Many are not aware that non-resident property owners, on buying property in Spain, you automatically become liable to pay IBI tax on the following year. No one will notify you about this tax, so it is up to you to find out how much you owe and comply with the Tax Authorities.
IBI tax is of crucial importance because it has associated a valuation for tax purposes of your home known as ‘cadastral value’ (valor catastral, in Spanish) which is used as the benchmark to calculate all your property-related taxes.
IBI Tax – Definition
The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents. In some parts of Spain, it is known as SUMA. All property owners must pay this tax every year.
This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). This is Spain’s equivalent of the United Kingdom’s Council Tax. It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum); for cheap properties (think rural land) it can be as low as a few euros, in sought-after prime locations they can command several thousand euros/year.
- IBI tax is used as the benchmark to calculate all property-related taxes.
- On selling, a buyer’s lawyer will demand copies of the IBI invoices for the previous 4 years.
When is it due?
- Town halls are empowered to rule on this, so it varies. Normally, it is payable once a year, typically from August through to September. Whoever owns the property on the 1st of January is liable to pay this tax, by Law.
Consequences of IBI tax non-payment
- It may lead to your property being impounded and sold off in a public auction. Spanish town halls, besieged by dropping revenue, are becoming increasingly adept at pursuing aggressively this local tax post-credit-crunch; particularly for high-end property.
- It is not possible to file and pay NRIT and NRIIT taxes, as it requires for its calculation IBI tax. This in turn attracts fines, delay interests and surcharges.
- On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax.
- As a seller, you may forfeit the 3% sales proceeds tax rebate (plus legal interests). On selling, when a seller is non-resident in Spain, buyers must withhold 3% of the sales proceeds by law and pay it into the Spanish Tax Office. Non-resident sellers are entitled to a tax rebate on the 3% (subject to criteria).
Non-payment of IBI tax is the daftest way to lose ownership of your Spanish property.
If you haven’t been paying this local tax, you should contact us our sister company Expat services can put you in touch with trusted associates to ensure you and your property are both legal and protected…