September 1st, 2014
Before committing to the purchase of a Spanish property, it is important to have a full understanding of the on-going costs and taxes associated with Spanish Property ownership.
1. Rates (IBI/ SUMA). Town Hall rates are payable by almost all Spanish property owners (whether resident in Spain or not). The amount is calculated by reference to the rateable (Catastral) value of the property- an important figure, also for other taxation purposes. Some Town Halls charge rates in installments; others in a single annual charge. Following a property transfer, it can take the Town Hall up to a year to update their records with the new owner’s name.
2. Rubbish Collection (Regogida de Basura). Some Town Halls include rubbish collection services in the rates charge (above). But, some Town Halls chare separately for this aspect of local services – either in installments or annually. In applicable areas, all property owners have to pay this, irrespective of whether or not they are Spanish resident; and irrespective of the number of days they occupy the property, actually generating rubbish!
3. Non-Spanish Residents Tax (Renta de no residentes imputada de Bienes Inmuebles). This tax is payable annually in arrears by Spanish property owners who do not live in Spain, but who own property in Spain for their personal use. For example, the tax is payable by 31 December 2014 in respect of the calendar year 2013. The tax is calculated by reference to the Catastral value (see above). The Spanish Tax Authority in effect, charges a tax for the lost opportunity of renting the property out- (which would otherwise generate a taxable Spanish income). It is a difficult head of taxation to explain/ justify. Perhaps an assumption at one time was made that non-Spanish resident property owners would rent out their Spanish property, but would not declare the rental income to the Spanish Tax Authority. For legally/ fiscally compliant Spanish property owners, it is generally regarded as an unfair tax; and therefore an (unavoidable) irritation.
4. Tax on Rental Income. This head of taxation is for owners of Spanish properties (whether resident in Spain or not), who do actually rent out their property. The applicable rate of taxation is 24.75%. Specific fiscal/ accountancy advice is needed in each case, not just to meet fiscal filing requirements; but also to ensure that deductions and allowances are properly applied, to minimize the taxation burden as much as legally possible. If a non-Spanish resident rents out their property for only part of the year, then an apportionment has to be made between the period of imputed rental income (see 3 above) and actual rental income.
5. Wealth Tax. Both Spanish residents and non-residents need to consider whether they are liable to pay Spanish wealth tax each year. The Spanish Tax Authority regularly changes the requirements. Generally, the exemptions are substantial. In the vast majority of cases of non- Spanish resident owners of Spanish properties, as it is only their assets in Spain which are taxable, the allowances are more than sufficient to provide a full exemption.
6. Community Charge. The vast majority of Spanish properties form part of a Community of owners. Each individual owner must pay their proportionate part of the Community (or block) costs. The amount and regularity of payments depends entirely on the nature of the Community; its facilities; and timing of the expenditure cycle (i.e. whether in a period of routine maintenance/ expenditure, or if exceptional work is to be carried out). In the purchase of a Spanish property, a buyer must: obtain Community charge payment history; review recent Community meeting minutes and resolutions; and make enquires of the Community Administrator, in order to be clear as to the anticipated liability.
7. Parking/ Street Access. Some Town Halls enforce an obligation for Spanish property owners to pay an annual charge/ tax for a ‘Vado Permanente’, being a right of access from the property on to the adjoining road (where applicable). Again, this is a difficult tax to explain/ justify, as it presupposes that the property owner has paid the rates on the property; and local car tax. But then an additional annual tax is levied in applicable cases, in order to be entitled to move your car from your property on to the public road! At the time of purchase of a Spanish property, an enquiry should be made of the local Town Hall to see if this charge applies. Also in some areas, there are street parking/ local residents’ street parking charges.
8. Utilities/ Services. Spanish property services costs are very much case-specific; and a full understanding is necessary before buying a Spanish property. The nature of the services available varies according to the location of the property and the type of property. For example, some areas have mains gas supply, others don’t. Rural properties may have Community arrangements for the (non-mains) supply of water; some Communities include mains supply water charges in Community charges, others do not. Most properties have postal delivery services, but some do not. Also, following the purchase of a Spanish property, in order to have services contracts put into new owners’ names; independent certification of the installations (and updating works) may be necessary. So in all cases, this must be carefully investigated and budgeted for.
9. Insurance. In all cases of Spanish property ownership (as it differs from property to property), a full understanding is needed of the extent of the insurance cover which applies through the Community services/ charges; and the ‘gap’ which the individual property owner needs to cover- either with their own insurance policy or accepting the risk personally. In many cases, a good starting point is to ask the insurance agent who deals with the Community cover. It can be beneficial to have the Community insurance and individual homeowners’ insurance through the same agency/ insurance company, in order to avoid the risk of gaps in insurance protection.
10. Bank Account. All Spanish property owners need to have a Spanish bank account, for the payment of property outgoings/ local taxes, etc. Spanish banks distinguish between Spanish residents’ bank accounts and non-residents’ accounts. The account charges also vary according to the type of account. In selecting a Spanish bank, branch location and facilities are obviously important factors. However, a full understanding is also necessary of the applicable charges. Unlike many other countries, banks in Spain charge separately for everything imaginable- account holder certification; account ‘maintenance’; issue of debit card; obligatory postage of statements (despite internet access); receipt of funds into the account; funds withdrawal; issue of cheques; etc. Banking in Spain can be a surprisingly expensive business; and there are significant differences in charges from bank to bank. So, claims of ‘standard practice’ should be disregarded; and as with other services, ‘shopping around’ is recommended in selecting a Spanish bank.
This general commentary is not intended to be exhaustive, but a handy guide to some of the regular costs/ taxes Spanish property owners face.
The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.