Property Taxes in Spain – Comparing Federal and Municipal Taxes

Thousands of expats relocate to Spain yearly, choose the country as their retirement destination, or invest in a holiday or rental home. As with any international property acquisition, it is important to understand all the associated costs – including annual property and wealth taxes, in addition to the initial purchase costs.

Your tax obligations in Spain will vary considerably depending on the value of the property you own, your position as a non-resident or Spanish tax resident, and whether you are earning an income from a rental property or plan to sell real estate you own in Spain.

In this guide, created by the expat financial advisory experts at Chase Buchanan Wealth Management, we review the main property taxes in Spain expats and overseas investors should be aware of and examine how taxation differs between the autonomous regions of Spain.

Paying Local Property Taxes in Spain

The first property tax is called Impuesto sobre Bienes Inmuebles, or IBI. It is an annual property tax payable in all areas, regardless of whether you are a resident or non-resident. Any Spanish property owner must register for a Número de Identificación de Extranjero (NIE), including third-country nationals, since you’ll require this to proceed with a property purchase.

Like most Spanish property taxes, the rate you pay will depend on several variables, including:

• The IBI rate levied by the local municipality
• The assessed cadastral value of your home
• The way the local authority uses the tax to fund local services

Cadastral values may differ from the actual purchase price paid for the property. They are assessed values decided by the relevant administration based on data lodged with the land registry. The value may reasonably indicate the property’s capital value but is also commonly lower than the market value.

Because IBI is a local, not a federal tax rate, there isn’t a blanket charge. Instead, each municipality levies a rate of between 0.4% to 1.3% of the cadastral value – this tax charge is payable annually.

However, there is a contrast for non-residents because they pay a fixed tax rate, whereas municipal IBI rates often increase year-on-year to account for changes to inflation. Non-residents pay a fixed 2% annual tax based on the cadastral value. This rate is reduced to 1.1% if the property’s cadastral value has been reviewed or updated within the last ten years.

Income Tax in Spain Against Property Rental Incomes

If you own a property in Spain and rent it out for part or all of the year, you will be subject to income tax on the earnings. As with most taxes, the amount you pay will differ between regions and between residents and non-residents.

Most property investors and landlords are expected to file quarterly returns, with expenses directly related to the costs of renting the property deductible. Non-residents pay a flat rate of 19% if they are EU nationals or 24% if they are citizens of most other countries.

Note that if you pay income tax in Spain against rental proceeds, you are usually not also expected to pay any imputed tax. The latter is charged at the same flat rates and reflects the ‘economic benefit’ of owning a Spanish property if no other activities or earnings are subject to taxation. 

The complication for Spanish residents and most expats who live permanently in Spain is that income tax varies between the municipalities. Local governments have the autonomy to apply their own exemptions, allowances, and tax rates in addition to federal income tax.

Most municipal governments levy a regional income tax of a similar amount, effectively meaning the actual income tax payable is based on double the federal tax – although this is not consistent across every region.

For example, property owners with real estate in Madrid pay 21.1% income tax on earnings up to €12,450 and up to 45.9% on incomes in the highest bracket. In contrast, the same property owner in Valencia will be liable to pay 18.5% total income tax on earnings up to €12,000 and 54% on incomes over €300,000.

Therefore, it is essential to consult an experienced financial adviser to ensure you have clarity over the net value of your rental income and to calculate the correct tax obligations you’ll be expected to pay.

Wealth Tax and Spanish Property Ownership

The Spanish tax system levies a progressive wealth tax with a baseline threshold of €700,000. Previously, wealth tax rates varied substantially between regions, with some municipal authorities introducing 100% tax exemptions. These included Andalusia and Madrid, meaning the regional governments did not collect wealth taxes, irrespective of the federal rates. 

However, the introduction of a solidarity wealth tax means the federal government can bypass 100% wealth tax exemptions. This newer tax applies only in these specific regions and to tax residents with net wealth of €3 million or above. 

Tax residents are liable for either regional or solidarity wealth tax if their worldwide assets exceed the taxable threshold. Residents are only subject to either tax, depending on where they live, if their assets held within Spain exceed the threshold.

Capital Gains Tax on Spanish Property Transactions

Finally, expats or foreign nationals with Spanish property may be liable to pay capital gains tax if they choose to sell their real estate. Residents usually pay this tax based on a scale of 19% to 28% – although tax reliefs are available if they have lived in the property as their primary residential home for several years. Non-residents usually pay a flat rate of 19% capital gains if they live in the EU or EEA and 24% if they are non-EU citizens.

Taxpayers over the national retirement age may also be exempt from capital gains tax if they use the income arising from the sale to invest in specific annuity retirement products up to a maximum value.

The variations between Spanish property taxes across different regions, property values, and income sources, and for residents and non-residents, make astute tax planning key to understanding your long-term tax liabilities and the value earned from a Spanish property investment.