Like most countries, the Spanish tax authorities and local municipal governments levy taxes against property transactions, whether you’re buying a new home, purchasing an investment property to rent out, selling real estate, or living in Spain as a permanent resident.
Understanding the tax implications is just as important as calculating your monthly mortgage interest, since your residency status, overall real estate assets and location will all affect your tax liabilities. You’ll need to account for taxes, local charges, and property ownership fees alongside other ongoing costs.
We’ve created this guide to focus on each type of property transaction as an overview of the taxes and rates you may be exposed to – and how these are calculated against your property value.
Spanish Property Taxes on New Acquisitions
The exact taxes you’ll pay on a property purchase will depend on whether you’re buying a brand-new building or a resale home. The latter is simply a residence that has been lived in before rather than a new development.
Resale property purchases are taxed through the transfer tax or Impuesto de Transmisiones Patrimoniales (ITP) system. This tax is typically up to 10% and depends on several factors, such as:
- The size of the property
- Additional outbuildings, such as garages
- The location of the home
Note that some regions have a simplified transfer tax at a flat rate, whereas others will calculate the payable tax charge based on the above factors.
If you purchase a newly built home, you’ll often buy from a developer, who may add stamp duty and sales tax (IVA) to the total price. IVA is usually levied at 10% of the purchase price, and stamp duty is normally calculated at 1.2% to 1.5% of the value.
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Taxes Linked to Selling a Spanish Property
Should you come to sell the property later, you will need to budget for capital gains tax, usually calculated at 19% or 24%, based only on the gain made from the sale. Non-residents from elsewhere in the EU pay the lower rate, and non-residents from outside of the EU are subject to the higher tax charge.
Spanish residents pay capital gains tax on a variable scale, with a total tax of between 19% and 23%. However, if you are a resident and have lived in the property for at least three years, you may be able to claim tax relief or a full exemption. Gains made from the sale of your primary home, where the proceeds are used to purchase another main residence in Spain or elsewhere in the EU, are usually exempt.
Likewise, some of the costs of selling a property are deductible before arriving at the net gain subject to capital gains tax. Costs such as selling expenses, work undertaken on the property, and the impacts of inflation can all reduce your capital gains tax burden.
The Spanish tax authorities use a tax retention scheme to help cover capital gains tax costs. Under this scheme, the buyer—if the seller is a non-resident—might need to retain 3% of the sale price and transfer this to the tax office instead. The tax authorities then hold onto the 3% retention until all the applicable taxes have been paid by the seller.
Ongoing Taxes Against Spanish Property Ownership
While living in a property in Spain, you may need to account for various municipal taxes, including the Impuesto sobre Bienes Inmuebles (IBI), which is set by the local town hall based on the property’s cadastral value. Most homeowners pay between 0.4% and 1.1%, depending on the region and the relevant tax rates in the area.
The cadastral value is not necessarily the same as the amount paid but is instead a valuation applied by the applicable Spanish administration based on information logged with the local land registry.
You may also need to pay a smaller municipal tax charge, similar to council tax in the UK, called the Exacciones Municipales, which covers the cost of localised services such as rubbish collection and water drainage.
Paying Taxes in Spain Against Real Estate Rental Income
Renting out a property in Spain gives rise to a separate tax obligation, but you may also need to pay a tax obligation if you own an empty residential home. The tax authorities can levy an imputed income tax charge against vacant homes.
You must declare rental income annually through your tax return, whether you are a resident or non-resident, and whether the property has been continually let throughout the tax year or has been empty part or all of the year.
Imputed income tax rates are usually based on the cadastral value we’ve discussed, multiplied by 2% of the rateable value if this hasn’t been updated in the last decade or by 1.1% if that value has been revised within the previous ten years.
As a non-resident, you would be subject to the Impuesto sobre la Renta de No Residentes or non-resident income tax rates against rental earnings originating in Spain. Generally, the tax rates are 19% for citizens or EU nationals and 24% for non-EU citizens.
British tax residents who own and rent out a property in Spain must correctly claim against double tax treaties to ensure they do not incur a double tax obligation against their Spanish rental income.
Spanish Property Ownership and Wealth Taxes
The final consideration is wealth tax, which in Spain can vary between autonomous municipalities. These municipalities have the right to set a minimum tax-exempt value below which wealth tax is not payable.
Depending on the value of your real estate and where you live, you will normally become liable to pay an annual wealth tax if you own a home worth €300,000 or above since this is the standard exemption for habitual dwellings. Some regions, including Madrid, Cantabria, Extremadura and Andalusia, offer 100% relief against wealth tax, which means nothing is payable.
Spanish residents who own worldwide assets that exceed the minimum threshold are subject to wealth tax on all of their assets – the tax rate can vary from 1.7% to 3.5%, with the highest tax rates applied only to the wealthiest taxpayers.
If you require more information about any of the Spanish property taxes discussed here, wish to evaluate your exposure to property ownership, wealth, or capital gains tax, or need assistance calculating your annual tax liabilities, you are welcome to get in touch.
Chase Buchanan has three Spanish offices with financial advisers located in Javea, Marbella and Arona, Tenerife, and can arrange a confidential discussion in person or virtually at your convenience.
*Information correct as at May 2024