Important information about property taxes that non-resident owners have to pay in Spain
The general tax situation
To start off with, it is advisable to seek the advice and services of a so-called “Gestor” the Spanish version of accountant or administrator. The first thing he/she will tell any non-resident property buyer is that the town hall will pursue any new owner for any unpaid taxes and not the vendor – unfair but a fact! So, your gestor and the lawyer you have employed to see you through the purchase process, will make sure that all tax payments are up to date on the day you sign the deeds to your new Mallorca property for sale. In order to purchase a property in Spain, you will need the so-called NIE number, an ID number which never changes, and which is also automatically your tax ID number. Another valuable piece of essential information they will give you is that even as a non-resident property owner you still must file a Modelo 210 tax return to the Spanish tax authorities.
As there are no guidelines regarding property purchase in Spain, many property owners are completely unaware of which taxes they must pay in Spain, and, unbelievable but true, some Mallorca property owners have not paid taxes for many years, probably those who have not employed the services of a gestor! This ignorance and negligence will certainly incur a hefty fine as the Spanish tax authorities are catching up with the non-taxpayers.
There are various taxes the owner of a villa for sale in Mallorca needs to pay and the advice of an expert will make sure that there is nothing to worry about and no fines to be paid! It is important to know, that the non-resident owner is obliged to pay tax on a property whether it is rented out and thus generates an income or is only for own sole use. An important factor when it comes to calculating any kind or property tax is the so-called “catastral” value, which is determined by the town hall/municipality where the property is located.
Buying a property in Spain as a non-resident
Non-residents who are thinking of buying a property in Mallorca should calculate about 9 – 12 % of the final purchase price as costs and taxes related to the property buy which are incurred as follows:
1. The VAT (Value Added Tax) - called IVA in Spain
This VAT tax is only payable if you purchase a newly built villa, apartment or town house for sale and it amounts to 10% of the final purchase price. So, for example if you are thinking of buying a newly built house in Santa Ponsa near a golf course which costs say 500.000€ then add another 50.000€ on top as the IVA tax. It is handy to know that VAT or IVA is not due payable on a re-sale property.
2. Stamp Duty
Stamp duty in Spain is another tax that is levied only on newly built villas or houses for sale and amounts to about 1.5% of the final purchase price. Staying with our example of a newly built house in Santa Ponsa the stamp duty adds 7,500€ to the purchase costs.
3. The ITP – Impuesto de Transmisiones de Patrimoniales or Transfer Tax
This impressively named tax is levied on all resale property sales in Spain. The actual amount varies depending on the regions in Spain and the value of the property for sale in Mallorca that you are buying. The national rate should be 7% but this rate is higher in areas that are popular with foreign property buyers. It is absolutely important that you check how high this ITP tax will be with either your estate agent, gestor or your lawyer before you finalise the purchase to avoid an unpleasant surprise at the notary’s.
4. Other Costs
When you are buying a property for sale in Mallorca you need to bear in mind that there are various other fees and costs you will be liable to pay. These are really minor costs but, then again, it all adds up! Fees to register your purchase at the land registry, gestor, estate agent’s and lawyer’s fees will add to the cost of your purchase.
5. The Plus Valia Tax – or the Seller’s Tax
This Plus Valia Tax is payable to the local town hall by the seller, it is a kind of municipal capital gains tax. This tax is calculated on the catastral value of the property and the number of years the vendor has owned the property. Depending upon the situation, it is sometimes advisable for the buyer to pay this tax just to make sure that it is paid, especially if the seller is a non-resident.
6. Wealth Tax
If a property has a value of over €700,000 then the non-resident owner has to pay this annual wealth tax, there is nothing comparable to this tax in the UK. The tax can differ depending upon the autonomous region, generally it varies between 0.2% for a property at the lower end to 2.5% for property worth more than €10.6 million. It is advisable to check how much annual wealth tax you may have to pay if you are thinking of buying a property worth more than 700,000€.
Taxes property owners must pay
Once you own your dream Mallorcan finca for sale you must pay the so-called IBI (Impuesto sobre Bienes Inmuebles) property tax once a year to your local town hall. This tax varies according to each municipality and can vary distinctly depending upon the municipality. It is based upon the catastral value of the property. The rate varies between 0.4% and 1.1% depending on where the property is located in Mallorca.
Selling a Spanish property as a non-resident
The Capital Gains Tax
A UK property owner now pays 24% in Capital Gains Tax when selling the villa or house in Mallorca. This tax is the difference between the purchase and the sale price which amounts to the actual profit or net gain made from selling the Mallorca property. At the notary’s the buyer is obliged to retain 3% of the purchase price from the vendor, thus the Spanish tax office ensures that non-resident vendors comply with their Capital Gains Tax obligations and do not leave the country without this tax having been paid. If the net gain or profit turns out to be less than the retained 3% retention, then the monies are refunded.
Finally, we would like to point out again that it is really worth-while to enlist the help of a gestoría, to make sure that the purchase or sale of a property in Mallorca is a smooth process, and for the future property owner to have peace of mind that checking taxes and the subsequent amounts needed to be paid etc. are taken care of by a professional.