Possible Property Ownership Tax changes in Spain
On Monday 13 January Pedro Sánchez, Spain’s Prime Minister, announced a raft of measures targeting non-EU citizens who are not resident in Spain. These include imposing a tax on real estate purchases to effectively restrict non-residents from buying a property in Spain. There is potential that legal and political action will hold up any measures as Mr Sanchez holds a fragile majority in the Spanish parliament.
Currently, there is huge confusion over what the tax will actually mean for buyers and how the government could enact it.
Alex Radford was asked for his thoughts and here’s his comments as reported in The Telegraph Newspaper
“There will be pushback from the other parties – it’s controversial and discriminatory,” said Alex Radford
What are your options?
One way to beat the tax hike would be to buy a property now. Spain’s transaction process can be relatively quick, and can take as little as two weeks if you have the correct paperwork.
Alex adds: “At this stage we don’t know any details – does the extra taxation refer to transfer tax [stamp duty], non-residents’ income tax, or will there be a new tax?” It is simply too soon to tell and there is no guarantee that these measures will be approved.
The current tax situation in Spain
When a second hand property is purchased in Spain, transfer tax (ITP) is paid and this is generally between 6.5pc and 10pc of the purchase price. This tax is decided at a regional level, so it is being questioned how the government could raise these taxes when they do not control these taxes.
We are being contacted by buyers early in the process now pushing to expedite their conveyancing, in case the government does manage to bring into force higher taxes for non-EU resident buyers.
As always when we act for clients buying Spanish property we provide them with advice on ownership options. If the measures are introduced and that is a big IF, there will be alternative strategies that could be used to reduce the level of taxation.
Once you have purchased a Spanish property, the year after purchase you pay non residents income taxes. Based on a property value of 200,000 euros, the taxes could be approximately 200 euros. This tax is set by the state, so we may see this tax increase, although nothing is agreed yet and it is early days. However this would not be disastrous and not enough to put buyers off from buying a property.
Many people buying off plan properties, pay IVA at the current rate of 10%. We cannot see this tax being increased for Non EU Buyers as that would be discriminatory.
An alternative solution
It could be possible to create a Spanish company to buy a property.
Alex said “It would be treated as a Spanish entity and owners would have to submit company returns.”
It costs around €2,400 (£2,025) to set up a company, plus yearly accountancy fees of around €1,400. However, an advantage of buying as a Spanish limited company is if buyers rent out the property they get taxed at the lower EU rate of income tax – 19pc versus 24pc.
If you are moving to Spain, it maybe best to become a resident here first and then complete the purchase of a Spanish property. This may involve you renting for a period of time to become a resident and then buying.
For legal advice contact our legal team at My Lawyer in Spain.
