Thinking about buying a property in Spain? Whether you intend to move to Spain full-time or make the most of a holiday home as a non-resident, the process of conveyancing and completing a sale can be confusing if you don’t speak Spanish.
When finding a property that meets your needs in terms of size, location, and amenities, tax considerations should also be at the forefront of your mind.
Aside from the various fees associated with buying real estate in Spain, there are also various Spanish property taxes that you’ll need to be aware of – even if you’re not a Spanish resident.
Here is a guide to seven of the most common Spanish tax acronyms you’re likely to come across, helping you to understand what they mean and how they might apply to you and your property.
NIE – Número de Identidad de Extranjero
While Spanish citizens are identified for tax purposes using their NIF number (Número de Identificación Fiscal), non-nationals will be assigned an NIE number (Número de Identidad de Extranjero) – also known as a foreigner ID number.
You must register with the Spanish tax authorities and obtain this number before you can purchase a property in the country. It’s required for all financial activities, including opening a bank account in Spain, applying for a Spanish mortgage, and buying, renting, or selling property.
IVA – Impuesto sobre Valor Añadido
The Spanish equivalent of VAT (Value Added Tax) for property sales in the UK is IVA (Impuesto sobre el Valor Añadido). This is charged to the buyer of a new property in Spain – not just on new builds sold by developers, but any property that hasn’t been sold before.
The standard IVA rate across Spain is 10% of the property’s sale price. However, the Canary Islands have their own version called IGIC (Impuesto General Indirecto Canario), where only 7% of the property’s purchase value is charged as IVA.
ITP – Impuesto sobre Transmisiones Patrimoniales
When purchasing a resale property, which has already been sold at least once – e.g. buying a pre-owned home – the buyer is expected to pay this property transfer tax to facilitate the official transfer of ownership from the previous owner to the buyer.
There is no fixed rate of ITP (Impuesto sobre Transmisiones Patrimoniales), as autonomous regions set their own rates. Depending on where you buy the property, you could be charged as low as 4% or as high as 10% of the deed price, though the average rate you can expect is 8%.
AJD – Actos Jurídicos Documentados
Sometimes referred to as IAJD (Impuesto de Actos Jurídicos Documentados), this tax is equivalent to Stamp Duty in the UK. It’s levied on the execution of the deed of sale and mortgage deed, which formalise the transaction when completing a new build property sale.
It often goes hand-in-hand with ITP, and also varies according to the rate set by the autonomous region. While AJD is currently 0% in the Basque Country, it can be anywhere from 1–1.5% for direct buyers anywhere else – or 2–2.5% of the mortgage value, which the lender should pay.
IBI – Impuesto sobre Bienes Inmuebles
Like Council Tax in the UK, municipal authorities in Spain charge local property owners an annual tax, which goes towards maintaining the area’s public services. In some provinces, the Suma Gestión Tributaria agency may collect the tax instead (known as SUMA).
As IBI (Impuesto sobre Bienes Inmuebles) is typically levied by local town halls, each municipality could charge a different rate. The state mandates limits of 0.4–1.3%, so you can expect the IBI rate to fall somewhere in that range. This rate is applied to each property’s cadastral value.
The cadastral value (valor catastral) is the property’s rateable value, calculated by the local authority as a percentage of the property’s market value (usually around 60–70%). This value depends on the location and size of the property, as well as its age and condition.
As IBI is an ongoing tax that you’ll have to pay every year and is based on the property value, you’ll want to check the cadastral value before committing to a purchase. If you’re buying a resale property, you should also make sure the previous owner’s IBI payments are up to date.
IRNR – Impuesto sobre la Renta de No Residentes
Personal Income Tax in Spain is known as IRPF (Impuesto sobre la Renta de las Personas Físicas) for Spanish citizens and residents. Those who are considered tax residents must pay a percentage of their worldwide earnings to the Spanish authorities, including income, pensions, interest, dividends, royalties, and capital gains.
Tax rates are levied on a progressive scale for citizens and a flat rate of 19% or 24% for non-Spanish residents (for EU citizens and non-EU citizens respectively). Fortunately, Spain has double taxation treaties with many countries, so you likely won’t have to pay tax on the same income twice.
Rental income is also taxed in Spain, so if you are a non-resident – someone who spends less than 183 days a year in the country – who intends to rent out their property in Spain for financial gain, you’ll have to pay IRNR (Impuesto sobre la Renta de No Residentes).
Non-residents are only taxed on income earned within Spain, but are still responsible for filing the quarterly tax returns required for reporting rental income, and paying the resulting tax bill.
Even if you’re a non-resident who won’t be renting out their Spanish property when it isn’t in use, it’s still a taxable benefit. This means the local authority is likely to charge an annual ‘notional’ tax, but the 19% or 24% rate will only be applied to 1.1–2% of the property’s cadastral value.
IP – Impuesto sobre el Patrimonio
Separate from quarterly or annual income-based taxes, Spain also has a ‘wealth tax’ called IP (Impuesto sobre el Patrimonio). Both residents and non-residents must pay this annual tax if the net value of their assets exceeds 700,000€ (total global assets for residents, but only assets within Spain for non-residents).
Liable assets include financial (cash, bank deposits, investments, shares, annuities, and life insurance) and physical assets (real estate, vehicles, art objects, antiques, jewellery, and luxury items). Some deductions are allowed for mortgages, loans, and debts that may reduce asset values.
This tax is charged progressively for higher values, but autonomous regions can set their own IP rates, resulting in variations from 0.2%–3.5%. Some regions, such as Madrid and Andalucía, have chosen to effectively cancel the tax by charging 0%.
However, a new ‘solidarity’ tax is being trialled in 2023, known as ISGF (Impuesto Solidario a las Grandes Fortunas). This additional wealth tax ranges from 1.7%–3.5% and applies to asset values exceeding 3,000,000€. In regions where IP has already been levied, this can be deducted from ISGF liability to avoid double taxation.
Need help with property taxes in Spain?
When purchasing real estate in Spain, most taxes incurred during the transaction are based on the property itself. These will therefore depend on the property location and value, regardless of your residential status as the buyer.
That said, once you own a property in Spain, you’ll be responsible for keeping up with ongoing property taxes. While IBI is also dependent on the property value, other property-related taxes such as IRNR for rental income will be affected by your residential status.
In any case, even non-residents must register with the Spanish tax agency before they can buy a property, and register with the town hall local to their property for municipal taxes. All property owners are obligated to file tax returns and pay taxes levied by the relevant deadlines.
You may know more about common property taxes and their acronyms now, but this can still be a stressful process if you aren’t fluent in Spanish, as local tax agents may not speak other languages.
This is why many non-residents who need help with buying a property in Spain, or with staying on top of Spanish taxes as a property owner, prefer to appoint a representative.
Giving power of attorney to English-speaking professionals based in Spain – such as Manzanares Lawyers, who are well-versed in non-resident tax in Spain – can make it easier to liaise with the authorities in Spain, both as a prospective buyer and once you’re a property owner.