#43 Avoid Hidden Costs: Essential Taxes You Need to Know When Buying Property in Spain

Dreaming of life on the Costa del Sol but worried about taxes? You are not alone - this is a topic that a lot of people find confusing in the initial planning stages, but don’t let confusion hold you back.

Understanding taxes is key to a successful property purchase and a smooth transition to life in Spain. 

In this episode of The Costa Property Podcast, Warner sits down with top tax expert Carmelo D’Andres to give you clear, no-nonsense advice on the taxes that come with buying, owning, and selling property in Spain.

From purchase costs to annual fees, we’re breaking it all down so you can move forward with confidence.

If you’re ready to make the move—or just want to plan smarter—this is the must-listen guide you need.

Tune in to Discover:

• The essential taxes you’ll need to budget for when buying a new or resale property
• How non-residents are taxed on rentals—and the EU tax break that saves money
• The hidden costs of owning property—like IBI and annual non-resident taxes
• Capital gains tax explained—and how to prepare when selling your home
• Why a tax lawyer is essential to avoid surprises and save time and money.

Resources Mentioned in the Episode:

Carmelo D'Andres: For expert tax advice in Spain, Carmelo works with Martínez Echevarría, a leading international law firm. You can contact him directly via email at carmelo.dere@martinez-echevarria.com for personalized advice on tax matters related to property acquisition, ownership, and sales.

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Disclaimer:

The views expressed in this podcast are those of the interviewee, a tax expert, and are for informational purposes only. They do not constitute personalized legal or tax advice. The interviewee is employed by a company, and the views shared are not necessarily those of their employer. For advice regarding your specific tax situation, please consult a qualified tax professional.

Transcript

Taxes, for many, is the single biggest worry about moving to Spain, and with good reason. A Spanish property taxes can be confusing and complicated, but it's something that you absolutely must get right. That's why in today's episode, we're bringing you the answers that you need. We've brought in Carmelo, expert who's breaking down the critical things that you must understand about property taxes here in Spain, from transfer taxes, to hidden fees for non residents.

[00:01:22] This is the essential guide to avoid tax pitfalls and make your Spanish property purchase a smooth and stress free success. If you're thinking of buying, dreaming of investing, or just planning ahead, this episode is going to be the one you're going to want to hear. But first, let's jump into our Spanish word of the day.

[00:01:45] Now the Spanish word of the day today is the word for an invoice or a bill. It's called factura. Invoice or a bill. In Spanish, the word is factura. Let's jump into today's episode.

[00:02:02] Welcome Carmelo to the podcast. We're going to talk about today all things taxes and with your help and experience we hope to help our listeners understand a bit more in detail. Carmelo has helped many buyers with his extensive taxes knowledge and working for one of the biggest law firms On the Costa del Sol and help minimizing tax surprises for our foreign buyers.

[00:02:29] How are you today, Camilo? Hello, how are you Werner? First of all, it's a real pleasure to be here, enjoying this time with you. As everyone can guess, it's a very important matter, especially when you are involved with foreign buyers. with acquisition of a property in a foreign country. So very happy to be here and many thanks to have me in this podcast.

[00:02:50] Before we start, Camel, can you tell our listeners a bit more about yourself, where you work and what you do? My name is Carmelo Andres and I'm a lawyer in the tax law department of Martínez Echeverria. is an international law firm, primarily based in the Costa del Sol. Previously, I for an international law firm in Madrid,

[00:03:10] And specialize myself in real estate taxation, I'm conducting now my PhD studies, on real estate taxation, especially with regard to indirect taxation.

[00:03:19] So if our listeners are interested in taxes in Spain, then they're in the right place.

[00:03:24] Is that correct? Yeah, absolutely. So let's look at the initial opportunity purchase taxes. You know, can you start explaining what buyers need to know about the taxes that apply directly to the property purchase? Yes, sure. The main point here is determining which is the purpose of the transaction, the investment that the relevant buyer wants to implement.

[00:03:49] And on a very broad sense, And we do acquiring a dwelling, a real estate, which is intending for, for a dwelling, the taxation, the indirect taxation trigger as a result of this, this acquisition will be essentially, uh, value added tax plus a stamp duty or transfer tax, when you are dealing with a first transfer of a property, the taxation, the indirect taxation usually is going to be 10 percent value added tax on top of the, of the price of the, of the property.

[00:04:20] Okay. Plus 1. 2 percent stamp duty, okay? Stamp duty is a tax which essentially is taxing the public deed in which the transaction is being recorded. That's saying if you are dealing with a second or subsequent transfer of a property, these transfers are essentially or primarily subject to but exempt from BID.

[00:04:46] So the result of this exemption is that the transfer tax applies and And these transfer taxes, the tax rate applicable here in, in Andalusia is 7%. It's important to bear in mind that this is not just the scope of, of taxes to be applicable. Since under certain circumstances, the exemption of the IT can be waived.

[00:05:07] This is important essentially when the acquirer of the property. It's not individual using the property for private uses, but when they acquire it, he intends to use the property for an investment, an investment purpose. In that case, and provided that certain requirements and conditions are met, the BIT can be deducted.

[00:05:27] So this is important that the purpose of the transaction is perfectly defined prior to launching the FPC shell process. Many times you, your interest can be the waiving of the, of the VAT since you can't recover the amount paid. So it's important to define the scope of a transaction. So for our listeners then, so if we are buying a property in the cost of Del Sol and, and living the dream, what would be the taxes that they have to pay for buying this property all in, so that they can look at budgeting the costs as well as the price of the property?

[00:06:05] Okay. If they are non resident individuals and they are acquiring a property intended for their personal use and enjoyment, the tax is going to be essentially 7%. If you are coping with a second or subsequent transfer of a property, this information needs to be provided by the transferor. Or, if in case of a first transfer of a property, you are acquiring a new built property, The taxation is going to be 10 percent of VAT plus 1.

[00:06:37] 2 stamp duty, 1. 2 percent stamp duty. But as I said, all of these can be adjusted according to the purpose of the transaction. Essentially, if you can't wipe the VAT exemption. So if I'm buying a resale property which is already has an owner, then we're looking at budgeting around 10%. But if I want to buy a fancy new development in the Costa del Sol, you're looking around 12, 12 and a half, 13%.

[00:07:05] Is that right? More or less who we wrote approximation to their tax cost, but it's important to remind them that the tax base of VAT and the tax base of transfer tax and stamp duty is not required to be the same since the rules for determining the tax base of stamp duty and transfer tax are different from those applicable to VAT.

[00:07:27] VAT is the price of the property and stamp duty and transfer tax are different. applies to different rules. But in general terms, it will be an accurate possibility. Thanks for clarifying that. So once I bought my property, live in the dream, I'm on the Costa del Sol. What kind of taxes after that or ownership taxes do the listeners have to pay yearly or?

[00:07:54] It's a very good question indeed because the answer depends on the technicalities of each situation. It depends essentially which is the purpose of the investment in a real estate property in Spain. When you're acquiring a property, To be rented out to a third party, you need to pay, depending on your tax residency, primarily, that you have to pay for the income of the chain as a result of this leasing.

[00:08:21] Okay. If you are an European Union tax resident or a resident in a country of the European Economic Area, you can deduct the expenses borne in conducting this leasing activity. So the tax base of this Non resident income tax, which is, uh, levying the income of chain as a result of the Asian activity is the net amount of chain as a result of, of writing the property out.

[00:08:50] If you are not an European Union tax resident, or you are not a tax resident in a country of the European Economic Area, the tax base of this non resident income tax, It's going to be the gross amount obtained from the leasing, which essentially means that you cannot deduct the related expenses to the leasing activity.

[00:09:13] It also, the tax residency of the owner of the property affects to the applicable tax rate. Since European Union tax resident can benefit from a 19 percent tax rate instead of the 34 percent tax rate applicable to non European Union tax residents. On the other hand, if the property is not rented out, if the property remains at the disposal of the owner, in that case, you are not levied by the non resident income tax as a result of the income obtained from leasing the property, but you are levied also by this non resident income tax as a result of a kind of deemed real estate income, which at the end of the day is the income that you will be obtained.

[00:10:01] if this property will be raising out in the market. So, uh, at this stage, there is a specific, uh, uh, formula to calculate the, the, the tax base. Uh, essentially, uh, the, the application of a coefficient, which is 1. 1 percent or 2 percent over the cadastral value of the property or the acquisition value of the property, depending on the cadastral value and the moment in which the cadastral value was determined, which is a general explanation.

[00:10:32] And essentially, as a piece of advice to potential buyers of a property in the Costa del Sol, it's important to have the specific advice of a service provider that helps you with the submission of the non resident income tax self assessments, and also that helps you with the direct debit. of the real estate tax in your bank account.

[00:10:59] This is particularly important with regard to real estate tax since the lack of payment of real estate tax has very adverse consequences. Essentially, the Spanish tax administration has a kind of legal mortgage over the property. And in case that this can be explained with more detail, but in a very broad sense, the lack of payment of two tax years, the two tax years of the real estate tax quota, implies that the Spanish tax administration can follow a public auction of the property and as a result, execute the property in order to obtain the money.

[00:11:38] that they need to cover the real estate tax quota. So this is very important for potential buyers of a property in the Costa del Sol to be aware that they need to be compliant with this tax, which is, it's not a very relevant tax in terms of the amount, but the consequences of the lack of payment. are very adverse for, for the ownership property.

[00:12:00] So just to simplify that, there is obviously a lot of questions around when they get the tourist license, you know, what tax are they going to pay. So for example, if I'm an American and I want to buy in Costa del Sol and I want to buy to rent out, Then I will be taxed 24%, but I can't take any mortgages, cleaning, any fees off that, it would be taxed at 24%.

[00:12:29] Is that correct? Correct, yeah. And if I'm, I'm member in the European Union, from Poland for example, And I buy a property and the cost of those sold, I can basically take all the, the fees off like my mortgage, everything that's obviously not profit, and then I will get taxed 19%. Is that correct? Yeah, that, that will be the summarize of all of these explanation, absolutely.

[00:12:58] And then the ongoing tax that I always say to my clients yearly would be like the EB, like in the UK, this would be like council tax, and that goes straight to the government or the town hall, whatever you buy your property. And then the basura, which is the rubbish, which you can see every night, it gets collected, it's a great service, so that would be the ongoing taxes.

[00:13:26] On top of that, you have a non residence tax that you have to pay every year. It's not massive, but you have to pay that as a non resident and the cost of that was solved. Here it's important also to bear in mind that we are focused, our explanation on the acquisition of a property by means of an individual, but also the acquisition can be conducted by means of a legal entity, of a company.

[00:13:53] Also, all of this needs a further explanation, but just to limit the taxation applicable, legal entities are not subject to this no resident income tax on their so called deemed income. Yes, this deemed income is just applicable to individuals. On the other hand, it's important that if you're acquiring a property by means of a company, And this property is primarily intended for the use and enjoyment of the shareholder of the company, which is also very common.

[00:14:25] It's important that this relationship between the company and the shareholder must be implemented by means of a rental agreement. You need to pay a market, a rent, a written arm's length on a market conditions. And the specific provisions of the agreement must also comply with these market requirements because are related parties transactions, essentially.

[00:14:48] You know, that can be quite complicated for a foreign buyer. So what would you recommend to our listeners to do so that all of this can be made a lot easier? The main piece of advice that I always give to my clients is That if you are acquiring a property and this property, you are acquiring just a sole property or not a very big amount of real estate properties in Spain in order to develop a business activity and a strong business activity.

[00:15:19] Uh, it's important to keep the situation as simple as possible. Many times, potential buyers comes with a, with the idea of, I want to acquire by means of a company. Uh, I want to acquire by means of a disregard entity in my home country, here in Spain, and according to the current situation, which tax legislation and the, and the potential implications in a future tax outlet, it's important to keep.

[00:15:46] the things as simple as possible. Also, um, for this is quite important to have the advice of a, of a tax lawyer, a real estate lawyer for sure is absolutely important since he or she is going to conduct the acquisition process, but a tax lawyer that try to simplify the situation, that try to anticipate.

[00:16:06] Any tax contingencies, it's quite important to have. On the other hand, and within this framework, the due diligence conducted over the property prior to that position is also very important in order to determine any kind of tax or other nature, but essentially tax incoveniences. over the property that triggers in the future a potential tax liability.

[00:16:30] So it's important to, to carry out our due diligence over, over the property. And for me, and in my opinion, this is the, the, the best approach. So it's like everything. If you want a property, you contact the real estate. If you want legal advice, contact the lawyer. And taxes, contact a tax inspector. And you, you can never go wrong with the experts and do the hard work.

[00:16:54] Yes, that's, that's it. On to the next one, which is probably everybody's favorite. One is, you know, sometimes when my clients, they go, Well, yeah, I wanted to buy the property, but what is my taxes when I serve it? I said, well, first of all, you need to buy it, and then when you decide to serve it, then we need to look at that situation there.

[00:17:17] So it's the capital gains tax. PRI Taylor is a bit more about the capital gains tax in Instax and spin. Yes, absolutely. Capital being is kind of a, a short of income that you're obtaining in this case from a Spanish source. As a result of this, you are going to be taxed in case you are a non resident taxpayer, also by means of the non resident income tax.

[00:17:41] But in that case, the income is the capital gain and not the, for instance, the rent income or the leasing income explained previously. In that case, the amount of the capital gain is the difference between the precision value of the property And the price, not just the price, the income obtained as a result of the transfer of the property.

[00:18:06] So, the acquisition value is determined by means of the price paid in the acquisition, when you buy the property, minus certain expenses related to this acquisition. On the other hand, the transfer value of the property is the price. but adjusted by the expenses related to the transfer of the property.

[00:18:29] For this reason, it's not just a difference between price minus price. It's an adjust price with regard to the acquisition of the property and an adjust price with regard to the transfer of the property. The difference between this transfer value and acquisition value is the amount of the capital gain, which is essentially taxed at 19 percent tax rate currently in Here is important to bear in mind that usually with regard to the double tax treaties, double potential applicable double tax treaties, the capital gain obtained by, as a result of transfer in a real estate, the power to tax this amount, this, this income remains usually on the state of the source, where the income is generated.

[00:19:13] So why I'm saying that? Because it's important to have also, I would say, tax advice in your home country. In order to determine the ways. Double taxation, potential double taxation with regard to this income. Okay. One of the questions I get asked with a lot of sellers, if I pay the capital gains tax in Spain, do I still get taxed in my own country?

[00:19:39] For example, the UK really, I don't know because I'm not an expert on UK taxation. But the other flip side of the coin, if we are talking of a a Spanish tax resident, which is transferring. A property in the UK, probably the UK is going to tax the 10, but in the case of Spain, the Spanish tax regime can apply a double taxation deduction in order to limit the impact of this double taxation.

[00:20:09] So for this reason, I see also the advice of a tax lawyer in his home country in order to limit the potential impact of this double taxation. Okay. That's quite clear. So if you were selling a property in Spain and you were a tax resident in the UK, you have to speak to your tax lawyer in the UK and to make sure that everything is above board.

[00:20:34] Yes. Is there any tips that you could give in the future? So if you buy a property, is there any tips in the future that you can give our listeners to minimize the ways to be capital gains? Or is it just the way it is? Yes. Yes, as I said before, it's important to keep the structure, the acquisition structure in the simplest way possible, just in order to limit unforeseen situations in the future.

[00:21:04] When you acquire by means of a complex structure or using complex legal entities, many times it's certainly difficult to determine which is going to take place with taxation when you are investing in the property. So, also, the tax implications arising from these structures with the ongoing taxation, essentially, is also difficult to determine in a very accurate way.

[00:21:30] So, naturally, when you have structures to ascribe properties, you need to pay additional costs in order to maintain a legal entity or to pay advisors, professional service providers, to comply with all of the tax requirements. So, Under my point of view, the main piece of advice would be that try to determine which is the purpose of the acquisition of the investment and as a result of this primary picture, try to adjust a simple structure to acquire the property in Spain.

[00:22:03] This will be the first point. The second point is not directly related to real estate taxation, but with regard to tax residency in Spain. Many times we have clients that are acquiring properties in Spain and they want to remain here in the Costa del Sol for a very long period of time and they don't know that if you spend, for example, more than 183 days in a Spanish jury, you can be considered as a Spanish tax resident.

[00:22:32] So it's important to have also in mind, try to avoid, if you don't want essentially to be a Spanish tax resident. try to have control of the tax residency implications essentially if you are an individual asquiring a property in the in Villa Costa del Sol. So that's valuable information. Some of our listeners when we asked them what podcast guests would they like to come on, one of the big ones was taxis and a couple of questions that they asked Is there any tax incentives for retirees?

[00:23:06] Moving to Spain, there are not exactly incentive for retirees moving to Spain, but there are certain tax benefits for the, for, for specific groups of taxpayers. Firstly, with regard to real estate taxation, probably the most relevant tax benefit is the possibility of transfer your main dwelling, your, your primary dwelling.

[00:23:32] Free of taxes with regard to the capital gain. I'm going to explain it a little bit better. If a taxpayer over 65 years old is transferring his or her primary residence case or her primary dwelling, the capital gain is exempt of taxation. In this case, for personal income tax purposes. With regard to retiree people, it's very important to take into To determine the power to tax their pensions.

[00:24:04] And this is not exactly related to a tax benefit, but it's a piece of advice with regard to these, to these potential taxpayers, but the taxation pensions has a special rule. So essentially when different jurisdictions, different countries are involved in tax relationships. So it's important also to determine.

[00:24:26] In order to comply properly with your tax obligations, which country has the power to tax your pension? So as a piece of advice, yes, probably you need to ask to a tax lawyer in order to have information on this matter. Okay, so if you're thinking of retiring to Spain, then it's essential to contact a tax lawyer just to see what taxes you'll be implementing to pay as a tax resident in Spain.

[00:24:53] So that's great. What should part time residents consider when managing their tax affairs in Spain? Firstly, and the main point to be considered is related to the Spanish tax residency. It's important to keep control over the number of days that you have spent in the Spanish territory in order to limit the potential qualification as a Spanish tax resident.

[00:25:20] Essentially, if you have not planned this transfer of your tax residency, which ideally can have certain unforeseen tax implications, which are not good at all. On the other hand, with regard to these part time resident individuals, it's good to have a good professional service provider that helps you with the submission of your self assessment, tax self assessment, essentially with regard to non resident income tax.

[00:25:49] To this end, it's also important to have a fluid relationship with your you Tax advisor, your professional service provider, in order to gather all the information in order to comply with your tax obligations in the best way, in the best possible way, absolutely. So that's, that's fantastic, fantastic information and so valuable for people interested in buying a property here or retiring here.

[00:26:16] or just coming as a part time resident. So, there's a lot of taxes, there's a lot of different ways. So, the recommendation would be to contact a tax lawyer like yourself, get everything clear. There's a lot of different rules and regulations around the taxation, etc. So, if a listener's wanting to contact yourself, you know, to, to get more information.

[00:26:43] How can we contact you? They can essentially write me an email. My email address is carlo dot dres martin.com so they can contact me and for sure. I will more than happy to attend their needs and the advice that they need. Absolutely happy to. Okay, that's amazing. Or, alternative, contact yourself and we'll put you in touch with Carmelo.

[00:27:10] Thank you so much for talking everything about taxis. We know sometimes it's not the most exciting thing, but it's very important for people who want to come and live in Spain that they know what they need to know. Thank you again. Thank you very much for having me and it has been a real pleasure to be here.