What taxes must be paid by non-resident foreigners who buy or sell their property in Spain?
The number of non-resident foreigners buying a home in Spain has been gradually increasing since 2010, although their weight in total sales is low: they represented 1.28% in the third quarter of 2014, according to figures from the Ministry of Public Works. However, they also sell these properties and as in any transaction, you must comply with tax obligations. What taxes have to pay for the acquisition and sale of a property?
When a person, whether Spanish or foreign, makes the decision to buy a home, it must be clear to them that not only must they pay the price of the house, but also other obligatory expenses, such as the appraisal of the home or the taxes levied on this transfer. Both nationals and foreigners pay exactly the same taxes for buying a house. The difference comes from the taxes to be paid on the sale. The non-resident foreigner will have to pay Non-resident Income Tax (IRNR). And in the event that the foreign seller is not in Spain, as an exception the municipal capital gain will have to be paid by the buyer.
Taxes levied on the sale of an apartment
Elena Serrano, lawyer and founder of Eslawyer, points out that the seller who does not reside in Spain will have to pay several taxes: Non-resident Income Tax (IRNR) and the Tax on the Increase in Value of Urban Land (IIVTNU or municipal capital gain).
The tax reform that has been in force since January 1 affects the non-resident as a citizen since it has brought changes in the IRNR. The monetary discount coefficients have disappeared, which served to correct the effect of inflation on the value of real estate, which means that it will no longer be taken into account that a euro today is not worth the same as it was ten years ago.
As for the abatement coefficients, they can only be applied with an overall limit of 400,000 euros for transfers made from 2015 onwards, whether housing, shares or any other type of movable or immovable property acquired before 1994. Above this limit, it will cease to apply and will have to be taxed for all the capital gain generated by the sale of the house. The percentage to be applied depends on the year of acquisition and the type of property. This coefficient is intended to deduct from the capital gains part of the enormous revaluations of the oldest houses.
In short, when the sale of a house takes place in an environment in which the sale of all the goods does not exceed 400,000 euros, the capital gains generated by the sale of a house generate a lower tax payment due to the reduction of the tax rate that taxes them. However, when the sale of a home and other goods exceeds the limit of 400,000 euros, taxation is more burdensome for the taxpayer.
The tax rate that non-residents apply to the transfer of property in 2015 will be 20% and in 2016 will be 19%. Let's look at an example of the amount a non-resident has to pay for IRNR:
A non-resident foreigner bought a home in Spain in 2000 for 120,000 euros and sold it at the beginning of 2015 for 300,000 euros. The gross capital gain is 180,000 euros, on which you have to apply 20% tax, so that the tax payable is 36,000 euros.
Finally, this tax liability can be reduced by withholding. There is an obligation for the buyer to apply a withholding of 3% on the agreed sale value in order to prevent the non-resident from leaving the tax unpaid. As Elena Serrano points out, "most of the time it is not easy to locate a non-resident, which is why this obligation is imposed on the buyer".
Municipal capital gain
The Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU) (Tax on the Increase in the Value of Urban Land), better known as the municipal capital gain, is another of the taxes that any foreigner who sells their house in Spain has to pay, like another citizen. The sale of real estate also generates municipal capital gains due to the increase in value of the land. That is why we have to find the difference between the value of the land at the time of sale and the time of acquisition. On this difference in value is applied the tax that depends on the municipality / city where the house is. It has to be paid within 30 days after the closing of the sale.
However, as Elena Serrano reminds us, if the seller is not in Spain, the buyer will be obliged to pay as a substitute for the taxpayer.
Taxes levied on the purchase of a property
There are two different taxes depending on whether the home is new or second-hand.
The tax levied on this property is 10% VAT. Therefore, in a home of 250,000 euros, the tax will be 25,000 euros.
The tax levied on this type of property is the Transfer Tax (ITP) and varies depending on the Autonomous Community but varies between 5% and 10% of the deeded price (between 12,500 and 25,000 euros for the example above). It should be remembered that the tax authorities may claim a higher payment from the buyer if they consider that the property is worth more than they have paid for it. The tax authorities of each Autonomous Community have minimum price tables and calculate the minimum ITP that a person has to pay when buying a house.
Thus, whoever buys a second-hand property and is not well informed, may find himself in the situation that, after paying 7% of what has been spent on the house to the tax authorities, the tax authorities will claim the payment of a complementary amount of ITP. This amount would be 7% of the difference between the value for which the house was registered and the minimum value that the house has in the eyes of the tax authorities, plus the corresponding interest for late payment.
For example, if we buy a flat for 250,000 euros, we would have to pay 17,500 euros for ITP. If the tax tables show that this property has a minimum price of 300,000 euros and that it has a minimum ITP of 21,000 euros, we will claim the payment of the difference: 3,500 euros plus interest.
With regard to the ITP in some Autonomous Regions there are bonuses for large families. For example, in the Community of Madrid the rate at which the ITP is taxed is 4% for large families, provided that it is the habitual residence.
Both the purchase of new and used housing, if made by mortgage, are subject to payment of another tax which is the Documentary Legal Acts (AJD) which is about 1% of the deeded price of the purchase and sale and another 1% of the deeded amount of the mortgage.