Spanish property tax: A guide for UK buyers

Sarah Ebrahem October 17th 2024 - 5 minute read

Whether you’re investing in a property, buying a holiday home, or moving to Spain, it’s crucial that you understand the implications of Spanish property tax.

Property-related taxes are one of the key costs of buying in Spain, and they can differ significantly from those in the UK. Getting a handle on these will help you better manage your budget and avoid any nasty surprises.

In this guide, we’ll walk you through the key taxes you’ll face when buying, owning and selling property in Spain, along with some tips to help you navigate this complex landscape.

Initial tax considerations for UK buyers of Spanish property

When purchasing property in Spain, you’ll need to consider the tax obligations – including paying and reporting tax – in both Spain and the UK.

The UK-Spain double taxation treaty

The UK and Spain have a double taxation agreement in place, which ensures that property buyers aren’t taxed twice on the same income.

This is particularly important for UK citizens planning to rent out their property in Spain, or those who might sell the property later.

Taxes paid in Spain can be offset against your UK tax liabilities, so you won’t be penalised financially for owning property abroad. Usually you’ll pay your Spanish tax liabilities first, before claiming foreign tax credits against your UK bill.

Reporting taxes in the UK and Spain

While the double taxation treaty helps avoid excessive taxation, UK residents must still report their income and capital gains in both countries.

In Spain, you should file taxes on rental income or the sale of the property with the Tax Agency; in the UK, you should declare this income through your self-assessment.

If you become a tax resident in Spain, there’s no need to report your Spanish income to HMRC.

Taxes when buying Spanish property from the UK

When you’re buying property in Spain, there are several taxes to account for. These include transfer tax, VAT, and stamp duty – all of which vary depending on the region and type of property you’re purchasing.

Spanish taxes on resale properties: property transfer tax (ITP)

The transfer tax, or impuesto de transmisiones patrimoniales (ITP),applies when buying a resale property in Spain. The rate varies depending on the region, the value of the property and whether you qualify for a reduced rate.

Typically, ITP ranges from 6% to 10% of the purchase price, although it can be as low as 3% and as high as 11.5%. Below we’ve listed some of the Spanish transfer tax rates you’ll come across in key spots for UK buyers, but you can find a full list of ITP rates here.

  • Balearic Islands: ITP starts at 8% for the first €400,000, increasing up to 11.5% on amounts above €1 million.
  • Canary Islands: ITP is charged at a flat rate of 6.5%, with a special rate of 5% in some circumstances.
  • Madrid: The main rate is 6%, with a lower tax of 4% for large families.
  • Valencian Community: The general rate is 10%, increasing to 11% on properties over €1,000,000.

You’ll need to pay ITP within 30 days of completing the purchase.

Spanish taxes on new properties: VAT (IVA), IGIC, and stamp duty (AJD)

If you’re buying a new-build property, you’ll pay VAT (IVA) at 10% for residential properties on the Spanish mainland, and 21% for commercial properties. For land purchases and certain types of commercial transactions, the VAT can also vary depending on the region and type of purchase.

On the Canary Islands, VAT is replaced by a lower tax called IGIC (Canary Islands General Indirect Tax) at 6.5% for residential properties and 7% for commercial properties.

In addition, stamp duty (actos jurídicos documentados, or AJD) is payable at 0.5% to 1.5% of the purchase price, depending on the region.

Ongoing Spanish property taxes

Once you’ve purchased property in Spain, there are several ongoing taxes that will need to be paid annually or periodically, depending on the property’s use and your residency status.

Annual property tax (IBI)

The impuesto sobre bienes inmuebles (IBI) – often referred to in English as the annual property tax – is the Spanish equivalent of council tax in the UK.

It’s paid yearly and is based on the cadastral value (valor catastral) of the property, which is usually lower than the market value. Rates range from 0.4% to 1.3% of the cadastral value, depending on the district.

Imputed income tax

If you’re a non-resident who owns property in Spain and aren’t renting it out, you’ll still need to pay what’s known as imputed income tax (IRNR). This tax is based on the idea of what you could be earning in rental income, even if you’re not actually renting the property.

If the cadastral value has been updated in the last ten years, the tax rate is 1.1% of that value. If it hasn’t been updated in the past decade, you’ll pay 2% of the cadastral value.

Note that if you’re a Spanish resident, you don’t pay imputed tax on your main residence, although you may pay it on additional properties that you own but do not rent out.

Rental income tax

If you’re renting out your property in Spain, the tax you pay depends on your residency:

  • EU residents pay 19% tax on their net rental income (after expenses like maintenance are deducted).
  • Non-EU residents – including UK citizens – face a higher tax rate of 24%, and unfortunately can’t claim deductions for expenses.

This means EU residents get a bit of a break by being able to offset some of their costs, while non-EU residents have to pay tax on the full rental income, and at a higher rate.

Wealth tax

Spain also imposes a wealth tax (impuesto sobre el patrimonio), which applies to non-residents who own significant assets in Spain. The tax usually applies to the net value of assets exceeding €700,000 and rates range from 0.2% to 3.5%.

However, Spain’s autonomous regions are free to set their own exemptions. For instance, Madrid currently has a 100% wealth tax exemption, meaning the tax does not apply there.

Taxes to pay when selling property in Spain: capital gains tax (IRPF)

When you sell property in Spain, you’ll need to pay capital gains tax (impuesto sobre la renta de las personas físicas or IRPF) if you sell for more than what you originally paid. The amount of CGT depends on your profit:

  • 19% on gains up to €6,000
  • 21% on gains between €6,001 and €50,000
  • 23% on gains over €50,000

However, there are some important exemptions and reductions. For example, if you’re a resident selling your primary residence, you might qualify for tax relief, especially if you reinvest the profits in another home.

Tips for managing your Spanish property tax obligations

Managing Spanish property taxes can be complicated, especially if you’re not familiar with the local laws. Here are some tips to help you stay on top of your obligations:

Hiring an expert

It’s highly recommended you hire a financial advisor or tax specialist who is familiar with Spanish and UK tax laws. They can help you navigate the complexities of Spanish tax law and ensure that you’re complying with all regulations.

Smart overseas payments

As a UK buyer of Spanish property, it’s likely that you’ll need to transfer money to or from Spain for your tax obligations, as well as to cover other costs.

When doing so, it pays to be smart about your currency transfers. We can help you manage your overseas payments efficiently, offering competitive exchange rates, zero transfer fees and a range of transfer options paired with specialist support.

Get in touch with the team if you want to find out more, or you can open an account online. Signing up is fast and free, and there’s no obligation to make a transfer once the account is up and running.

Finding more help and information

For more information on Spanish property taxes, it’s best to consult official sources such as the Agencia Tributaria (Spanish Tax Agency) or the UK government’s guide on foreign property ownership. These resources provide up-to-date information and guidelines on managing your property taxes.

Navigating the tax landscape in Spain as a UK property buyer requires careful consideration of both upfront and ongoing costs. By understanding these taxes and seeking expert advice, you’re in a better position to make the best decision for you.

Written by
Sarah Ebrahem

Select a topic: