Legal and Tax Aspects13 June 2017
When purchasing property in Spain, buyers can opt to remain tax residents of their home-country yet still gain an EU residency permit. They are then considered a ‘non-resident’ in Spain and subject to additional property tax.
How do you become a resident?
- Spend more than 183 days in Spain.
- Have a business or central financial interest in Spain.
- Under-aged children and/or partner reside in Spain.
How are properties taxed?
- Buyers who choose to remain a non-resident in Spain are responsible for calculating and paying their own tax.
- It is strongly advised to work with one of our recommended Spanish tax lawyers to avoid any complications and act as your fiscal representative in Spain.
- The tax value is calculated by the cadastral value of the property, which is set by the local authorities and tends to be well below the market rate. It can be accessed via the IBI, the local tax bill. Garages are often classed as separate buildings and subject to additional tax, so this is worth being aware of.
- All properties are subject to three taxes per annum.
1. Non-Resident Income Tax:
This is set at between 1.1-2% of the cadastral value of the property. Properties valued cadastrally after 1994 are subject to the lower rate of 1.1%, which encompasses all new developments. This value is then calculated at a rate of 19% for EU nationals and 24% for Non-Eu nationals. This would mean that on a property valued cadastrally at €300,000 (for properties with a market value of over €500,000), you would expect to pay €660 an Eu-Resident and €792 as a non-Eu resident. EU residents who own property in Spain and choose to rent it out are eligible for tax deductions on rental-related expenses such as home insurance, mortgage repayments and maintenance.
Similar to council tax in the UK, IBI is applicable to all residents and non-residents and is a local tax collected by the municipal government. It is valued at between 04.%-1.1% of the cadastral value and is due annually. Failure to pay can result in serious consequences, so it is advised to set up this payment as a standing order upon purchasing your property.
3. Rubbish Collection Tax
Levied by the local council, this costs around a couple of hundred euros per year and it is advised to set this up as a standing order along with the IBI.
Additional taxes include:
- An annual wealth tax for Non-Eu residents who own properties over €700,000.
- A one-time ‘bargain-hunter’ tax for rock-bottom priced properties (rarely applicable).
- A special tax for corporate companies registered in tax-havens who purchase property in Spain.
Renting a property The Taxes
Rental income is taxed at 19% for Eu-Residents and 24% for Non-Eu residents. As of 2017, non-residents of Spain are entitled to the same tax breaks as residents, which include deductions for taxes related to the property (IBI, Rubbish etc), maintenance costs and interest on loan repayments relating to the mortgage.
Selling a property / The Fees:
If it comes to selling your property in Barcelona, it’s important to be aware of the taxes due.
Sellers are usually subject to:
- The real estate agent fee, normally set at 3%.
- Capital Gains Tax - if the property has increased in value, the sellers must pay tax on the gain no matter how long they have lived in the property. The percentage ranges from 21 - 27%.
How to Rent your Property in Barcelona
Tourism, Airbnb and the Rental Market
For better or worse, the topic on everyone’s lips in Barcelona is tourism. In a city of 1.6 million residents, 44 million tourists flocked to Barcelona in 2016. While this adds significant income to the local economy (some 12% of the city’s 72 billion GDP), residents are long-tired of the rowdy drinking culture that can ensue and the rising rent prices.
In response, mayor Ada Colau has banned the issuing of tourism permits for apartments. This means that unless a property already carries a permit, it is no longer legal to rent it for short-term stays of less than 1 month. Authorities carry out tough crackdowns across sites like Airbnb, fining the company 90,000 Euros in recent years for publicising illegal properties. As a property investor in Barcelona, its no longer relevant to calculate return on investment for short-term rentals.
Instead of short-term tourism, the government are encouraging foreign investment following Brexit, with businesses and individuals relocating to Barcelona. While there is a strong focus on the start-up and tech scenes, the government is providing incentives to companies such as the European Medical Agency, offering them the iconic Agbar towers as their headquarters, which would bring with it 900 highly qualified staff. As a result, the mid-long term rental market has a steady demand and strong potential for growth.