July 2007 Newsletter
Welcome to this month's Numerological newsletter.
Remember if you do have any tax related topics or issues that you would like explained or discusssed, please drop us an email and we can include them in future editions.
In this issue:-
What is Property Tax?
Spanish Property Tax is the same as our Council Tax
in the UK, which is to cover local services for your particular Spanish village, town or city. The official name for the tax is "Impuesto Bienes Inmuebles
" or IBI
as it is more commonly referrred. The IBI can also be classed as urban or rural, dependant on the location of your property.
The UK system?
As you know, the UK system works on the basis that all our properties are valued according to a local banding system, and each band will then be subject to their annual Council Tax bill. Each year the local council will write to you to inform you of any band changes and the new amount that will be payable over the following year. Normally, Council Tax will then be payable on a monthly basis via direct debit.
The Spanish system?
Although the principles are the same, the Spanish way is slightly different - as always! Your local town hall is Spain will individually value your property, not by bands, and this valuation is called your "valor catastral
", which effectively is the rateable value of your property.
A standard % will then be applied to your rateable value, and this will be your annual Property Tax. The % will be determined by your local town hall, and will normall range somehwere between 0.5% and 1%. You would then pay this tax annually, not monthly, by direct debit from your Spanish bank account.
How do I find out about our "valor catastral"?
Your local town hall will send what is known as an IBI receipt to your Spanish property, and this will detail the valor catastral that they have decided for your property, the local % tax to be applied, and the actual amount of tax that you now need to pay. This IBI receipt will then be sent each year.
Does the "valor catastral" change?
Yes - each year you will see a slight increase in this valuation, and every so often your local town hall may also go through a re-valuation exercise and revise the current valuations. This will be in line with rising property prices.
Is the valor catastral applied elsewhere?
Yes - this valuation is used to calculate your annual income tax liability (for all non-resident property owners, regardless of whether they rent their property or not). Until such a valuation is received, we are allowed to use 50% of your purchase value as an alternative basis for tax.
A problem?
For all new-build properties, unlike the UK, it can take some time for your local town hall to value your new property, and therefore you will not receive your IBI receipt until some time later, and in some areas this can take up to 3 years after completion!
The problem is that you are not required to pay until an IBI receipt is issued, but you will then be liable from the day that you did complete - so in theory, you could have to pay 3 years property tax in one payment! Therefore, be aware, and make sure you save sufficient funds for this future payment.
If you are buying a resale property, ensure that the seller can provide previous IBI receipts and proof of payment, because if they have not paid, you will become liable for that debt.
What do we need to do?
Sit back, relax and wait for your IBI receipt! Or, you could visit your local town hall at some point and ask them about whether a valor catastral has been assessed (they have been known to assess but not inform!) or when they are likely to be assessed.
Each town hall will be different, and their priorities will also be different, so be patient!
Remember to let us know if you have any legal questions about your property in Spain, as Roser Coll
, a Spanish solicitor now based in the UK, will be happy to answer any such questions.
The 31st December deadline is not that far away, so a couple of reasons why you need to get yourself sorted and get your tax returns in!
1. Legal Requirement
- ALL non-resident property owners are required to submit a tax return each year, and because ownership of Spanish property is essentially a "tenants in common" arrangement, it means that each owner of property will need to submit an individual return for their "share" of the property.
For example, if 4 people own a property, they are are deemed to own 25% each - not jointly owning 100% - and they would therefore be required to account for their 25% each year.
2. Penalties & Interest for Non Payment
- if you do not pay the taxes, then at a future date the Spanish tax office could make you liable for the outstanding amount of the taxes, plus interest plus penalities.
3. Impact on Potential Sale
- if you plan to sell the property, the potential buyer would normally ask whether all taxes have been paid, and could ask for evidence that this is the case - if there was no such evidence then the buyer could ask for a reduction in the price to cover unpaid taxes, or even worse, withdraw from the sale.
4. Capital Gains Tax
- if you do sell the property, and the buyer witholds 3% of the sale proceeds (which is a legal requirement) and pays this to the Spanish tax office - you will then have to make a claim for any overpaid capital gains tax - at this point, if previous tax returns have not been submitted, then the Tax office will deduct all taxes, interest and penalties, before any rebate is made.
If you need help with your returns click here
Following an article in theDaily Telegraph in May, there has been much debate recently over whether you need to be licensed in Spain in order to rent out your property.
The General Tourism Act of 15th December 1999
defines two different types of properties: holiday houses
andtourist apartments.
Tourist apartments have strict guidelines, as they have been constructed and licenced to be rented as commercial ventures, whereas holiday homes are "private residences which may be rented to tourists but are essentially private dwellings".
The act makes a distinction between registration
and licencing
. In theory all property that is rented out should be appropriatley furnished and equipped, and registered, in order to legally offer the property for rental. Whereas in certain provinces the licencing of such properties is also required - i.e. Cataluna, Valencia, Balearics, Murcia, Asturias.
As everything in Spain, there are always conflicting reports both from property owners and professionals, and these are some of the comments in the press recently:
- "If you rent without a licence you risk being reported to the authorities by your neighbours"
- "If anything happens to a tourist staying in your apartment without licences, you could be in serious trouble"
- "It's unclear whether the requirement for a licence is being actively enforced in each of these regions"
- "One solicitor has said such a licence is only required by firms and not to individuals since it is not deemed as a professional activity"
- "If you let through an agent then this changes the nature of your rental from private arrangement to commercial activity"
- "How and where do you deal with the registration process?"
Although there does appear to be a requirement, it has not been comunicated well, and there are inconsistencies in how both property owners and professionals perceive the requirements, and the enforcement of such regulations would appear to be haphazard at best.
If we are able to provide any more clarity on this subject, we will endeavour to do so, but in the meantime if any of you have actually registered or become licenced, then please let us know how you did it!
For the full Telegraph article please click here
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