Understanding Property Taxes in Spain
When you purchase property in Spain, you automatically become liable for IBI and rubbish tax in the following year. This is a fact that many non-resident property owners are unaware of. No one will inform you about these taxes, so it’s your responsibility to find out how much you owe and comply with the Spanish Tax Authorities.
The Significance of IBI Tax
IBI tax is of paramount importance because it is associated with a valuation for tax purposes of your home known as ‘cadastral value’ or ‘valor catastral’ in Spanish. This value is used as the benchmark to calculate any and all property-related taxes.
IBI Tax – A Detailed Explanation
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 Mallorca, command several thousand euros/year.
Understanding Cadastral Value
Cadastral Value 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 storage room or parking 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).
The Importance of IBI Tax
IBI tax is used as the benchmark to calculate all property-related taxes. On selling, a buyer’s lawyer will demand copies of IBI and rubbish tax invoices to prove a seller is up to date.
When are these Taxes 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 these taxes, by law.
The Consequences of Non-Payment of IBI Tax
Non-payment of IBI tax can lead to severe consequences. It may lead to your property being impounded and sold off in a public auction by local authorities. Spanish town halls, besieged by falling 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).
How Larraín Nesbitt Abogados Can Help
Larraín Nesbitt Abogados can assist you domiciling both taxes wherever your property is located in Spain. Give us a call. We offer this service: IBI tax (town hall rates) and refuse collection (basura). At Larrain Nesbitt Abogados (LNA) we have over 20 years’ experience assisting clients buying, selling, or renting properties. We can also offer you a competitively priced accounting service to file your landlord taxes every tax quarter nationwide. We are also specialized in immigration & residency visas. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88, or by completing our contact form to book an appointment. Larraín Nesbitt Abogados, small on fees, BIG on service. 2023 © Raymundo Larraín Nesbitt. All Rights Reserved.
