Fiscal surprise package: the Spanish ‘owner-occupation tax’ on real estate.
Owner-occupation tax on real estate
During introductory consultations with Germans who have owned property long term in Mallorca we experience a particular situation time and again: In reply to the question whether they have been paying income tax for the previous years of ownership they answer that they have no income from renting out the house as it is only for private use. Anyway, there has been no contact from the Spanish fiscal authorities and ”they will tell us if they want something from us”.
Subsequently we have to inform the clients that they have a completely false understanding of various relevant tax issues. To begin with, in Spain self-assessment applies. This means that the fiscal authorities does not contact individuals to make them aware of their obligations as everyone is obliged, unsolicited, to inform themselves and to submit their declaration puntually, showing the correct figures, and to make the necessary payment. If post from the fiscal authorities arrives then usually a problem already exists. Generally the authorities only make contact if a declaration is not punctually submitted or is not correct, or when there is suspicion that irregularities have occurred.
The second subject concerns the income tax due on a self-occupied property which generates no rental income. This tax is unknown in Germany, but in Spain is normality. Here everyone who owns real estate which is not used as a primary residence and not rented out must pay tax on a fictional value. This also applies to residents. In the case of non-residents any Spanish property is automatically subject to this law as it is inevitably a secondary property and does not represent the main residence which, according to Spanish law, is abroad.
How does this ‘liability for real estate income‘, as it is called legally, really work? In order to calculate it the cadastre value is used and this usually represents a third to a half of the market value of an object. The owner can find this value in the property tax assessment (IBI) of his municipal authority. This valuable information will soon disappear, however, as the local councils are afraid of the strict data protection regulations and the applicable notifications show only the property tax amount. It may, therefore, be necessary to visit the local council.
Property income
Once the cadastre value is determined the amount can be calculated. If the municipality reviewed the cadastre value during the last 10 years then 1.1 per cent can be fixed and the ‘fictional value’ has been established. If the review was longer than 10 years ago 2 per cent should be taken. On the resultant amount EU citizens must pay 19 per cent income tax, and non-EU citizens 24 per cent.
The catch: due to these differing tax amounts residency in an EU country has to be confirmed every year with an international certificate of residency from the owner’s tax office to avoid the payment of 24 per cent. The tax payer must decide himself whether the saving is worth the effort as the income tax for self-use is, in fact, relatively low even though it is not possible to set off any costs.
Calculation example: For a property which was purchased for around 500.000 euro and which has a cadastre value of 200.000 euro the sum of 418 euro per year is to be paid. In the case of multiple ownership of an object each part-owner pays separately his share of the income tax. If there is usufrucht the holder of the usufructuary rights is liable for the complete tax (this also applies to the property tax, while the wealth tax is divided between the co-owners.
The income tax for the self-occupied property is subject to a yearly declaration and the owner has a year’s time to make the declaration during the following year, ie. from the 1st January to the 31st December.
The tax can also be incurred on rented property, proportionate for vacant days or self-occupied days. No tax is required for complete year-round renting or for periods when the property is verifiably uninhabitable. NB: Photos, or the opinion of the owner are not sufficient to prove this opinion – ideal would be an assessor’s report but this would probably cost more than would be saved…..
On our portal www.europeanaccounting.net you will find under ‘services’ a ‘self-occupancy tax calculator NR’ which which you can calculate the required tax. It is based on a cadastre value revised less than 10 years ago.