Cloudnine Spain Blog

Spanish Taxes Explained with Alex Radford of My Lawyer in Spain

Spanish Taxes Explained with Alex Radford of My Lawyer in Spain

Spanish lawyer and property expert Alex Radford of gives Sean Woolley, Managing Director of Cloud Nine Spain a rundown of the various taxes buyers should be aware of when buying a property in Spain

Listen to the podcast version here

Link to the youtube video here


Sean: Hello there, I’m Sean Woolley, Managing Director of Cloud Nine Spain. With me today, I have Alex Radford.

Alex: Alex Radford, lawyer from My Lawyer in Spain.

Sean: We are here to talk about that notorious topic, taxes. I know, shocking, isn’t it? We all have to pay them, some more than others. But Alex is here to advise you on the various taxes that come into play when you purchase a property – local taxes, non-residents’ taxes, residents’ taxes, income tax, inheritance tax, wealth tax (although not anymore). So, we’re going to cover a few of those angles. So Alex, let’s start with a common scenario: I bought a property, and I’m a non-resident. What taxes do I need to pay?

Alex: Okay, first of all, when you purchase a property, you’re going to pay transfer tax at 7% if it’s a secondhand property. On a brand new property, you pay VAT at 10% and stamp duty, which starts at between one and one and a half percent, depending on the location of your purchase.

Sean: Got it. So those are the purchase taxes.

Alex: That’s right, the purchase taxes.

Sean: And then, what about ongoing running costs and taxes?

Alex: After purchasing the property, the following year, you will be required to pay what’s known as the non-residents’ income tax. It’s an almost peculiar calculation of the taxable value. Only Spain could come up with that one.

Sean: Haha, it sounds quite unique. Do they just make it up as they go along?

Alex: Well, to a certain extent, there is a formula, but it’s not as straightforward as one might hope. The amount tends to be in the hundreds of euros rather than thousands, and it must be paid before the end of December of that year.

Sean: And this non-residents’ income tax is an annual tax?

Alex: Exactly, it needs to be paid every year.

Sean: Alright, got it.

Alex: We typically remind our clients between July and October to make arrangements for payment of that tax.

Sean: That’s helpful. So, you can assist with the administration and payment of that tax?

Alex: Yes, absolutely.

Sean: Great. Moving on, are there any other personal-related taxes or is it mostly property-related, like IBI and other expenses?

Alex: Once you’ve purchased the property, you’ll need to pay town hall rates, known as IBI. In other areas, it’s called SUMA, and in the Costa Blanca area, it’s known as SUMA. Additionally, you’ll have community fees if your property is part of a community, which may include services like garbage collection.

Sean: On the garbage collection. Basura.

Alex: Basura. Again, nothing we need to worry about, but that should come out. When you are touring with the agents, ask them about the general costs of running the property.

Sean: Yeah.

Alex: And again, when we prepare our legal report for clients, we include those costs there.

Sean: Because that depends on which municipality you’re in, doesn’t it? So for instance, we’re sitting here in a place in Benahavis where we pay quite low rates of IBI and basura at the moment. So we pay 18 euros a year for the rubbish collection. Whereas you go to Marbella, you probably pay 180 euros a year. Look, it’s not a lot of money, but it just shows you that there are differences depending on where you buy. So it is worth, as Alex quite rightly said, it is worth checking out with your agent exactly what those costs are going to be.

Alex: Yeah.

Sean: What else? Are there any other?

Alex: So you mentioned personal income tax. So if you move to Spain, the tax year in Spain runs from January to December.

Sean: Nice and easy.

Alex: Nice and easy. So if you spend more than 183 nights in Spain, then you become a Spanish tax resident. So if you move to Spain at the beginning of the year, you have to submit your tax returns between April and June the following year.

Sean: Okay.

Alex: And then if you have assets over the value of 50,000 euros outside of Spain, then you have to declare that in March the year after arriving too.

Sean: Okay, as a non-resident?

Alex: As a non-resident.

Sean: Okay.

Alex: Well, actually as a resident too, as a resident. So that’s called Modelo 720, and it’s just a declaration, it’s not, you’re not paying any taxes on that because as we sit here and talk, the Wealth Tax in Andalucia is in the process of being abolished, which is great news.

Sean: Yeah, I was reading various articles about this today because it is hot news off the press that Andalucia’s becoming a, not a low-tax economy, but it’s very competitive now.

Alex: Yeah.

Sean: Even people who were worried about the levels of income tax, that seems to be something that they’re tackling here. Because each region of Spain is semi-autonomous, isn’t it?

Alex: Yes.

Sean: So they can make their own decisions about local taxes. So Wealth Tax is gone. What does that mean really for people wealthier than me?

Alex: Well basically, basically that means that you had to pay tax when you had more or less assets over a million euros. So that means that those wealthy individuals now don’t have to pay that.

Sean: And wasn’t that based on worldwide assets as well? So they would take everything into account and then they would slap a tax on you.

Alex: Yes.

Sean: So that must mean that, well I’m guessing more and more seriously wealthy people are going to find moving to Andalusia attractive.

Alex: Absolutely. So in the past, we prepared tax calculations for clients, they’ve got extensive worldwide assets and income, and it was a lot of money each year to pay in wealth tax. The fact that that’s gone now is amazing.

Sean: So it’s very positive and you’re right, there are 17 autonomous regions in Spain, each with their different taxes. Andalucia now is really shining at the top of tax-friendly autonomous regions. They’ve abolished the Wealth Tax and brought transfer tax down from 8, 9, 10 percent to just 7%.

Alex: Why are they doing this?

Sean: Well, they’re doing it to attract income and inward investment.

Alex: Attract income, investment, it’s a new government in place, they’ve got a good majority so they’re doing what they set out to do.

Sean: And I know it’s very, very early to say this, but have you noticed any, I mean, obviously we had the transfer tax reduction, we’re now seeing wealth tax being abolished, we’ve had a few clients on the phone to us this morning saying, “What does this mean? What does this mean?” Have you noticed anything from your end? Have you noticed any stimulus of inquiries?

Alex: I think it’s really early days, Sean, because it’s literally happened in the last 48 hours. However, I can see that. Because we’ve dealt with it before and wealth tax was something that really did put off some of the wealthier clients. And the wealthy clients who’ve got properties in Marbella, but they might want to now consider moving to Spain. So some of our clients will probably look at that now.

Sean: Yeah, excellent. And in terms of utility bills, just in terms of ongoing costs, you’ve got electricity, water, gas isn’t often supplied in Spain, is it?

Alex: No.

Sean: So electricity and water, I mean, obviously household bills are on the rise wherever you are in the world. Anything else we’ve missed?

Alex: So community fees.

Sean: Community fees, yeah.

Alex: Community fees, again, depending on the resort or urbanization you buy into, if it’s got lots of swimming pools or gardens then they go up.

Sean: Security and things like that, it all costs money, doesn’t it?

Alex: Exactly, yeah.

Sean: And those costs are shared depending on how much of the community you own, which will be predominantly because of the size of the apartment or the villa that you have, then those costs will be shared across all members of the community so if you have, for instance, a development of 20 apartments and you have 24-hour security, you’ve got 20 owners paying for three people’s salary. Whereas if you have a resort of 200 or 300 people paying for that, then the cost is diluted and it becomes a bit more economically viable. So again, things to ask your agent about when you’re doing a tour and you’re looking at properties that you like, find out what the community fees are, why they’re that level, what you get in return for your money. In terms of residents, if you become a resident here, what other taxes are there to pay?

Alex: So yeah, in effect, to kind of touch on it, if you spend more than 183 nights in Spain in a calendar year, then you become a resident and you pay tax on worldwide assets and income the year after purchase.

Sean: Okay.

Alex: So the year after you become a resident and that’s a sliding scale depending on the income that you generate.

Sean: Okay, that’s fine. And finally, inheritance tax. What’s the situation there at the moment in Andalucia?

Alex: So in Andalucia, again, it’s quite favorable. This government started that process a few years back when they were in coalition then and they’ve basically increased the personal allowance that direct heirs can inherit up to a million euros free of an inheritance tax and then 99% there afterward.

Sean: Okay. So it’s virtually zero.

Alex: Virtually zero, but it’s direct relatives, so not brother to sister but mother to father, father to son, okay?

Sean: Okay, interesting, thank you.

Alex: And they are looking at increasing the personal allowances outwards as well, and they’ve made donation tax a lot less onerous than it was before.

Sean: Okay so if you wanted to leave money to the cats and dogs home and stuff like that, it’s a little easier?

Alex: You can do that yeah, yeah. But certainly, the million euro allowance is really good and then 99% discount there afterward. And what we are finding is a lot of people are donating properties now, so they want to give their properties to their loved ones now and they’ve got that process so they don’t wait until they die.

Sean: Right, okay. Speaking of death, wills. Is that something that people should do with you or is their will at home sufficient?

Alex: No, I’d definitely recommend for Spanish assets a Spanish will, so if you’ve got a will in another country or if you’ve got assets in another jurisdiction, I’d recommend you have a will for each jurisdiction and they’re all coordinated. And some countries, as you know, the first clause of the will is, “I revoke all former wills” so if you’re updating your local will, it’d be, “I revoke all former wills except my Spanish will dated X.”

Sean: Okay.

Alex: And have a Spanish will purely for Spanish assets and that Spanish will, the cost of which is, you know, we charge 212 euros for the will and allow about 100 euros for notary fees. But those costs can save you a lot of headache.

Sean: A lot of hassle.

Alex: A lot of hassle and a lot of cost of not having a will.

Sean: Yeah, I’ve seen it before where people have been left without a will and it’s just unnecessary stress and problems that could’ve been avoided.

Alex: Yep.

Sean: Okay, well, we’ve covered that murky, murky subject, but thank you so much for your advice.

Alex: My pleasure.

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