Our resident expert explains the different types of taxes you will have to pay when you buy a house in Spain.

In this article we will consider the taxes involved in the purchase or sale of a property by an individual.

The situation is different when dealing with a company and involves other taxes.

Most people find tax a forbidding task

When buying or selling a house in Spain it is important to estimate the taxes you will have to pay, not only when you actually purchase your property, but also local taxes and housing rates which are payable on a yearly basis by all home owners in Spain.

Taxes when you buy a house
 
As a general rule, the overall (tax and fees) cost of purchasing a property in Spain can be estimated at about 10 percent of the value of the property you are buying.

TPO – transmisiones patrimoniales onerosas

If you are buying what is known as re-sale or 'second hand' property, you will be required to pay this tax.

The tax rate is 7 percent and it is applied on the value of the purchase.

IVA – impuesto sobre el valor anadido (value added tax)

Buyers of brand new houses in Spain are liable to pay 7 percent IVA (VAT), plus an extra 0.5 percent stamp duty.

However, if instead of buying a house, you buy land, commercial premises or parking spaces in garages, then the VAT payable rises to 16 percent.

Taxes payable when you sell

When selling property in Spain, you are liable to pay a tax, commonly known as capital gains tax.

The capital gain is determined by the difference between the sale price and the purchase price paid.

The capital gain obtained when a property is sold in Spain is taxable through the IRPF (personal income tax) or the IRNR (tax for non-residents) depending on whether the seller is tax resident or not in Spain.

Understand the taxes which come with buying a house

IRPF – impuesto sobre la renta de las personas fisica (tax for residents)

If the seller is Spanish tax resident, according to the Spanish tax system, the capital gain obtained when a property is sold is liable to be taxed in the IRPF, the personal income tax for residents.

The tax rate depends on the period of time the seller has owned the property.

If this is more than a year, the rate is always 15 percent.

However, if the property has been owned for less than a year, the tax rate applied can change from 18 percent to up to 45 percent.

It is also important to say that the longer you own a property, the less capital gains tax you pay.

IRNR – impuesto sobre la renta de no residentes (Tax for non-residents)

If the seller is not a Spanish tax resident and pays taxes in another country, the capital gains paid tax when a property is sold is 35 percent.

Usually, the buyer withholds a 5 percent of the total purchase price to ensure the payment of tax by the non-resident. It is an advance deposit.

This amount retained at the moment of sale is payable once everything has been presented to the local tax registry and the new deeds are available.

Local council tax

This is commonly known as the Plusvalía Tax. It is a local tax established by councils.

The local authorities determine the tax rate which can reach 30 percent of the value of the land transferred when the property is sold.

The tax is calculated according to the value of the property and the number of years it has been in the ownership of the vendor.

Alex Chumillas

Alex Chumillas is an Economist and Member of The Col.legi d’Economistes de Catalunya and The British Chamber of Commerce in Spain. He can be contacted at aamat@economistes.com. Telephone: +34 934 442 137; Mobile: +34 667 663 521

[Copyright Expatica]

April 2006

Subject: Spain; property tax explained