Taxes on rental income and selling a property in Spain, 2019

Regular taxes on property and rental income

The IBI (Impuesto de Bienes Inmuebles) is a local tax, set by and paid to the Ayuntamiento (town hall) of your community. It is based on the cadastral value rather than the market value of the property, and varies between 0.4% and 1.1% of that value; a surcharge of up to 50% can be imposed on vacant property. If there is no cadastral value available - 50% of the commercial value is taken as a base. This is the main tax which funds local services.

You may also be subject to the Impuesto sobre el Patrimonio, or wealth tax, if you own property over EUR 700,000 net value (that is, the price of your property less any mortgage or other financing), even if you are not resident in Spain. This is charged on a sliding scale of 0.2% to 2.5%. It's been abolished, reintroduced, and messed around with quite a bit, so keep a close eye on what's happening to it!

Then there's IRNR or income tax for non-residents (Impuesto de las Renta de No Residentes). If you rent out your property, you'll pay tax on your rental income. If rented to a Spanish company, the company will deduct tax at source and pay it to the tax authorities. First a percent of cadastral value of the property is taken, which equals to 1.1%. E.g. this will make EUR 1,100 of the property valued at EUR 100,000. And the IRNR will be charged from this sum at 19% (EU and EFTA residents) or 24% (everyone else).

Thus being an EU or EFTA resident you will pay:

EUR 1,100 * 19% = EUR 209

and if you come from any other country you will pay:

EUR 1,100 * 24% = EUR 264

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In cases when cadastral value is not available, one of the options are considered – acquisition value or value defined by Treasury. The calculation is based on 50% of one of the above values (the bigger one is selected). 19% and 24% are then applied accordingly.

Tax paid in Spain can be recovered against your tax bill in your country of residence, if it has a double taxation agreement. The tax payment is due the next year, it means you can pay your taxes for 2018 until Dec. 31 2019.

But even if you don't rent your property out, you'll still have to pay income tax. That seems very strange, but the reasoning goes like this; if you own a property for your exclusive residential use, and you don't rent it out, then it is a source of value - you derive a benefit from it. That's similar to deriving a benefit from a bank account, in the form of interest. So, your benefit is taxed, according to a calculation laid down in the tax regulations.

The tax is calculated on 2% of the cadastral value of the property (1.1% if it's a 'new' value, ie after 1994), and paid at 19% for EU and EFTA residents and 24% for everyone else. That is, if your property is worth EUR 500,000, you're deemed to have received a benefit of 500,000 x 2% or EUR 10,000, and you'll pay either 19% of 24% of that (EUR 1,900 or EUR 2,400).

Taxes on sale

When a property is transferred, it's the buyer who pays the transfer tax. But the seller also has a tax liability, if the sale results in a profit.

Capital gains tax is charged on any profits made on the sale of a property; that is, the proceeds, less the costs of acquisition and sale, less any major investment made in improving the property. (Putting in a new swimming pool, or completely updating an old rural house, counts; a fresh coat of paint every few years doesn't. And you'll need receipts.)

This tax is charged is 19% for non-residents. Residents will be charged on a sliding scale, though residents over 65 who have lived in a home for more than three years are exempt, as are those selling for reasons such as disability or bereavement. In addition, anyone selling their principal residence will benefit from exemption on that portion of the gain which is reinvested in another principal residence. (It could be worth moving to Spain permanently a few years before you sell up!)

There's another tax on sale as well, and this is a very strange one; it's also one whose constitutionality has come under fire, and which may be on the way out. It's the Plusvalia Municipal. This is fixed by the Ayuntamiento, and it reflects the theoretical increase in the cadastral value of a house during the period it has been owned; it can't exceed 30% of the increase in value. Because of the way it's calculated, there could be an increase in cadastral value even for a property sold at a large loss. Several court cases found against local governments, including a case in the Madrid High Court, so that sellers who made a loss on the sale of their property had the right to reclaim the tax. But at the moment, you still have to pay, and then reclaim it - though it looks as if changes could be on the way.