It can come as a surprise to non-residents who have property in Spain that they are required to pay not only a council tax but also an ‘income’ tax. In this article Ábaco Advisers explains what the requirements are.
Many people choose to buy property in Spain without living here. Perhaps they use their Spanish home for holidays or are retired and split their year between countries. In some cases people buy for investment purposes and rent out their Spanish property for all or part of the year.
Whatever the reason is behind it, it is important that you keep up with your Spanish tax obligations. As a foreigner these can seem confusing and there are differences in the way in which the Spanish Tax Authority works in comparison to that of your home country.
To begin with you need to be clear. As a non-resident you are still required to pay two taxes:
- IBI (Impuesto Sobre Bienes Inmuebles) or council tax
- Rental tax or imputed income tax (in some cases a combination of the two)
Below we summarise the main points about each one.
IBI or Impuesto Sobre Bienes Inmuebles is a council tax that must be paid by every owner of a property in Spain and is paid directly to the town hall where the property is located. In Alicante Province, this tax is collected by SUMA on behalf of local town halls.
IBI must be paid annually and at different times of the year depending on the area the property is in. The amount is based upon the rateable value of the property or valor catastral. The valor catastral is recorded at the Catastral Registry which is usually based at the local town hall. You can find out how much the valor catastral is from looking at your IBI bill or your receipt if you do online banking and your IBI is paid by direct debit.
If you rent out your property then you are required to pay income tax on the rent you receive. This tax is collected quarterly and the four collection dates are:
- 20th April
- 20th July
- 20th October
- 20th January
There are deductions for some expenses if you are tax resident in a country in the European Union, Norway and Iceland. These include a proportional part of the house insurance, IBI, the community fee, water and electricity if paid by the home owner. A financial representative will be able to advise on what can and can’t be claimed for.
You will not be required to pay rental tax in both Spain and your home country if a double tax agreement is in place in the country where you are tax resident.
Imputed income tax
If you do not rent out your property then you are liable to pay imputed income tax. This is because the property is a second home that could be rented out if you wished. This tax is declared in the non-resident annual tax declaration before 31st December and is paid directly to the Spanish Tax Authority.
It is your responsibility to make sure this tax is paid. The Spanish Tax Authority will not necessarily chase you up for this but omitting to pay it will register when you come to sell your home or it is passed on to inheritors. The tax must then be settled before your property can change hands.
If tax remains unpaid and the Spanish Tax Authority are aware of this they can put an embargo on your Spanish bank account which means that it is frozen and essential bills may not be paid. If you are not available to receive registered post in Spain then you may not even be aware of this.
If you rent out your property for part of the year then you will pay rental tax for this and imputed income tax for the periods when your property is not rented out.
We recommend that you engage a fiscal representative to make sure that your non-resident property taxes are paid and that you do not run the risk of having fines or embargoes. Having a property in Spain is a privilege that you have worked hard to enjoy. It’s worth taking a few extra measures to make sure that it doesn’t become a liability rather than a luxury.