Property Taxes and Insurances in Spain
When purchasing a property in Spain, it is important to consider the expenses beyond the asking price and maintenance fees. One significant aspect is understanding the tax implications and obligations associated with property ownership in Spain. Here is a summary of the key taxes and insurance to consider:
Purchase and Local Taxes
- Value-added tax (VAT): New build properties are subject to a 10% VAT known as “Impuesto sobre el Valor Añadido” (IVA).
- Property transfer tax: Pre-owned properties are subject to a property transfer tax called “Impuesto sobre Transmisiones Patrimoniales” (ITP). The rate varies between regions.
- “Impuesto sobre Bienes Inmuebles” (IBI): This is the Spanish equivalent of council tax and is payable annually based on the official value of the property (valor catastral).
Rental and Notional Rental Income Tax
- Rental income tax: Residents are subject to income tax on rental income based on general scale rates. Non-residents are taxed at a flat rate of 19% for EU/EEA residents and 24% for non-EU/EEA residents.
- Notional rental income tax: If you own a Spanish holiday home or property that is not your main residence, you may be required to pay tax on notional rental income, calculated based on the valor catastral.
Capital Gains Tax
- Residents: Capital gains from the sale of a property are added to other investment income and taxed using savings income rates (ranging from 19% to 28%).
- Non-residents: Capital gains tax is charged at a flat rate of 19%.
Wealth and Solidarity Tax
- Annual wealth tax: Resident individuals are subject to wealth tax based on their worldwide assets. Non-residents are assessed only on their Spanish assets.
- Solidarity tax: A temporary tax on large fortunes (above €3 million) was introduced to address the cost of living crisis. It will be abolished after the 2023 tax year.
Inheritance and Gift Tax
Inheritance and gift taxes are due on Spanish property regardless of the residence of the deceased or heirs. Rates vary by region, beneficiary, and the value of the inheritance or gift. Some reductions and exemptions may apply, particularly for main homes and close relatives.
It is advisable to consult with a specialist, cross-border wealth management advisor to understand the tax implications based on your specific circumstances and to develop an effective tax strategy. Changes to tax laws can occur, so it is crucial to stay up-to-date and seek professional advice.
Regarding home insurance in Spain, there are two types: contents insurance (seguro de contenido) and building insurance (seguro de construcción). While neither is mandatory, many residents choose to have both types for comprehensive coverage. Combined home insurance policies are popular and often include liability coverage.
Contents insurance protects movable assets such as furniture and valuables, while building insurance covers the structure of the property. Liability insurance is typically included or can be added as an extra.
Costs of home insurance in Spain vary based on factors such as the value of the property, level of coverage, location, and individual insurance profile. It is advisable to compare quotes from different insurers and consider the specific coverage needs of your property.
When making a claim, contact your insurer as soon as possible and follow their claims process. Claims should be filed within a specified timeframe, and you may need to provide supporting documentation such as a police report for burglaries or damage.
You can cancel a home insurance contract or change providers, but each company has its terms and conditions. It is essential to review the cancellation policy and any associated fees before making a decision.
In case of dissatisfaction or disputes with an insurance company, you can file a complaint with the insurer’s Ombudsman or Customer Service Department. If necessary, you can escalate the complaint to the Directorate-General for Insurance and Pension Funds (DGSFP) or consider legal action.
It’s important to note that laws and regulations may change over time, so staying informed and seeking professional advice is crucial when it comes to property taxes and insurance in Spain.
Considering purchasing a Spanish property?
As you consider purchasing a property in Spain, it is important to be mindful of the expenses that go beyond the asking price and regular maintenance fees. Understanding the tax implications of owning a property can save you from unexpected surprises. Taking the time to familiarize yourself with the tax implications can make a significant difference. You may be subject to various taxes such as purchase taxes, annual wealth tax, capital gains tax, or succession tax. To ensure that you and your heirs are not burdened with unexpected tax obligations, it is essential to be informed about these tax considerations in advance. Taking proactive steps can help you maximize the benefits of property ownership while minimizing your liabilities.
Consider the purchase and local taxes
When purchasing a property in Spain, it is important to understand the various taxes that you will be required to pay. The type and amount of tax to be paid will depend on whether the property is a new build or pre-owned, as well as its value. For new build properties, you will be required to pay a value-added tax (VAT) of 10%, known as ‘Impuesto sobre el Valor Añadido’ (IVA), as well as stamp duty, or ‘Actos Jurídicos Documentados’ (AJD).
On the other hand, pre-owned properties are subject to a property transfer tax, or ‘Impuesto sobre Transmisiones Patrimoniales’ (ITP). The general rate varies between regions. Once you have purchased your property, you will be liable for the ‘Impuesto sobre Bienes Inmuebles’ (IBI), which is the Spanish equivalent of council tax. The amount you’ll be required to pay each year is based on the official value of your property, or valor catastral.
Consider rental and notional rental income tax
If you decide to rent out your Spanish property, it is important to be aware of the taxes you will need to pay on the income. The amount payable will depend on whether you are a resident or non-resident, as well as other factors. For residents, income tax is calculated using general scale rates. However, if you are renting out your property on a long-term basis, you may be eligible for a 60% tax reduction against the net rental income.
Non-residents have different tax obligations depending on where they live. EU/EEA residents are subject to a flat 19% tax rate on the net income after certain deductions, while non-EU/EEA residents (including UK residents) are required to pay 24% on the gross rental income without any deductions. It is worth noting that if you own a Spanish holiday home or property that is not used as your main home, you may still be required to pay tax on what is known as ‘notional rental income’ during the periods when the property is not rented out.
This is generally calculated as 1.1% of the ‘valor catastral’ (or 2% if the value has not been revised within the last ten years) and is then taxed at income tax rates which differ depending on your residency status.
Consider tax on capital gains
If you plan to sell your property in Spain, you should be aware that you may have to pay taxes on the gain you make from the sale. If you are a resident in Spain, any gain from the sale will be added to your other investment income and gains for the year and taxed using the ‘savings income’ rates, which currently range from 19% to 28% depending on the amount of the gain. However, if you are over 65 and the property you are selling is your main home, you may not have to pay tax on the gain if you meet certain requirements.
If you are younger than 65, you could also qualify for this relief if you use the full proceeds to purchase another main home within the EU/EEA within two years. For non-residents of Spain, the capital gains tax will be charged at a flat rate of 19%. You may also have to pay ‘Plusvalía municipal’ when selling a property. This local land tax is payable on the increase in the value of the land (excluding buildings) and the amount may vary according to the size of the local population and length of ownership.
Consider wealth and solidarity tax
In Spain, an annual wealth tax is levied based on the total value of your assets as of 31 December of the calendar year. This tax applies to worldwide assets if you are a resident of Spain, while non-residents only have their Spanish assets assessed. Every individual is eligible for a €700,000 personal allowance, and residents receive an additional €300,000 home allowance.
This allowance is per person, meaning that a resident couple could potentially have a combined allowance of up to €2 million if assets are in both of their names. It is always important to take this into consideration when purchasing Spanish property, especially if it is a high-end property or if you have substantial wealth.
The same applies if you are a Spanish resident purchasing property abroad. Residents of Andalucía should note that the annual wealth tax has now been completely scrapped for that region, although the temporary ‘solidarity tax’ confirmed in December 2022 will remain in place until the 2024 tax year. Spain’s solidarity tax on large fortunes, or ‘impuesto de solidaridad a las grandes fortunas’, is a temporary tax that was introduced to help with the current cost of living crisis.
It is to be abolished after the 2023 tax year if no further extension takes place. Solidarity tax is only applied to large fortunes of above €3 million, and although it is extra to Spain’s regular annual wealth tax, those affected by this temporary measure will not pay tax twice. When calculating an individual’s net wealth, worldwide assets will be considered for Spanish residents, while non-residents will only have assets they hold in Spain taken into account.
Consider the Spanish inheritance tax
Planning for the future includes not only managing your assets while you are alive but also considering what happens to them after you pass away. In Spain, inheritance and gift taxes are always due on Spanish property, regardless of the residence of the deceased or heirs. It is, therefore, important to factor in the potential tax implications for your beneficiaries when planning your estate.
In Spain, the rates for inheritance and gift taxes vary depending on what region you are living in, who the beneficiary is, and the value of the inheritance or gift. Fortunately, there will be a significant reduction in the value of the main home for spouses, descendants, and ascendants who keep the property for at least five years after receipt of the property. In the absence of direct family, a more remote family member over the age of 65 who has lived with the deceased two years prior to death would also be eligible.
This reduction helps alleviate the tax burden on beneficiaries. In addition, there are some personal reductions available to close relatives, other extended family, and even non-family members. Considering the potential tax implications of inheritance and gifting can help ensure that your loved ones receive the maximum benefit from your estate. It’s essential to seek professional advice and plan your estate accordingly to minimize tax liability and ensure that your wishes are carried out.
Consider whether to own the property through a company
Owning a Spanish property through a company was once a popular strategy for wealthy expatriates looking to reduce their tax liabilities. However, changes over the years have diminished the advantages of this approach, and it may now be more of a disadvantage than a benefit.
Under current regulations, “enveloped” property is subject to savings income tax on any profits and is liable for both wealth and succession taxes, without being eligible for any of the main home allowances. In some cases, Spanish corporation tax may also be due. As such, it is important to seek objective advice and carefully weigh the pros and cons before deciding whether to hold your Spanish property through a company.
Consider the advice of experts
Navigating the Spanish tax system can be challenging, especially when you need to consider how it interacts with the tax regime in your home country. The rules and regulations surrounding taxes can be complex, and they often change over time, making it difficult to stay up-to-date.
That is why it’s essential to seek the advice of a specialist, cross-border wealth management advisor to help you establish a tax strategy that works for your unique circumstances. By doing so, you may discover ways to lower your tax liabilities and ultimately reduce your overall tax bill. Do not underestimate the potential benefits of seeking professional advice in this area – it could save you a significant amount of money in the long run.
Blevins Franks has 45 years of experience supporting expatriates in Spain with specialist tax planning, as well as pensions, estate planning, and investment management services. We have nine offices across the popular expatriate areas of Spain, with advisers living locally. They have the cross-border expertise to make sure your financial affairs are in order so you can relax and enjoy your new home away from home in Spain.
Home Insurance in Spain
Spain is a popular destination for expats, with over 12% of its population foreign-born and many people attracted by the warm climate and good quality of living. However, to avoid your dream life in the sun turning sour, you’ll need to think about protecting against risks such as fire damage or break-ins. Unlike some other types of insurance in Spain, home coverage isn’t a legal requirement when it comes to either building or contents. However, many residents take out a policy to cover their worldly goods for peace of mind.
An Overview of home insurance in Spain
There are generally two types of home insurance (seguro de hogar) in Spain: contents insurance (seguro de contenido) and building insurance (seguro de construcción). Contents insurance protects movable assets such as furniture and valuables while building insurance covers the fixed property, including walls, floors, ceilings, and any internal fixtures. Neither contents nor building insurance is mandatory in Spain, although they are recommended, especially if you own expensive property. Most forms of home insurance in Spain typically include liability insurance coverage. If not, you can usually add this on as an extra.
Can you use home insurance from another country in Spain?
Spain has no laws against using home insurance from abroad, so you can do so if you have purchased an extended coverage policy that includes overseas protection. Some insurers are willing to provide content insurance that covers other countries. However, companies usually only offer building insurance for homes abroad if they have products tailored towards expats, such as holiday home insurance.
Moving to Spain? See our relocation guide
If you’re relocating to Spain, you might be able to transfer your existing home insurance policy to your new property if your insurance provider operates in Spain. All insurers within the EU/EFTA can trade in Spain as long as they follow EU guidelines. However, your insurer will want to recalculate your premium based on your new property and associated risk factors. They may also charge an admin fee. Check the terms with your current provider if you are thinking of doing this.
Spanish home insurance companies
With Spain’s home insurance market so lucrative, there are several insurers to choose from. Insurers offering home coverage in Spain include Luko, Liberty, Caser, and many Spanish banks that also sell insurance products. It’s important to do your research and ensure you get the right coverage for your home. Many insurers typically offer policies in Spanish, so language proficiency may be a consideration.
Home contents/renters insurance in Spain
Contents insurance, also known as renters/tenants insurance, is optional in Spain. It is the tenant’s responsibility to insure their belongings. Packages differ between companies, but most offer at least two levels of insurance (standard and all-risk) or a standard plan with optional additional coverage. Standard plans protect against fire and water damage and often include coverage for theft, vandalism, and civil liability. All-risk plans provide more comprehensive coverage, including damage caused by negligence, the property being taken off the premises, and higher payout limits on valuables. Costs for contents insurance depend on factors such as the value and condition of your belongings, level of coverage, location, and individual insurance profile.
Building insurance in Spain
Building insurance can be purchased as a standalone policy in Spain, and some companies also offer specific types of building insurance for apartments in communal blocks, listed buildings, or properties unoccupied for long periods. Costs vary based on factors such as building age, size, value, condition, location, and materials used. Building insurance is popular with landlords who rent out unfurnished let, and Spanish mortgage providers may require a minimum level of coverage.
Liability insurance in Spain
Liability insurance is normally part of home insurance in Spain, covering costs in the event of incidents causing injury or damage to third parties or their property. Basic policies may not include it as a standard, but it can usually be added on for an increased premium. Maximum liability coverage varies depending on the policy, ranging from around €300,000 on basic insurance to higher amounts on all-risk plans. Personal liability insurance is not common in Spain, except for those who run a business or work in a professional capacity.
Applying for home insurance in Spain
Each insurance company in Spain has its application procedure, usually starting with completing a quote form. Additional information about the property, such as age, size, and condition, may be required. To take out insurance, you will typically need to provide an address, proof of ID, your NIE number, and bank details for payment. The policy and associated documents will be sent to you either by email or via post. Most policies last at least twelve months and may automatically renew if not cancelled within the notice period.
Making a home insurance claim in Spain
To make a home insurance claim in Spain, contact your insurer as soon as possible and follow the claims process outlined in your policy. This typically involves filing a claim form, providing necessary documentation such as photos or a police report, and communicating with the assigned claims representative. Straightforward claims are usually settled within a few weeks, but additional information or investigation may extend the process.
Cancelling a contract or changing provider
If you want to cancel your home insurance contract or switch insurers in Spain, review the terms and conditions of your policy, including notice periods and any potential fees. Written notification to the insurer is usually required, and automatic renewal can be avoided by giving advance notice.
Use Property in Malaga to buy your Spanish property.
Choosing Property in Malaga (English Estate Agents in Spain) as your partner in buying a Spanish property comes with several advantages that set us apart from the rest. Here are a few compelling reasons to trust us with your property search:
Extensive Local Knowledge: Our team at Property in Malaga has a deep understanding of the local real estate market in Malaga and the surrounding areas. We have in-depth knowledge of the neighbourhoods, property values, and market trends, allowing us to provide you with accurate and up-to-date information to make informed decisions.
Wide Selection of Properties: We offer a diverse portfolio of properties in Malaga, catering to various budgets, preferences, and lifestyles. From beachfront villas to modern apartments and traditional townhouses, we have a wide range of options to suit your unique requirements.
Personalized Service: We believe in delivering personalized service that focuses on your specific needs and desires. Our dedicated team takes the time to understand your preferences, budget, and lifestyle, ensuring that we find properties that align with your criteria. We guide you through the entire process, providing expert advice and support at every step.
Professional Expertise: With years of experience in the Spanish real estate market, our team brings professional expertise and industry knowledge to the table. We handle all the necessary paperwork, negotiations, and legal aspects of the buying process, ensuring a smooth and hassle-free experience for you.
Transparency and Trust: At Property in Malaga, we prioritize transparency and trust in all our dealings. We provide you with accurate and honest information about properties, including their features, condition, and legal status. You can rely on us to guide you through the entire process with integrity and professionalism.
After-Sales Support: Our commitment to you extends beyond the purchase. We provide comprehensive after-sales support, helping you navigate any post-purchase matters such as property management, rental services, and general assistance with settling into your new home.
Multilingual Team: Our team is fluent in multiple languages, including English and Spanish, ensuring effective communication throughout the buying process. We understand the importance of clear and concise communication, and we strive to make sure you feel comfortable and well-informed every step of the way.
By choosing Property in Malaga, you gain a trusted partner who is dedicated to making your property purchase in Spain a seamless and successful experience. We are passionate about helping you find your dream home and are committed to providing exceptional service tailored to your needs. Contact us today to begin your journey towards owning a property in beautiful Malaga.