Understanding the "Plusvalía" Tax: Impacts of Selling Spanish Property
Are you thinking about selling your property in Spain? Then it’s important you know all about the tax implications of doing so. Not only are you expected to pay Capital Gains Tax but there’s also an important Plusvalía Tax which can be quite confusing for non-residents and residents alike.
It’s essential to be aware of these taxes so that you can budget for them in the sale of your property and avoid any unforeseen expenses.
What Is The Plusvalía Tax in Spain?
If you break down the Spanish word, it gives you a clue as to what it means. Plus means ‘more’ or ‘extra’ and valía means ‘value’, so the Plusvalía Tax refers to the increase in value of the urban land of the property. It’s applied once it’s sold, inherited or donated and it’s usually paid by the seller.
But what exactly does the value of urban land mean and where does the money go to?
When you buy a property, the land value has a certain price. Over time, this amount increases based on the new and hopefully better infrastructures in place around the property. This can include public transport, hospitals, supermarkets and parks.
This municipal tax is imposed by the local council (Ayuntamiento) and is their way of reflecting the improvements they’ve made to public investments. Of course, this tax has caused a lot of controversy in the past as it used to be applied regardless of whether there was a capital gain on the transference of a property or not. However, nowadays, if you can show that the infrastructure hasn’t grown since you bought the property or that the land value has gone down, you can avoid paying Plusvalía Tax. Likewise, if you make a loss with the sale, you’re also exempt from paying it.
How Much Is Plusvalía Tax In Spain?
There are a number of contributing factors when it comes to how much Plusvalía Tax you’ll have to pay. The land value on your council tax receipt will increase every year and you’ll have to consider the rates your local council is implementing. The factor that affects how much you’ll pay the most is how long you’ve been the owner of the property. The amount increases until a maximum of 20 years. The location of the property plus the size of the urban area will also determine the price.
When Do You Have to Pay Plusvalía Tax in Spain?
Plusvalía Tax is calculated at the moment the property is transferred (regardless of whether it’s a sale, inheritance or donation). The payer will then have 30 days to pay the money to their local council. If it’s not paid within this time, the payer will incur a fine.
Who Pays Plusvalía Tax in Spain?
Plusvalía Tax is usually paid by the seller, however there are a couple of exceptions. For instance, in the case of inheritance or donation, the receiver of the property will be expected to pay it.
Something else that’s important to know is that if you’re a non-resident, even if you’re the seller, you won’t be expected to pay Plusvalía Tax when you sell your property. In that case, it will be the buyer who pays it.
What Other Taxes Do You Need to Know About?
As well as the Plusvalía Tax, it’s important to be aware of other taxes associated with having and selling property in Spain. You can find out more about Non-Resident Income Tax in our helpful guide.
Capital Gains Tax
Unlike the Plusvalía Tax, the Capital Gains Tax is only based on the profit obtained from the sale of a property. It’s payable to the National Tax Office and is 19% for EU/EEA residents and 24% for non-EU residents (including those from the UK after Brexit).
The buyer of the property has to withhold 3% of the property purchase price and pay this to the tax authorities (within one month of the sale). Even if you have no tax liability (because you aren’t making a profit with the sale) the buyer will still need to transfer this 3% to the authorities and, within the year, you’ll be entitled to a partial or full tax rebate.
The Capital Gains Tax is not 3% of the sale price plus 19% of the profit. The 3% is a holding to ensure the 19% is paid in full. If the 19% of the profit is less than 3% of the sale, you’ll also be subject to a tax rebate of the difference.
IBI (Spanish Property Tax)
All property owners in Spain have to pay IBI (Impuesto Sobre Bienes Inmuebles) which is the Spanish Property Tax. The rate is determined by local authorities and factors such as location, size, condition and land characteristics all affect how much you pay. This tax is to be paid yearly and is set on the 1st of January of every year and the tax bill usually arrives in spring/summer, however, each region is different. You can pay it in one payment or split it throughout the year.
Generally speaking, this tax should be paid by whoever was the owner of the property on the 1st of January, however, it’s very common to negotiate the payment during the buying/selling process and buyers may end up paying the IBI from the date of the change in ownership.
Impacts of Taxes on Selling Property in Spain
There are many important taxes that you need to be aware of when buying and selling property in Spain. Failure to plan for them can lead to a lot of unnecessary stress during and after the selling process. Furthermore, failure to pay them can lead to penalties and an increase in expenses.
Knowing the information in advance can help you to make sound decisions and help the process to run more smoothly.
Note that this article is general and is shared as information. Property, tax, finance and other legal topics are personal and can vary not only from person to person but between the different regions of Spain. We recommend that you seek professional guidance if you need advice on matters covered in this article.