Tax. Either 6.5% ITP (Impuesto sobre Transmisiones Patrimoniales, a transfer tax) for resale properties, or 6,5% IGIC (Impuesto General Indirecto de Canarias, equivalent to VAT) on new properties. For new properties only, a document registration tax (AJD – Impuesto sobre Actos Jurídicos Documentados) of 1% will also be payable, making the “tax” on new properties 7,5% as opposed to 6.5% for a resale.
Notary Fee. This will vary depending on the value of the property, and should be between 500 and 1000 Euros. The minimum charge is around 300 Euros.
Land Registry. Your new property must be registered in the municipal land registry (Registro de la Propiedad), and the fee should be around half of the Notary fees, except for garages or parking spaces, where the fees will be around the same as the Notary fees.
Plusvalía. This is a tax on the increase in assessed value of the land on which a property is situated during a vendor’s period of ownership. Its proper name is Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana. It is calculated both on the surface area of the plot as well as the difference in its Valor Catastral (rateable value) between the point of previous sale and your own purchase. Plusvalía is usually in the region of a few hundred Euros, but can rise to several thousand Euros if a large amount of land is involved or the previous owner has held title for many years. Or, rather, this used to be the case. In many municipalities it remains at a few hundred Euros. The amount is often not known much in advance of signing, and sometimes not until afterwards, because it is calculated by the municipal authorities, some of which only produce the figure after completion. By law, the vendor is required to pay this tax, though in the Canaries, it has frequently been negotiated so that the purchaser is responsible. Over recent years, however, with an increasingly tough market and a tightening up of all procedures, vendors are much more likely to agree to pay Plusvalía as they are legally required to do.
Independent Lawyer. We would always advise the buyer to hire an independent lawyer to represent their interests during the buying procedures. There are many issues when properties are bought with some debts or probable future debts, however a reliable lawyer helps to foresee and avoid such issues.
AFTER THE PURCHASE
Water. This is usually paid directly to the relevant Water Board and is charged according to metered usage. Occasionally, it will be paid via a community who will meter usage internally.
Electricity. This is normally paid directly to the relevant Electricity Company and is also charged according to metered usage. Very occasionally, it too will be paid via a community who will meter usage internally.
Rubbish (Basura). This is usually paid directly to the municipal authority and is charged annually or half-yearly depending on municipality. Occasionally, it will be paid via a community where it will be included in the community charge.
Rates (IBI: Impuesto sobre Bienes Inmuebles). These are usually payable in May/June, or September/November in Adeje. The rate depends on the size, location and age of your property, and is calculated at around 0.45% of Valor Catastral (rateable value), or the chargeable base rate, base liquidable, if different to the Valor Catastral after a local rates revision.
Community Charge. This is payable by owners of properties which are part of complexes governed by the Law of Horizontal Division, under which a Community must be legally established. At an AGM of owners, the community will approve and adopt a budget which will depend on the various facilities and features of the complex, e.g. lifts, swimming pools, gardens, security, lighting, etc. The budget will be divided amongst the owners according to their quota, which is determined by a recognized formula: in simple terms, it is mainly based upon square metreage. The resulting community charge is paid into a communal fund which is disbursed by a Certified Administrator appointed by the Community who acts in accordance with all instructions arising from decisions made by the owners at Annual or Extraordinary General Meetings.
Income Tax (Impuesto sobre la Renta). Residents and non-residents owning property or investments in Spain are obliged to file annual tax returns. The basic income tax rate has been 24.75% since 2012 as a result of the Government’s austerity measures (the original rate was 24%). On 20 June 2014 it was announced that the rate will be reduced to 20% from the beginning of 2015 and further lowered to 19% in 2016. Income tax is applicable to declared and notional rental income. This notional rental income – Impuesto Sobre la Renta de no Residentes – is assessed on non-residents even if they do not let out their properties; it is based on an assumption of a certain level of undeclared rental income deemed to be 1.1% of the property value (or 2% if the Catastral Value has not been updated since 1994), the value being defined as the highest of the price declared on the Escritura, or the Valor Catastral, or the value deemed by the municipal authority if the Escritura price is not accepted.
Wealth Tax. The tax rate ranges between 0.2% to 2.5%, depending on net wealth over a threshold of (now) €700,000 per taxpayer, so for a couple, this is €1.4 million! For non-residents it is applicable only to Spanish assets, so it will only be payable by the very wealthiest of property owners.
CAPITAL GAINS TAX
Most people who buy property in Spain do so knowing the tax implications of their purchase, namely that they will have purchase taxes to pay and subsequent annual income tax returns to submit, and, when they sell, Capital Gains Tax (CGT) to pay.
CGT is a complicated calculation, with tax levels and reductions determined in large part by the date of purchase and sale, and deductions allowed for certain validated and demonstrable expenditures and improvements, but assume 19% on any taxable profit if a non-resident; residents pay somewhat more, with the rate graded up to 24% depending on the size of the gain.
Fiscal residents are granted reinvestment relief if they buy another property with the proceeds of a sale, provided that the property sold was their main home in which they had lived for at least three years prior to selling, and provided that the new property is purchased within two years of the sale of the former. This reinvestment relief is calculated according to how much of the sale proceeds are spent on the new property: if the purchase price of the new property exceeds the sale price of the old one, the gain is completely exempt from CGT. For those who are downsizing, say, and spend half of the sale proceeds on a new property, then that half is all that’s exempt. If there is a mortgage to be paid off with the proceeds, the calculation is based on whatever is left over as capital after the mortgage is cleared. To be entitled to this relief, the capital gain must be declared at the time of sale, together with the intention to reinvest. Fiscal residents over 65 who are selling a main home in which they’ve lived for more than three years are exempt from CGT without the requirement to reinvest.
The rules are different, however, for non-residents. When a non-resident sells a property, CGT is not the main immediate issue because non-residents are required to leave a 3% retention at the point of signing in lieu of final settlement of any CGT due. This 3% non-resident retention
is payable at notary and is deducted off the whole sale price. It can be recovered, but requires an application to the tax authorities, and of course, requires also that all tax affairs are up to date, including the CGT against which the retention was made – in other words you pay the CGT on top of the 3% before claiming the retention back. These factors are why so many sellers just leave the 3% retention and never try to claim it back. If you wish to do so, you will need to submit an application, and for this you will need the original seller’s copy of the tax form paying the retention. This receipt is the seller’s property by right and something that s/he should have in any case, whether or not the retention is being reclaimed.Special thanks to Janet Anscombe for the information on taxes.