Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I am a U.S. resident thinking of buying a second property in southern Spain. What is the property tax like there?
Local property tax rates vary, dependent mainly on the size of the town, said María L. de Castro, director at Costaluz Lawyers in Cádiz, Spain. "The rate ranges from 0.4% to 1.1% of the cadastral value" of the property, she said. Cadastral value, which usually is lower than market value, is "an objectively determined administrative value for each property based on data in the real estate cadaster," she explained.
When buying a property, be sure to verify that all previous local property taxes have been paid, Ms. De Castro advised. Otherwise they will become your responsibility upon purchase.
A nonresident who owns a Spanish property also has to file yearly income tax. If you rent out your property, you would need to report the rental income and pay 24% of the rentals to the Spanish Tax Office, said Vera Liprandi, partner and office director of the Tenerife branch of De Cotta Law in Spain.
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If you have no rental income or any other income in Spain, you’d pay income tax based on your property’s value, Ms. De Castro said. The tax rate is 24% on 1.1% of the cadastral value, if the value has been reviewed within the past 10 years, Ms. Liprandi said. If not, the tax is 24% on 2% of the cadastral value.
Other taxes associated with the purchase of a property, per Ms. De Castro, include the following
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Value added tax for new homes sold by a bank or developer — In southern Spain, it’s 10% of the purchase price, 21% if you’re buying a plot of land.
Stamp duty for new homes sold by a bank or developer — 1% of the purchase price.
Transfer tax for a resale home, which includes stamp duty — The national rate is 7%, though it’s higher in many regions, Ms. De Castro said. In Andalusia, in southern Spain, taxes are 8% on the first €400,000 (US$478,000), then 9% on as much as €300,000 (US$358,000) beyond that, and 10% on anything after that. If you are buying property from a nonresident, take care to withhold 3% of the purchase price and pay it to the Treasury. The law allows the buyer to manage this payment, Ms. De Castro explained, because the property is a guarantee for the seller’s capital gains payment and can be seized if that tax is not paid. You’d want to prevent the property from being seized.
Plusvalia local tax — As with local property taxes, the seller pays this tax, but if he doesn’t live in Spain and leaves a debt, you could be liable for paying this.
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