Loading...

Mallorca offers properties to suit all budgets, but you need to look beyond the asking price to work out the overall tax costs – from purchase taxes to capital gains tax when selling, as well as Spanish income, wealth and succession taxes.

Whether you are looking for a holiday home in the Balearic Islands or something more permanent, it is crucial to understand the tax implications before buying a property. 

This may not be as straightforward as you think, especially as Brexit approaches. Your tax bill will depend on where you are resident and how you use the property, with different rules for your main home, holiday homes, rentals or investment properties. Owning a property could also bring you into range for Spanish wealth and succession taxes. 

The good news is that with careful planning, you can avoid costly mistakes and make the most of tax-efficient opportunities. 

Buying a property

  • Impuesto sobre Transmisiones Patrimoniales

This purchase tax – due on anything other than brand new properties – ranges from 8% to 11% in the Balearics, depending on the property value. On new builds you will instead be charged 10% for Spanish VAT, Impuesto sobre el Valor Añadido (IVA).

  • Actos Jurídicos Documentados

Equivalent to UK stamp duty and payable on all purchases, in the Balearics this is generally 1.2% of the property value on the deed.

  • Impuesto sobre Bienes Inmuebles (IBI)

Similar to UK council tax, this applies if you own Spanish residential property, regardless of where you are resident. What you pay annually depends on the official value of the property: the ‘valor catastral’.

If the previous owner did not pay IBI, you could be liable for unpaid charges over the last five years plus penalties of 20%, so make sure you see the latest IBI receipt – ideally for the previous five years. Likewise, when you sell, expect to show five years’ worth of IBI receipts. Also make sure the ownership information is officially changed so you are no longer liable at that address.

Letting a property

Rental income on Spanish property is always taxable in Spain. If you are resident here, your worldwide rental income attracts ‘general income’ tax rates, ranging from 19% to 47.5% in Mallorca. However, Spanish residents can get a 60% tax reduction against the net rental income for long-term lets. 

If you are non-Spanish resident but EU/EEA resident – as UK residents are today – you are taxed at 19% on the net rental income after deduction of some expenses. Non-EU/EEA residents pay 24% on the gross rental income (no deductible expenses). Note that this is set to apply to UK residents after Brexit. 

Download our guide to taxes in Spain

Second homes and holiday homes 

  • Imputación de Rentas Inmobiliarias

If you own a Spanish holiday home or a property not used as your main home that is not rented out, tax is payable on ‘notional rental income’ for the period a property is empty.

It is generally based on 1.1% of the valor catastral (2% if the value has not been revised within ten years). This is added to other general income for the year and taxed at the progressive income tax rates for Spanish residents, 19% for EU/EEA residents and 24% for others.  

 

Selling a property

  • Capital gains tax

Non-residents pay a flat rate of 19% in capital gains tax on Spanish property sales. For residents, gains are added to other investment income over the year and taxed using the ‘savings income’ scale: 19% up to €6,000, 21% to €50,000 and 23% above this.

However, Spanish residents aged 65+ who sell their main home (a property they have lived in for at least three years) will be exempt on the gain if certain requirements are met. Anyone under 65 can also get this relief if they use the full proceeds to buy another main home in the EU/EEA within two years of the sale. 

  • Plusvalía Municipal

This is a local land tax payable on the increase in the value of the land, excluding buildings, when selling Spanish property. It applies to residents and non-residents alike, varying according to the size of the local population and length of ownership. 


Other tax implications

  • Wealth tax

You are subject to an annual wealth tax if the total value of your assets exceeds the current €700,000 personal allowance. Residents are liable for their worldwide assets, non-residents for Spanish assets only. Rates for the Balearics range from 0.28% to 3.45%. 

Spanish residents receive an extra allowance of up to €300,000 for their main home. This means that couples who jointly own a home and are both resident could hold up to €2 million in combined assets before attracting Spanish wealth tax.

  • Succession and gift tax

If you die owning Spanish property or gift it during your lifetime, this tax is payable regardless of where you or the recipients are resident. Tax rates depend on how much you give and to whom. Rates for spouses, direct descendants and ascendants range from 1% to 20%, for others they vary between 7.65% and 34%. 

In the Balearics, there is a 100% main home reduction on inheritances up to €180,000 for spouses, descendants and ascendants. Additionally, there are some personal reductions: €25,000 for direct relatives (up to €50,000 for minors), €8,000 for other relatives and €1,000 for non-family.

If you are a UK national, beware that you may be considered UK-domiciled even after years of residency in Spain. This would capture your Spanish property (along with your worldwide assets) within the 40% UK inheritance tax net. See five things you may not know about UK inheritance tax

  • Owning property through a company

While this has been a highly tax-efficient way of holding property in the past, recent tax changes have diluted the benefits. As well as being subject to Spanish corporation tax, ‘enveloped’ property today attracts savings income tax on profits, and is liable for wealth and succession taxes without being eligible for any of the main home allowances. If you are thinking about holding Spanish property in this way, take specialist advice to determine if this approach is suitable for you.

How to ensure Spain is a tax-efficient home

Spanish tax can be highly complex, especially if you have to consider the tax regime in your home country and how they interact together. With no one-size-fits-all solution for minimising taxation, take personalised professional advice to secure the best results for your personal situation and goals. 

Blevins Franks has decades of experience supporting expatriates in Spain with specialist tax planning, as well as pensions, estate planning and investment management services. Our locally-based advisers have the cross-border expertise to make sure your financial affairs are in order so you can relax and enjoy your new home away from home in beautiful Mallorca. 

See more about living in Spain

 

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.