4.1. Taxes on owning property in Mallorca
Expat residents, pensioners and non resident home owners guide on tax in Spain.
As a home owner in Spain you will be required to pay a number of taxes. These are personal income tax on property or rental revenue of said property, capital gains tax on property sales and inheritance tax, if applicable. There is however an additional tax levied in Spain which has no UK equivalent: The Spanish wealth tax.
Always keep digital and hard copies of all invoices related to your purchase. And, if you are doing any building work on your house once you have bought it, keep copies of your building licenses ad invoices. You can offset expenses against capital gains when you resell and reduce your Capital gains tax in Spain on property sales.
See below for a more in depth description of all the taxes related to owning property in Spain.
Personal Income Tax (Impuesto de la renta de no residentes, declaración ordinaria, (IRNR).
Personal income tax for non-residents only represents income from the property; income from salary is declared where you are a resident. If the property is for your own use, you must pay a certain percentage of the value of your property; if the property is rented, you declare the amount you have received in rent.
You are subject to personal income tax if you are:
- a non resident
- you own a property in Spain
- your property is exclusively for personal use or if your property is rented
- you have no other taxable income in Spain
Depending on what the property is used for, the income subject to taxation is as follows:
PROPERTY FOR OWN USE
A non-resident whose only taxable property in Spain is a dwelling fundamentally for own use may elect to use a single form for declaring both property tax and personal income tax on the estimated income from the use of that dwelling.
The tax base is 2% of the cadastral value of the property (which you will find on the IBI receipt) or 1.1% if the cadastral value has been revised since 1st January 1994. Tax rate: 24%. Form 210A, state income type: 02. Filing period: January 1 - December 31 of the following year.
PROPERTY OWNED BY A MARRIED COUPLE
If the property is owned by a married couple or by various individuals, each person is treated as a separate taxpayer and must file returns separately.
PROPERTY USED FOR RENTAL
This is the standard "IRPF" income tax that most Spaniards pay. Personal Income Tax (IRPF) is a national tax.
If you rent your property in Spain as a non resident you will have to pay income tax on the rent instead of the imputed tax. If you rent to a Spanish company, they will deduct the tax at source and pay it themselves to the tax authorities.
Form 210 for ordinary return, using general section 210-A, and indicating income type 01.
Filing period for Form 210: one month after the date on which the rent is due.
Form 215 for collective return. Also indicate income type 01.
Filing period for Form 215 (filed for each quarter): In the first 20 days of the month following the end of the quarter.
The income to be declared in this case is the total net rent collected from the tenant, deducting any expenses. The tax rate is 24% of this income.
Wealth Tax
(Impuesto sobre el Patrimonio)
This is an annual wealth tax based on net value of your assets in Spain and collected by the regional government.
The wealth tax applies to both residents and non residents:
Residents will pay wealth tax on their worldly assets (with generous tax free allowances).
Non residents pay on their net assets in Spain (with less generous allowances).
If you do not reside in Spain, own only one property in Spain and it is for personal use only, both personal income tax (IRNR) and wealth tax (Patrimonio) can be filed jointly in Form 214. For wealth tax alone Form 710. It is charged on properties valued at 700,000 Euros and above and calculated on a sliding scale from 0.2% to 2.5%
Property Tax
IBI - (Impuesto sobre Bienes Imuebles)
This is an annual tax based on the Cadastral value of the property, according to the local authority and paid at the town hall.
In Mallorca the tax rate is: 0,80800%
Form 714, the same as for resident taxpayers
Filing period: May 1 - June 20 of the following year.
Non-residents must file this tax form if they own property in Spain on December 31 of each year, regardless of the value of the property.
The tax is calculated based on the highest of the following three values:
1. The cadastral value, as reflected in the property tax receipt for the year to which the return refers.
2. The value assessed by the Spanish Tax Office for purposes of other taxes.
3. The purchase price.
The taxable amount is based on the value plus any charges or liens on the property minus the mortgage the property has, if any.
Each individual must file a separate return; if a property is owned by a married couple or by various persons, each one of them must file a single return for the portion of the house owned (usually 50%).
IF YOU RESELL YOUR PROPERTY IN MALLORCA:
Capital Gains Tax (Plusvalía)
This is a municipal tax paid when you sell a property on the increase in value of the land and bears no relation to the value of the property or buildings on the land as rated in the cadastral value. It is an administrative value which is usually considerably lower than the market value of the property. It is calculated on the increase in value of the land on which the property sits and the number of years since the property changed hands.
It is paid by the vendor at the town hall within 30 days from the date of sale of the property.
If the vendor is a non resident it is common for the buyer to withhold the funds and pay the Plusvalía tax themselves, and secure themselves against liability in the event that the vendor does not pay.
Inheritance Tax
If you own property in Spain or if the beneficiary resides in Spain then you are liable for inheritance or succession tax.
The main differences between UK and Spanish inheritance tax are that there is no exemption between husband and wife. When one dies, the other is liable for inheritance tax on worldly assets. A surviving spouse may be left a `life interest´ in the property instead.
Tax rates range between 7.65% and 35% and beneficiaries are graded into 4 categories whereby the more distant the relationship, the lower the tax allowance and the higher the tax.
If you are UK domiciled you are liable to pay tax in both countries, but can be offset against each other. An offshore trust can mitigate inheritance tax further and protect your assets.