Filed under : Conveyancing & Property Law, Tax Planning - Inheritance

The Spanish tax authorities – Hacienda – have begun a new campaign to ensure that non-residents who own property in Spain do pay their taxes. For many years we have been advising property owners of the importance of paying this tax annually. Now the tax authorities are actually sending demands giving an estimated or provisional figure for the tax payable. The failure to respond to these demands will mean that a tax debt is created and interest and fines can increase the total amount payable.

The non resident tax declaration is made in the tax area where the property is situated. The tax is a personal tax so if you are joint owners each of you needs to present the tax declaration separately. All non-residents who own a property in Spain have to pay this tax as follows:
1. Income from lettings/rentals at 24.75% on the net rent received. A number of expenses can be offset against your income from rentals. These include Community fees; Town Hall rates (IBI) Insurance, utilities and interest on mortgages.
2. Deemed income on any property you own which is for your own use. This applies to second homes, holiday homes and any property you own in Spain as a non resident. This is taxable at 24.75% and assessed at 1.1% of the rateable (catastral) value. This applies during the period while you own the home, it is not an annual fixed sum. For example if you purchase in July it is payable from July to December 31st.

It is not possible to set up a standing order for this as each year the taxpayer has the obligation to complete the forms and present them to the bank for payment before the 31st of December. The tax authorities are able to claim unpaid non resident tax for the previous 4 years of ownership if you fail to declare. There can also be penalties and fines for late payment so it is far better to appoint a fiscal representative to pay the tax each year.
For more information please contact De Cotta Law on [email protected]