1. What tax obligations does a non resident property owner have once he has acquired a property in Spain?
You must be up to date in respect of the payment of IBI Tax and non-resident Income and Wealth Tax beginning from the tax year you acquire the property. For example if you acquired the property in 2005 then from that year onwards you are obliged to remain up to date in respect of your obligations which remain for the tax years that you continue to own the property.
Remember that the Spanish Tax Year runs 1st January to 31st December.
Top2. What is IBI ("Impuesto sobre bienes Inmuebles")?
It is the nearest Spanish equivalent to the Council Tax that exists in the UK. It is a local tax paid either annually or every six months to the Town Council where the property is situated. Although the tax demand is often sent to you through the post there is no obligation on the Council to do so and it remains your responsibility to request from the Council the tax demand and pay it in the time limits established.
Often the most convenient way to deal with payment is by establishing a direct debit facility through your bank.
Top3. What is the nature of non-resident income tax payable by individuals owning property in Spain.
This is an annual Government tax and is based on the value assigned to the property on the IBI tax demand. If you have bought a new property and no value for the property has yet been assigned then you pay tax on 50% of the value stated on the title deed and in respect of the days in the relevant tax year you have owned the property. The relevant tax rate as established by the Spanish Inland Revenue is then applied to that value to calculate the tax due.
Top4. When is the tax payable by non-residents owning property in Spain?
This is dependant on the number of properties owned by the non-resident in Spain. If you are the owner of one property, (if you have purchased in addition a garage and or storeroom which are included in the same title deed then you are understood to have purchased one property), the deadline for payment is 31st December of the year following the year for which the tax is levied. In other words if you wish to submit your tax declaration for 2005 then the absolute deadline is 31st December 2006.
If however you are the owner of more than one property the payment deadline is 30th June of the tax year following the one for which the declaration is being made.
Top5. What is Spanish Wealth Tax?
This is a Government tax that you are liable to pay merely as a result of owning property in Spain as at 31st December each year. For the purposes of this calculation no account is taken of the amount of time during the year you have owned the property. The tax is calculated on the higher of the values as stated on the Title Deeds or of the IBI Tax demand issued for the tax year in question. Once the relevant value is known one is allowed to deduct for example debts affecting the property such as a mortgage created at the time the property was originally purchased. This deduction equates to the amount shown as outstanding in respect of the mortgage at the end of the relevant tax year. Thereafter the calculation of the amount due is based on a progressive sliding scale dependant on an individual.s net wealth.
Top6. When is Wealth Tax payable?
The deadlines for payment are the same as for income tax and therefore depend on whether you are the owner of what is considered to be one property or not.
Top7. What Tax Declaration Forms are used in order to pay Non- Resident Income and Wealth Tax?
If you are the owner of one property it is possible to make a single declaration on Form 214. However if you are the owner of various properties then the Income Tax declaration must be made on Form 210 (one for each property and owner) whilst the Wealth Tax is completed on a separate form to include full details of all the properties you own.
Top8. What are the potential consequences if I do nothing?
If you do not pay the IBI Tax then ultimately it is possible that the property could become the subject of a charge registerable at the Land Registry in favour of the taxing authority.
Equally in the worse case scenarios, failure to pay Income and Wealth Tax could lead to charges being attached to the property in Spain.
Should you wish to sell the property do remember that the Tax Office can seek to recover unpaid taxes for up to 5 tax years to which penalties may also apply. One of the immediate consequences that might arise is that the Tax Office decide not to return to you the whole or part of the 5% originally retained on sale as a withholding tax in respect of any Capital Gains Tax liability.
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