Overseas property investors purchasing property in Spain need to remember the various costs that are payable on holiday homes, as failure to pay can lead to hefty fines in some cases.
So what are the costs to consider on your new holiday home?
The first of the costs you will need to pay is IBI, which is similar to council tax in the UK.
I.B.I. stand for Impuesto sobre Bienes Inmuebles, an immovable property tax, or real estate tax. The tax is payable by the person who owns the property on 1st January each year, but the invoice is usually issued during June, July or August.
If you do not make payment of your IBI then the town hall may charge penalties and register a charge against your property in respect of the debt you owe.
Non-Resident’s Income Tax
The second of the costs to be considered is non-resident’s income tax. This is levied if you own a property in Spain but are not a resident.
If you let the property on a holiday let basis, then you will be required to submit quarterly returns declaring the income received and the expenses you have incurred in each quarter.
The net income each quarter after allowable expenses will be liable for non-resident’s income tax, paid on a quarterly basis.
If you rent your property out longer term, then the tax is payable annually.
If you do not let your property at all, or if you do not let it during one or more quarters, you will still need to submit an annual return and pay an annual tax that is calculated on the basis of the rateable value of the property. That tax payable will usually be relatively low, usually based on a chargeable amount equalling 1.1 percent of the ‘valor catastral’ (similar to a rateable value).
Whether or not you let your property, tax is payable on the chargeable amount at the rate of 19 per cent for that resident in the EU and at 24 per cent for all others.
Other costs you may have to consider are community fees. If your Spanish property is part of a development, then you will be obliged to pay community fees, which are service charges by another name.
Community fees are paid by all property owners within the development towards the maintenance of the communal areas such as swimming pools and gardens.
Communities with a large number of debtors or late payers have the right to increase the community fees for the members who do pay regularly, so you should make sure that all fees are being paid regularly to avoid an increase in your own costs.
One of the important costs to consider is that of a licence to allow you to rent your property out.
In certain regions, you will be required to obtain a licence to be able to let your property legally. In other areas, you will be required to comply with certain administrative rules.
Though the costs of licensing may not be high, the costs of not licensing can be, with large fines possible for non-compliance.
The key to avoiding these costs is to make sure you are aware of the rental rules in the region your property is situated in.
Once you’re sure you have covered all the costs, it’s time to sit back and enjoy the sunshine.