Marbella-based lawyer Raymond Nesbitt explains the importance of IBI tax and the consequences of non-payment.
Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.
By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of November 2018
With the ongoing off-plan property boom firmly underway, I thought it would be a good idea to write a gentle reminder for new-build owners on their duty to pay this local tax on the following year from buying a house.
Unbeknownst to most non-resident property owners, on buying property in Spain, you automatically become liable to pay IBI tax on the following year. No one will give you the heads up on this tax, so it is up to you to find out how much you owe and comply with the Tax Authorities.
IBI tax is of crucial importance because it has associated a valuation for tax purposes of your home known as ‘cadastral value’ (valor catastral, in Spanish) which is used as the benchmark to calculate any, and all, property-related taxes.
IBI Tax – Definition
The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents. In some parts of Spain, it is known as SUMA. All property owners must pay this tax every year.
This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). This is Spain’s equivalent of the United Kingdom’s Council Tax. It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum); for cheap properties (think rural land) it can be as low as a few euros whereas posh pads, in sought-after prime locations such as Marbella and Sotogrande, command several thousand euros/year.
Cadastral Value – Definition
Is the assessed value local Tax Authorities give to a property. It is usually well below the market value. This rateable value is used as the taxable base to calculate a series of taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI). Be aware that a store room or garage space may be regarded legally as a distinct separate entity from your main home and therefore subject to their own individual cadastral values. A cadastral value, in general terms, is 30 to 40% below the current market price of a property. So it does not equate to a property’s true market value, it is actually well below it (which is good news).
- IBI tax is used as the benchmark to calculate all property-related taxes.
- On selling, a buyer’s lawyer will demand copies of the IBI invoices for the previous 4 years.
When is it due?
- Town halls are empowered to rule on this, so it varies. Normally, it is payable once a year, typically from August through to September. Whoever owns the property on the 1st of January is liable to pay this tax, by Law.
Sample IBI tax invoice
Just follow the link supplied: sample IBI invoice
Consequences of IBI tax non-payment
- It may lead to your property being impounded and sold off in a public auction. Spanish town halls, besieged by dropping revenue, are becoming increasingly adept at pursuing aggressively this local tax post-credit-crunch; particularly for high-end property.
- It is not possible to file and pay NRIT and NRIIT taxes, as it requires for its calculation IBI tax. This in turn attracts fines, delay interests and surcharges.
- On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax.
- As a seller, you may forfeit the 3% sales proceeds tax rebate (plus legal interests). On selling, when a seller is non-resident in Spain, buyers must withhold 3% of the sales proceeds by law and pay it into the Spanish Tax Office. Non-resident sellers are entitled to a tax rebate on the 3% (subject to criteria).
Real case: Mr Daniel David Brockman, a prominent New York-based US tax lawyer and patron of the Arts, lost the property of a huge residential area in Marbella he was going to develop known as Urbanización Sierra Blanca because he failed to pay IBI tax to Marbella’s Town Hall. This estate is currently valued at over a billion dollars.
Non-payment of IBI tax is the daftest way to lose ownership of your Spanish property.
If you haven’t been paying this local tax, you should contact Larraín Nesbitt Lawyers ASAP to get it sorted out.
We offer the most competitive fees in the market. We file taxes all over Spain.
Setting up IBI tax: from only €225
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Larraín Nesbitt Lawyers, small on fees, big on service.
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Article originally published at Larraín Nesbitt Lawyers: IBI Tax Explained.
Legal & Tax services Larraín Nesbitt Lawyers can offer you
- Conveyancing – Buying
- Conveyancing – Selling
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- Holiday Rentals Accounting Service (HRAS) from €100
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- Non-Resident Income Tax – 8th December 2017
- Tax advantages on becoming resident in Spain – 8th March 2018
- Holiday Rental Taxation in Spain – 8th July 2018
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