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Taxes that the owner of a property has to pay

We have written a lot about purchasing a property and the costs, taxes etc. involved. But what about once you finally own your dream island home? No matter how “boring” the subject tax is, you do need to be informed about the taxes relating to the ownership of a property.

Property Tax (IBI) this is a municipal tax that is normally paid in October or November. The person required to pay the IBI is who ever the registered property owner is on the 1st January of each year. It is advisable to clarify who will pay the tax for the year the purchase process takes place.

Income allocation if the dwelling is not your usual place of residence, i.e. not your permanent home, the state assumes that it is an asset that could potentially generate income through letting, since it is not occupied all year. This means that it is subject to taxation through personal income tax. The amount of the tax is normally low, since the calculation is based on the cadastral value, which is normally below market value. It is advisable to remember that non-residents are required by law to submit an income tax declaration every year.

Capital Gains on selling the property, the vendor will be subject to tax on any profits made. Currently, non-residents are subject to 21% tax. Residents are subject to 21% on profits that are less than 6,000 Euros, 25% on profits less than 24,000 Euros and 27% on gains of more than 24,000 Euros.

Wealth Tax this tax was re-established in 2011 and was initially only to remain in force for two years. However, it has been extended for a further year. For both residents and non-residents, there is a tax exemption allowance of €700,000, which really means that only those persons whose net assets (value of assets reduced by the amount of any charges) are more than €700,000 are required to submit a declaration and, in any event, those whose assets are valued at more than €2,000,000 Euros. The tax rate is from 0.2 to 2.5%, in accordance with the tax scale.

Inheritance Tax and Donations heirs of property and assets located on Spanish territory will be subject to Inheritance and Donation Tax, regardless of whether they are a resident of Spain or not. The applicable tax will be based on a progressive scale from 7.65% to 34% of the actual value (or market value) of the assets; the final tax payable also depends on the degree of kinship between the heirs and the deceased.

Costs upon Ownership of an Apartment

When you purchase an apartment in community funds are saved for the maintenance and care of communal areas, such as stairs or gardens, lifts, pool, outdoor terraces. Therefore, buyers should ask to see the minutes of the owners’ meetings beforehand. They provide information about all the decisions taken by the home owners' association. This includes agreements on the level of costs and the maintenance reserve funds.

A special assessment may for example be due if the communal property renovations or repairs are required that exceed the amount of the maintenance reserve funds. The sum of such a special assessment and the respective percentage to be paid by each owner will be discussed and set at an owners' meeting - and then generally due for payment soon after. New owners must also pay the full amount of it. Prospective purchasers should therefore ask for a confirmation, either by the vendor or the estate agent, that at the time of purchase no special charges for renovations to the previous owners are unpaid.

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The real estate experts at Balearic properties share their knowledge and experience of the real estate market in Mallorca As international property consultants.


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