The following are the most important facts regarding tax changes in 2023, for owners of real estate on Mallorca and for those who intend to become owners. The new government, elected in June 2023, introduced some changes at the beginning of the year and now promises tax relief and new opportunities for property buyers and touristic rental property owners. The conservative People’s Party (PP) will, however, operate as a minority party and so will need to rely on the support of the right-wing populists of the Vox party.
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New governmental pact in the Balearic Islands: Implications for property buyers and owners
Under the designated Balearic president Marga Prohens, the parties have agreed on a government programme that aims for diverse tax reductions.
In the area of property purchases, the paper foresees some changes: Persons under 30 years of age and disabled people will, in future, be exempt from real estate transfer tax when purchasing their first residence. This regulation applies to real estate up to a value of 270,000 euros (or a maximum of 350,000 euros in zones with a strained housing market). In addition, the tax for the purchase of property intended to be a main residence is reduced by 50 percent if the buyer is under 35 years old or has a large family.
The new Balearic government intends to crack down on illegal house occupation (squatting), although its powers in this area are somewhat limited.
Income tax for residents (IRPF) is to be reduced. This will especially benefit taxpayers with low and medium incomes as well as landlords whose properties are in long-term rental. It should, however, be noted that the autonomous region can only make decisions regarding a half of the IRPF, as the other half falls under the jurisdiction of the central government.
With regard to inheritance and gift tax, however, the Spanish regions have far-reaching powers. The island government plans to completely abolish taxes on inheritances and gifts between next of kin and married couples. In addition, a 50 percent reduction is planned for inheritances and gifts between siblings, uncles/aunts and nephews/nieces. According to the agreement, this radical tax cut will be implemented during the first 100 days of the period of office, i.e. by mid-October at the latest.
PP and Vox, furthermore, intend to introduce a gradual reduction of wealth tax and, at best, its complete abolition during their term in office. Its implementation, however, depends upon the abolition of the central government ‘wealth tax’ which was introduced by Madrid at the end of 2022. It also depends on the results of the Spanish general elections in July and the actions of a hypothetical conservative government in Madrid.
In short: What does this tax package mean for non-residents?
– Income tax: For non-residents no changes are expected at the moment, as income tax is fully controlled by the central government.
– Wealth tax: Here, the new Balearic government wants to wait for developments at the state level.
– Inheritance and gift tax: Non-residents can choose the regulations of the region where the majority of their Spanish assets are located, so that they can benefit from tax advantages without restrictions. Whether this is more favourable overall, however, depends on the taxation laws in the country of residence.
Just once to be like David Beckham – at least regarding tax
If you are planning to emigrate to Mallorca in order to be able to use your property more, the tax rules this year will be particularly favourable for you as the special regulation for employees who move to Spain for a long period of time – the so-called “Lex Beckham rule” – has been reformed and now offers improved conditions and a wider scope of application than before.
What does this mean in concrete terms? A resident who uses “Lex Beckham” can, amongst other things, save wealth tax as under the new regime only the Spanish assets will be assessed despite permanent residence. In addition, income that does not come from a Spanish source will not be taxed. No rules, however, without exceptions – income from employment is taxed up to an amount of 600,000 euros with a fixed tax rate of 24 percent, and everything that goes beyond that with 47 percent. In addition the lawmakers have expanded the category of persons to whom the regulation can be applied.
Tax burden on the purchase of luxury real estate has been slightly increased
The purchase of luxury real estate in Mallorca has become slightly more expensive in 2023 from a tax point of view. The Balearic Government, for example, has raised the real estate transfer tax for non-new properties (Impuesto sobre Transmisiones Patrimoniales, ITP) with a value of over one million euros from 11.5 to 12 percent. In addition, a new maximum tax rate of 13 percent was introduced for houses and apartments with a price in excess of two million euros.
As an example: In 2022 the real estate transfer tax for a property worth five million euros was 550,000 euros. At the turn of the year this increased by 50,000 euros to a total of 600,000 euros.
The tax on registered legal acts (Impuesto sobre Actos Juridicos Documentados – AJD) was also increased. This so-called `stamp duty’ is due, for example, when the deed of sale for a property is signed with a notary and is normally 1.5 per cent of the purchase price. On the sale of real estate worth more than one million euros, this tax is now 2 percent.
Luxurious newly-built villa on the 1st sea line next to the harbour of Port Adriano
One tax return less with holiday rentals
A revision of the Spanish VAT code has reduced the administrative burden for owners of holiday rental properties. Until now many foreign brokerage companies have issued invoices to non-resident property owners for their reverse charge brokerage services. The invoice recipient, ie. the owner of the holiday finca – had to pay the VAT due with his own declaration to the Spanish tax office. That is now no longer necessary.
The VAT must, however, still be paid as before in Spain because the property is located here, and the service provider (intermediary) is obliged to register in Spain in order to pay VAT. Invoices for his brokerage services must, therefore, in future show the Spanish IVA (Impuesto sobre el Valor Añadido – VAT) of 21 percent.
Reform of the Wealth-Tax Act
Before the end of the year 2022, the Spanish central government passed the new “richness tax” together with the reform of the existing wealth tax. Both changes became effective for the 2022 tax year. For non-residents residing in Germany and owning real estate in Mallorca the wealth tax reform means that real estate owned indirectly – ie. via companies – can be taxed in Spain.
This so-called “richness tax” (officially: Impuesto Temporal de Solidaridad de las Grandes Fortunas – Temporary solidarity tax on large assets) only applies in those regions that have either abolished or significantly reduced the wealth tax (including Madrid, Andalusia and Galicia). In most other regions, this tax only results in an additional burden if considerable assets are involved. For example, residents of the Balearic Islands with a net worth of 209 million euros will, in addition to the normal richness tax, also have to pay the wealth tax which was initially introduced for two years.
This article was written by the tax consultancy and law firm PlattesGroup based in Palma. Porta Mallorquina is not responsible for the accuracy of the information. For individual information, please contact PlattesGroup directly.