4 January 2016

Buy-to-let properties in Spain

Property lawyer Yolanda Lobao, partner at Auren, explains the local rules and regulation for Buy-to-let properties in Spain.

What taxes will you pay on buying and on income in Spain?

The transfer of properties when they are second-hand will normally attract Transfer Tax (ITP) at the applicable rate depending on the region in Spain where the property is located (currently the 10% in Catalunya). The tax applicable could be VAT (4%, 10% or 21% as applicable) and AJD (Stamp Duty on Legal Documents at the rate of 1,5%) in case of newly built properties and land. The tax has to be paid by the Purchaser.

The tax rates need to be checked at the moment of conducting the transaction due to the tax laws permanent changes.

Once the property is purchased, there would be taxes associated to the ownership of the property; Non-Residents Income Tax or Residents Income Tax and Wealth Tax payable by Tax Residents and Non-Residents in Spain, with an exemption which varies from 500.000.-€ to 800.000.-€. Both taxes are due to be paid once a year.

The tax on income in Spain is a progressive rate; in Catalunya the applicable rate is from 15% to 49%. The rates vary depending on the taxable income and if it is applicable to a Tax Resident or a Non-tax Residents in Spain and to which type of income; income derived from rents, income from work, amongst other.

Do you have to pay UK tax too?

Purchaser does not have to pay tax in the UK for the purchase of real estate in Spain, on the contrary, under certain circumstances and cases, a Purchaser could deduct taxes paid in Spain in the UK Tax Returns. However, each case has to be analyzed carefully as special regulations can apply to wealth taxed for worldwide assets; in any case, this would be applicable after the purchase.

What extra costs will there be?

The Purchaser will have to pay taxes, Notary and Land Registry costs as costs associated with the purchase of real estate. Extra costs could be derived from the request of a loan mortgage, the need or wish to have a valuation or the property checked by an Architect, amongst other.

What local rules and regulations will you have to understand?

There is a broad variety of rules and regulations which are important to bear in mind, depending on what type of property is purchased; if it is a single country house, flat in a building, business premises, plot of land. However, common regulations will apply regarding Council Tax or IBI (Impuesto sobre Bienes Inmuebles) which is a yearly tax payable to the City Hall for the ownership of the real estate.

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