a down payment on the full obligation.
Lanter, you file a return to reconcile the withholding with your actual liability. Yeah, it’s a lot to think about, but it’s one of those things you’ll want to know about to avoid any sort of surprise down the line.
Renting Out Your Spanish Property
Turning your home into a holiday let brings in rental income, but it also means a few extra forms. Non-residents report gross rental receipts and can deduct certain expenses like interest or community fees before facing the 19% flat rate.
For residents, the rate actually links to your overall earnings under Spanish income tax. But either way, keeping tidy records of rent and insurance is definitely key here because failure to declare rental income can trigger audits by Spanish tax authorities. And they’re swift to chase unpaid sums.
Navigating Non-Resident Income Tax
If your Spanish earnings stretch beyond rent (say dividends from a local company) you’ll deal with non resident income tax on that too. Again, that same 19% flat rate applies to most passive income streams. But you must file a Form 210 quarterly if you earn anything in Spain outside wage income.
Even minimal yield from Spanish investments or a summer-long rental calls for this form, so set aside a moment each quarter to pay tax and file online.
Other Common Tax Implications
Beyond some of the bigger categories we’ve already touched on, there are a handful of other smaller charges worth considering.
For example, a stamp duty can apply to mortgage deeds, while some communities tax second-home vacancy.
And if you plan on renovating, an IVA (value-added tax) may attach to contractor invoices. Then you’ve got wealth tax and inheritance duties to think about if your estate plans include passing the place to your heirs.
Working with the Spanish Tax Authorities
If you’re used to using local online portals or you don’t even speak Spanish, you’re probably going to struggle a bit when you need to interact with Spanish tax authorities.
So that’s why most expats appoint a gestor or tax lawyer to:
- File returns
- Secure certificates
- Negotiate payment plans
- Handle the bureaucracy
- Translate notices
- Ensure deadlines aren’t missed
From simple IBI payments to sorting out the whole new property tax proposal, you definitely want a local contact in your corner at this stage.
The Big Picture for Australian Buyers
In essence, you’ve got to think of buying this property not only as a lifestyle investment but as a financial commitment that comes with ongoing costs. Each step – from purchasing property to selling property years later – has a range of tax liabilities that you need to think about.
So planning for annual taxes and understanding your status for non resident income tax, even just keeping tabs on Spanish tax rules, is something that makes the whole process less overwhelming.
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