Taxes and properties on the Balearic Islands
Text: Anja Sämann-Gutschick & Armin Gutschick
This article offers a summary of relevant information regarding taxes related to properties, and explains the important changes that have been made to legal laws during 2012. Both buyers and sellers of properties should be very careful to take into account these changes.
I. Taxes involved in buying and selling properties
a) Tax on property transfers (Impuesto sobre Transmisiones Patrimoniales – ITP) and value-added tax (Impuesto sobre el Valor Añadido – IVA).
When buying a property, natural persons pay ITP tax (7% up to now) or IVA (4% until the end of this year).
ITP is only applied to the purchase of second-hand properties, and IVA to new builds, that is, when the property is bought directly from the developer.
From 1st May 2012, Balearic ITP will increase for purchases of properties that cost over 300,000 euros. Instead of the 7% that was applicable up until now, it will go up to between 7 and 10%. This tax on property transfers is a state tax – however, it is collected by the Autonomous Communities. It is the buyer who must pay it, and it is calculated upon the real value of the property.
According to this change in the law, the tax to be paid will be calculated according to the total value of the property being sold, applying rates that increase progressively from 7 to 10% in the following way:
Up to 300,000 euros: 7%
From 300,001 to 500,000 euros: 8%
From 500,001 to 700,000 euros: 9%
And above 700,001 euros: 10%
For example, when buying a property that costs 480,000 euros, the ITP to be paid will be 7.38%, since 300,000 euros will be taxed at 7%, and they remaining 180,000 euros at 8%.
Taxes on new builds, however, have gone down since last year. If you buy a property directly from the developer, a reduced rate of 4% will apply. This reduced rate will be charged, instead of the usual 8%, until 31st December 2012. To this tax we must add a 1% stamp duty (Impuesto sobre Actos Jurídicos Documentados), so whoever buys a new build must at the moment pay 5% in taxes.
b) The property income tax (Impuesto sobre las Ganancias Patrimoniales) has also been increased in the beginning of 2012.
A natural person who sells a property is obliged to pay a tax on the profit made.
The rate that is applied since the 1st of January 2012 for residents is 21% of earnings up to 6,000 euros, 25% for amounts between 6,001 and 24,000 euros and 27% for earnings above 24,001 euros. For non-residents, this rate has gone up from 19 to 21%, without considering any possible conventions regarding double taxation.
It is advisable to hire the services of an expert who can calculate this tax, since there are a number of tax-deductible costs – for example, if the property was bought before 1986.
c) Municipal capital gains tax (plusvalía municipal).
This is a tax on the increase in the value of urban plots that is accrued when a property is being sold. According to the law, it is the seller who pays this tax, although it could be passed over to the buyer if the contract establishes it so. The amount of this capital gain depends, amongst other things, on the surface of the piece of land and the length of time that it belonged to the seller.
II. Income tax
a) Residents in Spain.
Anyone whose main residence is in Spain and who has regular income is obliged to present their income tax return yearly. Total income is taxed and the rate depends on the amount of the income, with a minimum rate of 24% and a maximum of 52% for 2012 and 2013. For residents, the timeframe in which to present their 2011 income tax return begins on the 3rd of May and ends on the 2nd of July.
Owners of properties in this country who don’t live in Spain also have to present their income tax return on a yearly basis. If the property is destined to their own personal use, a fictitious rent is taxed which is calculated upon the property value. The period allowed to present this tax return ends each year on the 31st of December.
III. Property tax
Every owner, whether or not they are residents, must pay a property tax every year known as ‘Impuesto sobre Bienes Inmuebles’ (IBI). This is a municipal tax that is accrued every year in the autumn. The document that justifies having paid the IBI includes, as well as the amount being paid, other important data such as the cadastral reference and property value. •