Property Taxation in Spain

It is without question that one of the main worries for any potential property purchaser abroad is the amount of taxes they will be obligated to pay in that country as a result of buying a property abroad.

In Spain new properties (usually purchased off plan) have costs up to 10% of the purchase price. This 10% is usually split into 7% VAT, 1% stamp duty tax and 2% other fees (legal fees usually represent 1% plus another 1% for costs, like notary fees and land registry fees).

If the property to be purchased is for resale, costs should be dropped to 9%. VAT does not apply for resale properties, but unfortunately another transfer tax 7% is chargeable plus, of course, 2% for other fees. The good news is that Stamp Duty tax does not apply to the purchase, although it could do to an eventual Spanish mortgage.

Another tax to be aware of is the "plusvalia tax", which is a local capital gains tax to be paid to the Council, which can vary depending of the town or city where it is paid. Spanish Law states that this tax is to be paid by the vendor. Unfortunately, this does not apply to non-residents, who will have to pay this tax. However it is possible to get agreed in the contracts that the plusvalia will be paid by the vendor, although this agreement will not be enforceable to the Spanish Inland Revenue by the non-resident buyers. Of course if the vendors do not comply with what is agreed, and as a result the non-resident buyers will have to pay the plusvalia tax, vendors could be sued correspondingly.

But at least there is some new good news for those non-residents who want to sell their Spanish properties (and also for those ones who intend to invest in Spain and resell their properties within a short time).

Capital gain tax has been recently dropped for non-residents (and yes this is enforceable) from 35% to 18% of net profit (and after this profit has been corrected by some disposed indexes). This change has been imposed by European Union regulations as it seemed to represent an unfair discrimination based on nationality to charge non-residents double the amount of taxes for residents.

Even so, if the vendor is still non-resident, the Spanish tax collector will ask the vendor to pay an amount in advance (within a term of 30 days of the completion date) to cover their capital gain tax. Spanish law imposes the obligation on the buyer to pay such an amount on behalf of the vendor, so the buyer will retain an amount from the title deeds price on the purpose of which is to stop the vendor escaping from their tax obligations as they often return to their countries of origin.

Luckily, the percentage to calculate this retention has been also dropped from 5% to 3% from the price stated on the title deeds. Of course, if this retention exceeds the final figure to be paid as capital gain tax the vendor can claim this excess back within three months after completion.

For more information on our services, please contact Paul Saunders on 024 76 234207 email pauls@n-v.co.uk; Francisco Suarez-Llanos on 024 76 234216 email franciscos@n-v.co.uk or Jayne Griffiths on 024 76 234267 email jayneg@n-v.co.uk.