Sun, sea, and great Mediterranean cuisine are all part of the Spanish experience, but how about taxes? If you own a holiday home in Spain, you should be aware of your tax liability and, ideally, you should budget for annual taxes such as the IBI, income tax and wealth tax.


IBI

The annual local property tax is referred to as the IBI, Impuesto sobre Bienes Inmuebles. This tax is raised by the town hall of the area where you live and the proceeds are used for local works and the running of your area or town. The IBI is payable by both residents and non-residents. The IBI is calculated on the basis of the official rated value (valor catastral) of your home, which is usually much lower than the real market value. This tax is increased every year in line with the rate of inflation. Because it is a local tax, the amounts you have to pay each year can vary widely from town to town for the same type of property. For example, a standard townhouse in Benidorm will pay more tax than the equivalent in an inland village in Spain, like Castella. The amount you will be charged will be the valor catastral multiplied by the tax rate fixed by your local town hall. The taxable amount can range widely between a well-located villa on the coast to a village house set inland, far from popular areas. A payment notice is sent every year to homeowners and the sum must be paid by the specified date (which varies from place to place) Failure to meet the payment usually incurs a 20 per cent penalty. The best solution is to arrange a standing order with your Spanish bank. Some towns even offer a discount for early payment.

Income tax

Another tax payable is income tax linked to property owners. All non-residents are required to pay this tax if their principal dwelling is not in Spain. Residents who own more than one property are subject to income tax on their second home or other non-habitual residence. Income tax is payable for the period from 01 January to 31 December each year and it is normally declared by June 30th of the following year. If a property is owned by a married couple, or by one or more individuals, each owner will be treated as a separate taxpayer and must file an individual return. The income to be declared is the amount resulting from applying the following percentages: the valor catastral of the property, as shown on the property tax (IBI) receipt, 2 per cent is the standard rate: 1,1 per cent is the rate in the case of a property whose valor catastral value has been revised or modified. This income is attributed to the property as a hypothetical income. If you have not owned the property for the entire year, or if it was leased for part of the year, you must declare the corresponding proportion. The tax rate on the income tax return for this type of income has a flat rate of 25 per cent for non - residents. For example, if a couple owns a property which has a valor catastral of € 120,000, an ownership of € 60,000 each, half of the valor catastral is imputed to them separately. Therefore, the following calculation gives a tax bill for each co-owner: 25 per cent (2 per cent of € 60,000) = € 300.

Wealth tax

In addition to income tax, non residents are liable to pay wealth tax, which is based on the assets you own in Spain. Property owners must file a wealth tax return if they own property in Spain on the 31st of December of each year, regardless of the value of the property. The taxpayer has to declare the higher value from the valor catastral or the purchase price. In nearly every case, the wealth tax is based on the purchase price or on the declared value in the sales contract, whichever is higher than the valor catastral. You can deduct from your taxable assets any debts you owe in Spain or which are secured against the asset (for example, capital owned at the end of a year from a mortgage taken out to finance your property). The net wealth, which is the taxable amount, is determined by the difference between that value and the charges or liens on the property and the debt principal invested in the property. There is no tax-free allowance and, consequently, the base of assessment coincides with the taxable amount. Each individual must file a separate return. Accordingly, if a property is owned by a married couple or by various persons, each one of them must file a single return for their corresponding share. For the same property outlined above, the calculation will give you the following tax bill payable by each of the owner of the property for wealth tax purposes: 0.20 per cent (€90,000) = € 180