An guide to the taxes you face when buying, owning or selling property in Spain as a resident and non-resident.
Please note the information provided in this guide is of general interest only and is not to be construed or intended as substitute for professional legal advice. Laws and tax rates change over time, so this information may be out of date. Please consult a tax specialist or the tax authorities for the latest information. There are no guarantees that this information is correct and up-to-date, so you use this information at your own risk.
When buying property in Spain, always keep digital and hard copies of all invoices related to your purchase like legal fees, notary fees, and property register fees. Likewise, if you ever do building work on the property once you own it, keep copies of all licences and invoices. You may be able to offset these expenses against capital gains when you sell.
Some of these articles are by Blevins Franks International and published here with their permission.
Spanish property taxes for non-residents
Non-residents have to pay certain taxes if they own Spanish property. The following tables explain the Spanish property taxes that non-residents are obliged to pay as owners of property in Spain.
The tax you pay, and the declaration you have to make, largely depends upon whether you rent out your property or no. Foreigners may be surprised to discover they are expected to pay income tax even if they don’t rent out their property in Spain.
Spanish income tax for non-residents who do not rent out their property in Spain (standard declaration)
|Spanish name||Impuesto de la renta de no residentes, declaración ordinaria (IRNR)|
|Description||You pay this version of income tax in Spain if the following conditions apply: 1) You do not reside in Spain, 2) You own property in Spain, 3) The property is exclusively for personal use and you do not rent it out, 4) You have no other source of taxable income in Spain. Although you do not earn an income from the property, in the eyes of the Spanish tax authorities you still derive a benefit from owning a property in Spain and therefore have to pay an imputed income tax.|
|Tax base and rate||Tax base: 2% of the cadastral value of the property (found on the IBI receipt), or 1.1% if the cadastral value has been revised since 1st January 1994. Tax rate 2016: Residents of EU, Iceland and Norway 19%, all others 24%.|
|Form||Use general section 210-A and indicating income type 02.|
|Dates||Presented before the 30th June each year. For example you have from 1st January to 30th June 2006 to declare tax on income during 2005.|
|Example||Cadastral value of property = 200,000 Euros
Base = 2,200 Euros
Tax = 19% x 2,200 Euros = 418 Euros
Spanish wealth tax for non-residents (Patrimonio) with property in Spain
|Spanish name||Impuesto sobre el Patrimonio (Patrimonio)
This tax was eliminated as from 01/01/2008, then reintroduced in September 2011 for the years 20011 & 2012, then extended to 2013, with several important changes and other issues that are explained in depth in the section on the Spanish Patrimonio wealth tax
|Description||Everyone who owns property in Spain (residents and nonresidents alike) has to pay an annual wealth tax based on the net value of their assets in Spain after permitted deductions, such as mortgages. This tax is collected by regional governments.|
|Tax base and rate||The tax is based on the net value of your property (less mortgage, if any) or another value deemed appropriate by the tax authorities, with a tax-free allowance of €700,000. The tax rate works on a sliding scale with marginal rates starting at 0.2% and rising to 2.5%.[|
|Dates||Presented in June for previous calendar year.|
|Example||Depends upon the autonomous region where your property is located. No wealth-tax to pay in most regions if the net value of your property does not exceed €700,000|
Spanish income tax for non-residents who do not rent out their property in Spain, combined with the wealth tax
|Spanish name||Impuesto de la renta de no residentes, y Patrimonio (IRNR y Patrimonio)
Note: See changes to the ‘patrimonio’ wealth tax above. Until the wealth tax situation is clarified it is hard to say if this form will be brought back. But it is likely that, for most non-residents, the form 210 (see above ‘Declaración ordinaria Impuesto sobre la Renta de no Residentes’) will suffice for 2011 and 2012.
|Description||Under certain conditions non-residents can pay the two taxes mentioned above (IRNR and Patrimonio) in the same declaration and using the same form. Therefore this is not an extra tax, just a more convenient way of paying the two taxes previously mentioned. To present these taxes together in the same form you have to meet the following conditions: 1) You do not reside in Spain 2) you only own one property in Spain, and 3) this property is exclusively for personal use and is not rented out.|
|Tax base and rate||The tax is based on the net value of your property (less mortgage, if any) or another value deemed appropriate by the tax authorities, with a tax-free allowance of €700,000. The tax rate works on a sliding scale with marginal rates starting at 0.2% and rising to 2.5%.|
|Form||It used to be Form 214 (Cancelled in 2008)|
|Dates||Presented any time during the following calendar year, deadline 31 December. So you present in 2013 for taxes in 2012.|
Spanish income tax for non-residents who rent out their property in Spain
|Spanish name||Impuesto de la renta de no residentes, declaración ordinaria (IRNR)|
|Description||If you 1) do not reside in Spain 2) own property in Spain and 3) rent out your property, you have to pay income tax on the rent instead of the imputed tax described above. (If you rent out your property to a Spanish company the company will deduct tax at source and pay it to the tax authorities. Under these circumstances a nonresident is not obliged to present the forms 210 or 215.) (reference)|
|Tax base and rate||The tax base is the net rent, deductions of expenses allowed (since 01/01/2010), and the Tax rate in 2016: Residents of EU, Iceland and Norway 19%, all others 24%|
|Form||210 (use general section 210-A and indicating income type 01) or 215|
|Dates||210 = Monthly, one month after rent is due
215 = Quarterly, in the first 20 days of the month following the end of the quarter.
|Example||Annual net rental income of 20,000 Euros
Tax @19% = €3,800
Municipal property tax (IBI)
|Spanish name||Impuesto sobre Bienes Inmuebles (IBI)|
|Description||This tax is the Spanish equivalent of the rates or council tax, and is collected by local government.|
|Tax base and rate||The tax base is the cadastral value of the property and the rate varies from 0.405% to 1.166% depending upon the region. The following table shows rates per regions, and the year in which the cadastral value was lasted updated.
|Dates||Set by local authority|
|Example||Varies, but 200 Euros – 800 Euros per annum will be common.|
The cadastral value (valor catastral) is the rateable value of a property as determined by the municipal government. The cadastral value is usually much lower than the market value of the property. The cadastral value of a property is identified on municipal property tax receipts (IBI).
Bear in mind that if a property is owned by a married couple or shared by various individuals, in many cases they will be treated as separate taxpayers and must file returns separately.
Capital gains tax
When they sell-up, non-residents have to pay capital gains in Spain on the difference between the sale and the acquisition value of their property.
Other Information Sources
Please note the Spanish Tax Office website address changes from time to time, and they don’t bother to set up redirections, so the links below might be temporarily out of date (I check them every few months).
Spanish Wealth Tax (Patrimonio)
The Spanish wealth tax, known as Patrimonio, might catch you by surprise. It was reintroduced during Spain’s financial crisis in 2011, but with a much higher tax-free allowance of €700,000 per person that also applies to non-residents.
The information for this article was provided in part by Blevins Franks, an international tax advisory service, with updates by Raymundo Larraín Nesbitt, a lawyer qualified to practise in both Spain and the UK. This information is provided to help you do your background research, but not as a substitute for qualified legal advice.
Spanish Wealth Tax timeline
1977: Introduced as a temporary tax, still going strong more than thirty years later.
2008: Suspended (set to zero) as of 01/01/2008
2011: Restored for tax year 2011 & 2012 (with important changes to the taxable base)
2013: Extended for two years, and still going strong
When the Wealth Tax was extended in 2013 the reason given, following the law’s own wording, was to “weather the financial storm which afflicts Spain at a time where those who own more have the moral obligation to contribute more to society following the legal principle enshrined by art 31 of Spain’s Constitution”. When the financial storm abated in the years following 2015, the Wealth Tax was left in place.
Never believe claims that a new tax is just a temporary measure!
The Wealth Tax (Patrimonio) in Spain
Most foreigners moving to Spain or buying property there understand that they will have to pay Spanish taxes like income tax, capital gains tax and inheritance tax. Not everyone, however, is aware that Spain imposes an extra tax, one with no equivalent in the UK and which is payable on top of the other Spanish taxes: The Wealth Tax.
Spanish Wealth Tax is payable by both residents and non-residents (if they own property in Spain), although the rules are different. Residents pay wealth tax on their worldwide assets but have quite generous tax-free allowances, whereas non-residents are only liable on net assets within Spain but miss out on some of the allowances.
Wealth tax legislation is devolved to the autonomous governments, who can either use the national law, or pass their own laws on the following:
1. Tax-free allowances
2. Deductions and tax rebates
3. Levied tax rate
Some regions, like Catalonia, Valencia, The Balearics, and Andalucia, have passed their own laws. Others just use the national law.
Residents are subject to the laws of the autonomous regions where they live. Non-residents are always subject to the national law, regardless of where the property they own is located. So if you own property in Spain as a non-resident, and the value of your property drags you into the Spanish Wealth Tax net, you will have to pay Patrimonio based on the national rate, wherever your property is located in Spain, even if it’s in a region that has suppressed the Wealth Tax.
For residents, some regions apply a tax rebate of 100pc; meaning no wealth tax to be paid, whilst other regions apply no rebate, meaning the wealth tax must be paid in full. This disparity in laws leaves the door ajar for tax mitigation strategies for residents should the tax outlive its foreseen two-year period.
This guide only deals with the national law. If you live in Spain, and fulfil the conditions of residency, you need to consult a local tax specialist for more information on the Wealth Tax in your autonomous region. Some regions, like Andalusia and Madrid, have essentially cancelled the Wealth Tax (set it to zero), whilst others like Catalonia charge as much as the national law allows them to.
Under this law, non-residents are also obliged to appoint a fiscal representative living in Spain, for example a lawyer or gestor. That will be an extra cost to bear in mind.
Wealth Tax in Spain – deductions
Residents and non-residents are entitled to the following deductions per person:
– Individual deduction: €700,000 (previously €108,182.18 for residents, €0 for non-residents). Note that in Catalonia the deduction is €500,000.
Residents are also entitled per person to:
– Main home / permanent dwelling deduction: €300,000 (previously €150,253.03 for residents, €0 for non-residents)
Non-residents, by definition, cannot benefit from a permanent dwelling deduction
A married couple would each be entitled to the individual deduction as well as the deduction on their share of the main home owned in joint names (residents only).
So, for example, a married couple, resident and non-resident alike, has a combined tax-free allowance of €1,400,000 on their net estate. Taking into account a main home, a resident married couple has a total tax free allowance of €2,000,000.
Also note that this tax is on net assets, which means you can deduct mortgage debts (residents and nonresidents alike)
Spanish Wealth Tax rates
The wealth tax follows a progressive sliding scale, the larger the estate, the more you are taxed, with a cap set at 2,5pc for estates in excess of €10,7mn.
As stated above, the first €700,000 is the national tax-free allowance (for residents and nonresidents alike).
The current rates under the national law for 2011 and 2012, applicable to net wealth on 31st December of each year, after all relevant deductions, are as follows:
|Excess as from € 700,000||To €||Tax rate %||Total payable at
top of band €
In Madrid, the tax rate for Patrimonio is currently set at 0%, so residents of Madrid do not have to pay any Patrimonio wealth-tax.
What’s included in your Estate
This tax is accrued on all your net assets held on the 31st of December of each year:
1. Real estate
2. Professional activities
3. Bank deposits
4. Insurances and temporary income sources
5. Luxury assets such as: jewellery, fur coats, racing cars, yachts, aeroplanes
6. Works of art and antiquities
7. Royal rights, administrative concessions and intellectual property rights
8. Contractual options and the remainder of economic rights
Assets exempt from the Wealth Tax
Some assets are exempt from wealth tax. These include:
- Household contents (but excluding jewels, fur coats, vehicles, boats, art, and antiques)
- Owner managed small businesses
- Family companies meeting certain conditions (shares in property investment companies are not exempt unless the company carries on a commercial activity – see below)
- Pension rights
- Intellectual property rights in the author’s ownership
- Business assets. For the assets to qualify as business assets, the activity must be the taxpayer’s main source of income (i.e. the income from the business must constitute at least 50% of his taxable income) and the activity must be carried out by the taxpayer on his own account and on a habitual basis.
Where a rental/property development business is carried out, the following conditions must be fulfilled for the activity to qualify as a commercial activity. Provided these conditions are fulfilled, the properties used in a rental/development business can be exempt from wealth tax in Spain.
1.There must be premises used exclusively for the management of the business activity. Part of a building can qualify provided the part used is separate from any other activity and is used exclusively for the management of the property business. A shared office will not qualify.
2.There must be at least one member of staff employed on a full-time contract. This could be your spouse but he or she would need to be registered as an employee for social security in Spain and contributions would be deducted from their salary each month.
Shareholdings are also exempt from wealth tax provided:
1.the company is a trading company
2.you own at least 5% of the share capital (or at least 20% including shareholdings belonging to a spouse or other family members)
3.you carry out managerial duties for the company
4.you derive a salary for such activities which is at least 50% of your total net earnings
Spanish property values and the Wealth Tax
When working out the value of all your eligible assets each year, you must value your property at whichever is highest of the following values:
1. Catastral value (this value is included in your IBI receipt, akin to the UK’s Council tax)
2. Assessed value by Tax Authorities on filing other taxes
3. Price paid in your Title deed
Liabilities in general reduce taxable wealth, but not where it is a loan used to buy an asset that is specifically exempt or covered by exemptions. So where a mortgage is for the purchase of the main home (the value of which for wealth tax is covered by the main home exemption) no deduction is available for that mortgage.
For a non-resident, only Spanish liabilities would be taken into account and there is no exemption to consider. To obtain relief it would normally have to be a Spanish mortgage attached to a Spanish property.
Spanish Wealth Tax – bank balances
Bank balances are valued at the higher of the closing balance on 31st December or the average balance during the 4th quarter.
‘Personal Portfolio Bonds’
Life assurance contracts (such as a ‘Personal Portfolio Bond’) are taxed very favourably in Spain, helping to legally reduce various Spanish taxes including wealth tax.
The Spanish tax regulations state that cumulative wealth and income taxes cannot exceed 60% of a resident’s total taxable income (there is no limit for non-residents), subject to a minimum of 20% of the wealth tax calculation. This is a major way that a wealthy person can avoid wealth tax as a resident of Spain.
If you are able to tie up your capital for five years, you can also set up your Personal Portfolio Bond so that the life assurance has no immediate ‘value’ at all and can therefore be excluded from your wealth tax return. All you need to do is agree with the life assurance company that the contract cannot be redeemed for five years and one day. This will mean that no withdrawals are possible for the first 5 years, so you will first need to ensure that this is the best option for you.
Joint income tax returns for the Wealth Tax in Spain
If you are married and have opted to file a joint income tax return, then to calculate your wealth tax limitation you need to add together the total income tax due and each individual wealth tax calculation. If the 60% limit is exceeded, the reduction in wealth tax is prorated between your spouse and yourself in proportion to the amount of each of your taxable wealth.
Returns and payments
Where there is a liability, the wealth tax form must be completed after the end of each year and the tax is payable between May and July. Husband and wife need to make separate returns reflecting their shares of any joint assets and liabilities in addition to any personal items.
Whether you are buying property in Spain as a holiday home or investment, or if you are planning to move there permanently, it is important to make sure you are informed of all the tax issues in advance. Many British people are caught out by rules they were not aware of and this can result in more tax being paid than necessary. Professional advice will prove invaluable, and in order to make sure you are fully informed and kept up to date with any changes, find an adviser who specialises in both Spanish and UK taxation.
Spanish Wealth Tax rates and conditions in the past
The rates for 2007 returns (applicable to the net tax base of wealth owned on 31st December 2007) were as follows:
|From €||To €||Tax rate %||Total payable at
top of band €
New solidarity tax on the rich (impuesto temporal de solidaridad a las grandes fortunas, or ITSGF for short)
In 2022 it looks like Spain will introduce another ‘temporary’ Wealth Tax called the Temporary New Solidarity Tax on the Rich (Impuesto Temporal de Solidaridad a las Grandes Fortunas, or ITSGF for short) on the face of it to address the economic problems caused by Putin’s war on Ukraine, but really just to impose the Wealth Tax on regions like Andalusia and Madrid that have set it at zero. Keep an eye on this new Wealth Tax dressed up as a Solidarity Tax by checking the latest news articles related to the Wealth Tax.
Plusvalia (municipal) tax on property sales
A special reference should be made to a type of local or municipal capital gains tax on property in Spain – known as the Plusvalía.
What is the Plusvalia tax on Spanish property?
The Plusvalia property tax is one of two taxes that vendors pay when they sell a property in Spain, the other one being a capital gains tax. Conceptually, the Plusvalia tax is similar to a capital gains tax, as it is meant to tax an increase in value over the ownership period, but only on the value of the land.
The plusvalía is a local (municipal) tax charged by the town hall on properties when they are sold. It is calculated on the rateable or market value of the property, and the number of years that have passed since the property last changed hands. The objective is to tax the increase in the value of the land on which the property stands, some of which is due to improvements to the area carried out by the local government and the community at large.
The base for this tax is the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) of the property, though recent changes have also introduced a ‘real’ value based on market prices for calculating the Plusvalia. The amount due in tax will depend on how long the seller has owned the property adjusted by a table of coefficients set by the tax authorities : the longer the period, the higher the amount of tax.
The Plusvalia was effectively abolished by the Spanish Constitutional Court in 2021, and then reintroduced by the government in record time to avoid many Spanish municipalities being pushed into bankruptcy by the removal of one of their main sources of income. You can read about the recent changes in further below.
Who pays the Plusvalia tax on property in Spain?
By law the vendor, though both parties are free to negotiate who pays it. During boom times (like the years 2000 to 2007), in a vendor’s market when vendors have a stronger negotiating position, buyers sometimes agree to pay it, but in normal times, and especially in a buyer’s market like the one after 2008, vendors are rarely in a position to ask the buyer to pay this tax.
If you are a vendor, and you are resident in Spain, you are better off paying this tax yourself, as if the buyer fails to pay it, the tax authorities will come after the vendor.
If you are a buyer, and the vendor does not live in Spain, you are better off paying this tax on behalf of the vendor using funds withheld from the property price. That way you can be sure the tax has been paid. Because if the vendor doesn’t pay, and doesn’t live in Spain, the tax authorities will come after the new owner.
How do you pay the Spanish Plusvalia tax on property sales?
You have 30 days from the date of sale to pay the plusvalia to the town hall.
If you (the vendor), are not resident in Spain (whatever your nationality), the buyer may insist on withholding funds to pay the plusvalía on your behalf, as the new owner would become liable for the plusvalía in the event of non-payment (i.e. if a non- resident does a runner without paying).
Spanish Plusvalia tax abolished and reintroduced in the space of a week in 2021
On the 26th of October 2021 the Plusvalia tax was struck down by the courts as explained in this article: Spain’s Constitutional Court eliminates Plusvalia Tax on property. By the 9th of November 2021 the Spanish government had reintroduced a new version of the Plusvalia tax to keep municipal finances afloat, as reported in this article: Spanish government brings Plusvalia property tax back to life in record time. So although vendors could, in theory, avoid paying any Plusvalia tax for during a two-week window in between the old version being struck down and the new version introduced, anyone selling property in Spain after the 9th of November will once again have to declare and pay the Plusvalia tax on property sales in Spain. You can find out how to calculate the new version of the tax in this article: New Spanish Plusvalia tax on property explained.
Capital Gains Tax on property
When you sell a property in Spain you have to pay capital gains tax on any profit after taking into account all deductions and allowances.
Deductions and allowances are quite complicated and vary by autonomous region so you will need to consult a local tax specialist for more information.
Capital gains tax rates in Spain
Capital Gains Tax (CGT) rates in Spain have changed in recent years. The following tables show the present CGT rate (final column to the right), and also give previous tax rates to help clarify the confusion surrounding this topic. Most of the websites you will find doing an internet search do not give you the latest, updated tax rate.
Capital Gains Tax on Spanish Real Estate
The following only applies to E.E.A. and EU-residents. Residents from outside the European Union (including the UK since Brexit) pay 24% in general (there are some exceptions).
GGT rates on real estate assets sold in Spain by EEA/EU residents have changed over the years as follows (tax rate at time of sale):
|PERIOD||TAX RATE %|
|Up to 31/12/06||35%|
|Up to 31/12/07||25%|
|2015||Up to 11-Jul 20%, From 12-Jul 19.5%|
19% is the current rate, but it’s more complicated than that. EEA/EU vendors who are NOT resident in Spain at the time of sale pay a flat rate of 19% CGT, but EEA/EU vendors who ARE resident in Spain at the time of sale pay a sliding scale starting at 19%:
|Capital Gain in Euro||Fist €6,000||€6,000 – €50,000||Above €50,000|
|CGT Rate %||19%||21%||23%|
You can try checking the latest rates at the Spanish Tax Agency website.
Capital Gains Tax retention on property sales by non-residents
A synopsis of the Spanish capital gains tax retention on property sales by non-residents, often referred to as the 3% withholding tax.
When a non-resident sells property in Spain, they buyer is obliged to retain 3% of the price and pay it to the tax authorities to cover the vendor’s Capital Gains Tax (CGT) liabilities.
If the 3% retained exceeds the taxes due, the vendor can expect a refund once all taxes have been paid. On the other hand, if the vendor’s tax bill is greater than the 3% retention, the Spanish tax authorities may chase the vendor back home, though it is unlikely.
If the vendor is due a refund after taxes have been settled, it can take years to get paid (see link to forum discussions below for more information on how long it takes to get refunded).
Various terms in English and Spanish are used to name this tax retention. In Spanish it is known as the ‘retención (sobre la venta de inmuebles) a cuenta del impuesto de la renta de los no-residentes’, whilst in English it is referred to as the capital gains tax retention on property sales. Some people also talk about a withholding tax or money withheld, deducted, or kept back on a property sale in Spain.
The 3% retention is meant to cover CGT liabilities. GGT rates on real estate assets sold in Spain by EEA/EU-residents have changed over the years as follows (tax rate at time of sale):
|Up to 31/12/06||35%|
|Up to 31/12/07||25%|
|2015||Up to 11-Jul 20%
From 12-Jul 19.5%
The 3% retention does not cover the vendor’s ‘plusvalia’ tax liability, which is paid to the town hall at the time of sale.
After the sale, the buyer has one month from the date of sale to pay the 3% retention to the local tax office using the form (modelo) 211. A copy of the submitted form should then be given to the vendor or his lawyer, so a refund can be claimed.
Capital Gains Tax Reclaim
If the vendor believes he is owed a refund (that the tax liability is less than the 3% retention), he has 3 months to present form 212 requesting a refund. This step is done at the local tax office (delegación de hacienda).
If a refund is due, how long does it take? It depends upon the tax office; some are quicker than others. In theory it shouldn’t take more than a few months, though some people report it taking up to 16 months. Around a year seems to be quite common according to comments in our Spanish property forum discussion on the 3% retention tax, though some people report it takes more than two years to get a refund.
Be warned that if there are any minor errors in the documentation the tax authorities will jump on them as a reason to delay any refund. So make sure all the information in your 212 reclaim form is correct.
In some cases, the vendor’s tax liability is greater than the retention. What then? Depending upon the size of the liability, the Spanish taxman may try and come after you for it back home.
So, for example, if a British person living in London sells a holiday home in Spain for 200,000 Euros, the vendor will retain 6,000 Euros and pay it to the tax office. Say the vendor originally bought the home for 100,000 Euros, meaning a capital gain of 100,000 Euros, and a capital gains tax of something in the region of 18,000 Euros (there will be some relief for inflation). In this case the vendor will not be entitled to a refund, and may be pursued for 12,000 Euros back home by the Spanish taxman.
But if you don’t hear from them within 4 years you know you’re safe, as that is the legal deadline for the tax authorities to take action.
Note: This issue only applies to vendors who are considered non-resident by the Spanish tax authorities, i.e. fiscal non-residents. To be considered a fiscal resident you have to get a certificate from the tax office (hacienda) certifying that you are a fiscal resident. You will get this if you have been doing tax returns (declaración de la renta) for several years. Do not make the mistake of thinking you are fiscally resident just because you have an NIE number, or once had a residency card (tarjeta de la residencia). A notary will only accept a certificate from the tax office.
Inheritance Tax, also known as Succession Tax in Spain
Spanish Inheritance Tax has to be paid by the heirs or beneficiaries of the deceased, in contrast to countries like the United Kingdom, where Inheritance tax is paid out of the estate of the deceased.
If you inherit a property in Spain you will need to pay Spanish Inheritance Tax within six months of the date of death, unless you request an extension of six months within five months of the date of death. If you do not meet the deadline for paying tax you will be charge interest and penalties.
Inheritance tax in Spain is a complex matter, especially if you do not live in Spain, or if you have heirs who do not live in Spain. It requires fiscal and legal expertise in different jurisdictions to avoid paying too much tax, or getting fined for not paying on time.
Whether you own a property in Spain and need Inheritance Tax planning to ensure your loved ones are not left with a big and expensive problem when you pass away, or whether you have just inherited a property in Spain and have to navigate the waters of probate and paying inheritance tax, you will need the best legal help you can get. You can find a lawyer to help you settle Spanish Inheritance Tax in the business directory section for lawyers in Spain.
Spanish Inheritance Tax (Succession Tax) overview
By Blevins Franks
It is important for anyone who owns property in Spain, or other Spanish assets, to familiarise themselves with Spanish succession tax on inheritances. It is different from UK inheritance tax and has a real top rate of nearly 82%! It is payable if the beneficiary resides in Spain or the asset being passed on is in Spain. Blevins Franks explain.
Inheritance tax in Spain
The most significant difference between UK inheritance tax and Spanish succession tax is that, unlike in the UK, in Spain there is no exemption between husband and wife. So, if you live in Spain with your spouse, on the first death the survivor can be liable for Spanish succession tax on worldwide assets.
In some of the seventeen Autonomous Regions in Spain there is a trend towards increasing the relief or abolishing succession tax between spouses and direct line relatives. The rules vary from region to region and will depend on certain conditions being met. Where the regional rules are not yet set or not met, the state rules will apply. The state rules also apply where the deceased is not resident in Spain – in other words, if you own property in Spain but do not live there, your heirs will be faced with the state rules regardless of what the rates and rules may be in the area your property is located.
There has been quite a bit of hype about the proposed changes to this tax but in fact it still has a long way to go and often amounts to less than expected. So far, only Andalucia and Murcia have introduced significant new reliefs and even then many people will not benefit because they do not meet all the requirements or because their taxable assets amount to more than the ceilings.
You therefore need to be familiar with the rules in the area where you are thinking of buying or have already bought. If there has been talk of new rules in the area but nothing concrete has happened yet, it may be wise not to assume too much, and to stick to estate planning with the existing rules in mind.
The state rules
The tax rates differ depending on the value of the amount inherited. These range from 7.65% on the first €7,933, up to 34% on €797,555 and over. Beneficiaries are graded into four different groups and the more remote the beneficiary’s relationship is to the deceased the lower the tax allowance and the higher the tax rates.
The four groups are:
Group 1 – natural and adopted children under 21
Group 2 – natural and adopted children aged 21 and over; grandchildren; parents; grandparents; spouses; unmarried partners registered as a pareja de hecho (registered couple) in Andalucía or Cataluña
Group 3 – in-laws and their ascendants/descendants; stepchildren; cousins; nieces/nephews; uncles/aunts
Group 4 – all others including unmarried partners unless registered under pareja de hecho
There is an allowance available between husband and wife, or direct line descendants and ascendants, which is a little under €16,000 – very low if you own Spanish property!
If an inheritor is a direct line descendant under the age of 21, there is an additional deduction of €3,990 for each year they are under 21. The total deduction is restricted to €47,858 per child or grandchild.
For more distant relatives (e.g. those in Group 3) the exemption is €7,933. There is no exemption for beneficiaries who are not related, including unmarried couples unless they can be registered.
A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death. The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death.
Assuming that all the conditions are met, the value of the house can be reduced by 95% in calculating the tax base liable to succession tax, subject to a maximum reduction in value per inheritor of €122,606. This only applies to a principal private residence owned by a Spanish resident.
As mentioned there can be variations from the State rules in the different Regions.
UK inheritance tax
Even if you move to live in Spain you are still likely to be ‘UK domiciled’ and therefore liable to UK inheritance tax on your worldwide assets. Domicile is a longer term concept than residency and more akin to a person ‘belonging’ to a country. It is largely dependent on your father’s country of origin, but can be varied through life. To prove that you are not UK domiciled you need to have cut all ties with the UK and firmly put down roots in your new country of abode.
For anyone living in Spain who is UK domiciled, there is an inheritance tax liability in both countries. However, any tax paid in Spain can be offset against tax due in the UK and vice versa. If inheritance tax is paid in the UK and is higher than the Spanish succession tax liability, you will not receive a refund of the difference.
Spanish succession tax can be reduced if a ‘usufruct’ is created whereby a surviving spouse is left a ‘life interest’ in the property rather than the deceased’s half of the property outright.
To mitigate your succession tax further you might set up an offshore discretionary trust which can in the right circumstances protect your assets from inheritance tax both in Spain and the UK. Once you have lived in Spain for three years with the intention of staying there indefinitely and to shed your UK domicile status, a ‘Golden Trust’ can be set up where assets are outside of the estate for both Spanish and UK inheritance tax purposes, whilst you continue to benefit within your lifetime and your spouse’s. If eventually either of you return to the UK to live, the assets remain outside your estate indefinitely for the benefit of all your beneficiaries.
Inheritance tax can be a crushing tax wherever you live. It can have devastating effects on inheritors already in grief. To avoid your beneficiaries from having to suffer the consequences of bad planning or no planning at all, if and when you move to Spain, or you own property in Spain, forward planning is the answer.
For more information on any of the above issues visit: www.blevinsfranksinternational.com
Transfer tax on resale homes – Impuesto de Transmisiones Patrimoniales (ITP)
Home buyers in Spain have to pay a property transfer tax, known as ITP (Impuesto de Transmisiones Patrimoniales) when they buy a resale property in Spain. The rate varies from region to region.
ITP applies if the property is deemed to be a second or posterior transfer (i.e. not the first time a newly built home is bought), and is paid by the buyer. If any deposit is paid before completion of the sale it is not subject to ITP pro rata. However the full amount of ITP still has to be paid upon completion. In this scenario there is no VAT to pay, and stamp duty is already included in this tax.
If you buy a new home never purchased before, you pay VAT of 10% rather than ITP, though you still have to pay AJD (stamp duty).
Since the star of 2022, the taxable base for ITP is the higher of either the price paid or the Cadastre’s ‘Reference Value’, which you can find out more about in this article all about the new Reference Value used to calculate Spanish ITP:
The Transfer Tax rate is ceded to the autonomous regions, who can choose to apply the general rate, or their own rate.
At the time of writing the general (national) rule of ITP is 7%, but many of the autonomous regions have applied higher local rates. The rate you pay depends upon the autonomous region where you buy. For example, ITP was raised to 10pc in both Catalonia and the Valencian Community, and lowered to 6pc on 01/01/2014 in Madrid):
Some exceptions to the 7% general rule are given below. For the latest rate of ITP in the region where you are buying consult a Spanish lawyer.
- Andalusia: Reduced to the general rate of 7% as of 28/04/2021 (from a sliding scale between 8% and 10%).
- Catalonia: 10% up to 1m€ and 11% over that (with exceptions for first time buyers / young buyers, disabled, and large families).
- The Canaries: 6.5%
- Valencian Community: 10% with lower rates of 8% and 4% for certain resident groups like young buyers, disabled buyers, or buyers with large families
- The Balearics: From 01/01/2022 ITP is calculated in tranches as follows: Up to 400,000€ 8%, 400,000 to 600,000€ 9%, 600,000 to 1m€ 10%, 1m€ upwards 11.5%. So a villa of 1.2m€ would attract ITP of (400,000 x 8%)+(200,000 x 9%)+(400,000 x 10%)+(200,000 x 11.5%) = 115,880€. There have been news reports that the regional government of the Balearics plans to increase the tax rate on sales of €1m from 11.5% to 12%, and introduce a new tranche of 13% from 2m€ upwards starting in 2023.
- Madrid: Lowered from 7pc to 6pc on 01/01/2014
Are you resident in Spain for tax purposes?
It can be surprisingly difficult to establish one’s tax residence in certain circumstances. The onus is on the taxpayer to get it right in order to avoid the charge of tax evasion, which can lead to financial penalties and/or criminal charges.
By Blevins Franks
This question is best explained using an examples.
Mrs Smith is a divorcee living nine months of the year in Spain.
Her neighbour, Mr Davis, works in the oil industry travelling throughout the world. He spends only two months in Spain per calendar year.
Now you might think that Mrs Smith, spending nine months in Spain is tax resident in Spain, whereas her neighbour Mr Davis, spending only two months there, is not Spanish resident.
In fact, it is quite possible for Mrs Smith not to be Spanish resident, whilst Mr Davis is.
How can this be?
Well Mrs Smith owns a business based in Manchester, and her two children go to boarding school in the UK, where she has another home. She has decided to live in Spain for nine months to write a book, returning to the UK during her children’s holidays and to attend Board meetings.
As she remains UK resident under UK tax rules (because she spends more than 3 months in the UK per UK tax year), whilst she is also a Spanish tax resident under the 183 day rule in Spain, the UK/Spain Double Tax Treaty (“DTT”) overrules the Spanish residence determination. She cannot be tax resident in both countries under the DTT, and the DTT tie breaker rules will probably find her to be UK resident despite her spending nine months in Spain.
Mr Davis, on the other hand, is not tax resident anywhere else. His wife and children live in Spain, and he returns to be with them on all the major holidays, birthdays etc. Even through he only spends a mere sixty days or so a year in Spain, it is his centre of interests and the Spanish rules make him Spanish tax resident.
If you are tax resident in Spain, you are liable to pay tax on your worldwide income, worldwide gains, and worldwide assets (wealth tax).
Not Resident Anywhere?
There is no law which states you must be resident somewhere, but if you wish to fit into this category (called “permanent traveller” or “fiscal nomad”) you need to ensure you do not fulfil of any one country’s tax rules. There are many people who legally are not resident in any single country. There are even those people who claim not to be tax resident anywhere, but in fact they are an undisclosed resident of a country either through ignorance or by simply pretending that they are “non resident”. You need not only to understand very carefully the rules, but also to ensure you live by them.
An English national BA pilot thought he understood the UK tax rules well, as he had read the UK Inland Revenue’s book on residence, IR20, and was very careful to lead his life whereby he stayed less than ninety days a year in the UK.
Unfortunately, he didn’t pay too much attention to the inside cover of IR25 which states that the book is a guide and not the law. He was found to be a UK tax resident, despite his protestations to the contrary. Do It Yourself tax planning can be very expensive if you get it wrong. Experienced professional advice in this tricky area is worth every penny.
Residency criteria in Spain
You will become resident for tax purposes in Spain if:
- You spend more than 183 days in Spain in one calendar year. You become liable whether or not you take out a formal residency permit. These days do not have to be consecutive. (Temporary absences from Spain are ignored for the purposes of the 183-day rule unless it can be proved that the individual is habitually resident in another country for more than 183 days in a calendar year.)
- Or, your “centre of vital interests” is in Spain, e.g., the base for your economic or professional activities is in Spain.
- Or, your spouse lives in Spain and you are not legally separated even though you may spend less than 183 days per year in Spain
Note that the Spanish tax years is the same as the calendar year (1 January – 31 December), unlike the UK, which is from 6 April to following 5 April.
How you become a tax resident in Spain
If you move to Spain permanently for six months or more you will almost certainly become tax resident and be obliged to pay income, capital gains, and wealth taxes on your worldwide assets and be subject to Spanish inheritance and gifts tax rules.
By Blevins Franks
You will become tax resident in Spain under Spanish rules if:
a) you spend more than 183 days in the calendar year in Spain. These days do not have to be consecutive, and temporary absences from Spain are ignored unless you can show habitual residence in another country for more than 183 days in the year.
OR b) your ‘centre of interests’ is in Spain, e.g. the base for your economic or professional activities is in Spain.
OR c) your spouse is resident in Spain and you are not legally separated, even though you may spend less than 183 days there (unless you can show habitual residence in another country for more than 183 days in the year).
The tax year in Spain ends on 31st December. You are either resident or not resident for the whole tax year (subject to any residence elsewhere under treaty rules).
So, the date from which you become resident will largely depend on the time of year you arrive in Spain.
If you arrive in Spain in the first six months of the year with the intention of staying there indefinitely, you are likely to be regarded as tax resident for the full calendar year. However, if you move directly from the UK, then it is likely that, because of the UK/Spain Tax Treaty, you will be regarded as UK resident up to the date you leave the UK and resident in Spain thereafter.
If you move to Spain in the latter half of the calendar year, then you are likely to find that you are regarded as non-Spanish resident for that year, on the basis you have not spent 183 days there during the year. However, if you have made previous visits to Spain and these have been significant or frequent, the Spanish authorities could deem you to be resident in Spain from an earlier date, and regard any subsequent time spent outside of Spain as a temporary absence (unless you were clearly resident at that time in another ‘tax treaty’ country such as the UK).
UK/Spain Double Tax Treaty
The UK/Spain Double Tax Treaty has a tie-breaker clause that comes into operation if you are resident both in the UK under the UK rules and in Spain under the Spanish rules. The purpose is to determine in which country you will ultimately be regarded as tax resident – it cannot be both.
The agreement works as follows:
- If you are dual resident in practice, you are deemed to be tax resident in the country in which you have a permanent home available to you.
- If you have a permanent home in both countries (or neither), you are deemed to be resident in the country where your ‘centre of vital interests’ lies. ‘Vital’ means the whole pattern of your life.
- If this test is indeterminate, you are deemed to be resident in the country in which you have an habitual abode (a place where you spend most of your time during the tax year), but if this is not clear you are deemed to be resident in the country of which you are a national. UK nationals will at this point be regarded as UK residents.
If you are thinking of making a permanent move to Spain it might be worth giving some careful consideration as to the timing of your move. As the UK tax year runs from 6th April until the following 5th April, you could, for instance, leave the UK near the end of a tax year, move to another country for a few months, or travel, and be in Spain for the latter part of the year for less than 183 days. This way you can avoid becoming Spanish tax resident for that tax year.
It is always best before making the move to Spain to take professional tax advice from a specialist who knows both UK and Spanish tax legislation.
The above are summaries of complex issues and usually specific advice should be sought.