Taxes are an important consideration when buying property in Spain. Not just the taxes you pay when you purchase, but also those levied annually by the government and your local council.
In this article, we explain what you need to pay in the form of taxes when you buy and own a property in Spain.
Taxes when you buy a property in Spain
This is known as the Impuesto sobre Transmisiones Patrimoniales (ITP) and makes up the most expensive tax payable when you buy property in Spain. It is levied on resale properties – new properties pay VAT (see below).
The actual amount of ITP you pay depends on two factors: the price of the property and the region where you buy.
As a general rule, expect to pay at least 8% of the purchase price for ITP on a property priced up to €400,000 and up to 10% on properties over €700,000.
Need to know – you should allow at least 10% of the purchase price for taxes and fees.
VAT (Impuesto de Valor Añadido/ IVA in Spanish) is payable on all new properties, i.e. those bought off plan and with no previous owners. The amount you must pay is 10% of the purchase price.
Taxes when you own a property in Spain
Local council tax
All councils levy annual taxes on property in Spain. Known as the Impuesto sobre Bienes
Inmuebles (IBI for short), the tax is used to pay for municipal services.
The amount you pay depends on the value of your property, its size and where it’s situated. IBI is payable annually, although many councils allow you to pay in installments throughout the year if you set up payment via a direct debit.
Need to know – some councils offer registered residents a reduced rate on local council tax. Find out how to register as a local resident here.
This tax (called Impuesto sobre el Patrimonio in Spanish) is levied on all owners of property in Spain, although the tax comes with generous exemptions and in practice, many people don’t need to pay it.
Residents – you get an exemption for your principle home and for your other assets.
There are also deductions for mortgage loans and other property expenses.
Non-resident owners – if you’re not resident in Spain, you don’t qualify for any exemptions and must pay wealth tax annually. The amount you pay is calculated based on a sliding scale depending on the value of the property.
Non-residents income tax
If you’re not resident in Spain, you’ll liable for annual property income tax calculated at a flat rate of 25% applied to a sliding scale based on the value of the property.
The tax is levied in lieu of income tax on rental income, regardless of whether you let the property or not.
If you do have income from rentals (holiday or long-term), you should declare income tax based on your actual income.
Taxes when you sell a property in Spain
Local councils levy a tax on land, payable when you sell a property. Known officially as the Impuesto Municipal sobre el Incremento del Valor de los Terrenos (IMIVT) and more usually as Plus Valía, the amount depends on the value of your land and how long you have owned the property.
Apartment-type properties tend to pay less than villas since they occupy less land space.
Calculating the value is complex and the exact amount due depends on the date of sale.
However, you can enquire at your local council before you sell to get a rough idea of how much you will need to pay.
Capital Gains Tax
Capital gains tax (CGT/ Impuesto sobre el Incremento de Patrimonio in Spanish) is levied on all property sales in Spain, although there are some exemptions:
- If you’re over 65 and have lived in the property for at least three years before the sale.
- The property you sell is your permanent home (i.e. you have lived in it for at least three years) and you use all the profit from the sale to buy another permanent home.
- Any profit you don’t use, is liable for CGT.
- Capital gains count as income and are taxed at the same rates as income tax. Their calculation is based on the number of years you have owned the property, the buying and selling price, and the rate of inflation during ownership.
Need to know – CGT in Spain is highly complex and you should use the services of a
professional accountant to calculate it for you.