Spanish Property Tax – Warning, the tax office is looking for you!

Wednesday, 18 January 2012 09:47

Written by Editor

Are you a non-resident of Spain? Do you have a property here? If so, then each year you need to pay the revised property tax that has recently been strengthened due to Spain’s economic difficulties. If you haven’t paid your property or income taxes, you may be liable for a considerable fine.

Here, legal tax expert, Antonio Diaz of De Cotta Law explains the tax and the law.

In accordance with Spanish law on taxes for non-residents, all non-residents who have a property in Spain have to pay income tax on the property known as “La Renta”.

This tax applies to all property owned by non residents across all Spanish territories. You are considered a non-resident if you spend less than 183 days per year in Spain. However if you are not registered as a resident and declare your income tax here (which is obligatory if you live in Spain full time) then you will be considered to be a non fiscal resident and liable for this tax even if in actual fact you permanently reside in Spain.

Property Income Tax

All non-residents have to pay the Property Income Tax as follows:

a)    Income from Lettings at 24% of the gross rent received with no deductions allowable (up to end of 2011).
b)    Now, with the revision of the Tax Law 2/2011, from the 4th of March,  non residents can offset many of the legitimate expenses against income; for instance, water & electricity, insurance, interest on mortgage, community and rates (IBI).
c)     Deemed income on property, when the property is used privately by the owners there is a deemed income assessed at 2% or 1.1% of the ratable value (Valor Catastral that is stated on the IBI receipt) depending on the municipality and the amount of time you have owned the property. This deemed income  is taxed also at 24% and the amount due to be paid must be lodged with the tax authorities before the 31st December of the year subsequent to declaration. 

Wealth Tax

There is also another property tax known as Wealth Tax or ‘Patrimonio’ tax.

So, now, in 2012 owners must declare their tax obligation relating to the year 2011.

However, it is worth noting that whereas La Renta has to be paid by all non resident property owners, the obligation to pay the wealth tax will affect only owners that have properties worth more than €700,000, or €1,400,000 in the case of a home being in the shared names of a couple. The value of housing is based on that stated as the purchase price on the deeds of sale or the assessed value shown on the IBI bill, whichever is greater.

Generally speaking the wealth tax is calculated by applying 0.20% of the purchase price up to €167.129,45, as declared on the Deed of Purchase.  Over that amount, the calculation applied depends on the amount of the purchase price declared in accordance with the percentage scale of the Tax Office which is stated in the Spanish Wealth Tax Law.  The Wealth Tax covers the full tax year and not just the period of ownership.
Be warned and aware
We have evidence that the tax authorities in Spain are investigating all property owners, resident and non resident to make sure that owners are complying with relevant property and income taxes.

If you are a resident, then you too must be aware that income taxes and property taxes are being scrutinised and compliance is compulsory.

Many residents and non residents of Spain have already received letters from the tax authorities confirming that if payment is not duly made, the authorities may initiate a grievance procedure for the unpaid tax together with a surcharge (between 5 and 20%) plus interest for late payment.

Finally, if the taxpayer does not pay when required, owners could face seizure of their bank accounts in Spain or even the property itself, resulting in the auction sale of the property.

Antonio Diaz is Partner at De Cotta Law, a law firm offering support with all aspects of Spanish Law for English speaking clients, with offices in Mijas-Costa, Coín, Nerja and Tenerife.

De Cotta Law Head Office Spain: Centro Comercial Valdepinos 1 y 3ªUrb. Calypso 29649 Mijas Costa (Málaga). Tel.: +34 952 931 781 Fax: +34 952 933 547. Email  antoniodiaz @decottalaw.net

Written by Antonio Diaz, Solicitor at De Cotta Law in Coin