Buying property in Mallorca? 6 tax issues to be aware of

1. Purchase and local taxes

• New build property is liable to VAT (IVA) at 10%, plus stamp duty at around 1.5% in the Balearics.
• Pre-owned property is liable to property transfer tax (ITP). In the Balearics the general rate starts at 8% but increases up to 13% for amounts from €400,000 onwards.

2. Capital gains tax

• If you sell a property as a Spanish resident, the gain is taxed as ‘savings income’, at rates from 19% to 28%.
• You are exempt if you sell a main home when over 65 years old, provided certain requirements are met. You may also be exempt if you reinvest the full proceeds in main home within the EU/EEA within two years.
• Non-residents pay capital gains tax at 19%.

3. Income tax (rental income and notional rental income)

• Rental income on Spanish property is taxed at the general income scale rates. For long-term lets a 60% tax reduction is available against the net income.
• If you don’t live in Spain, EU/EEA residents pay 19% tax rate on the net income, while non-EU/EEA residents pay 24% on gross rental income.
• If you don’t use your Spanish property as your main home, tax is payable on ‘notional rental income’ for periods it is not rented out, generally based on 1.1% of the valor catastral.

4. Wealth tax

Spain currently imposes two annual taxes on wealth, though you just pay whichever amount is higher. In the Balearics, the standard ‘wealth tax’ only affects those with wealth above €3,000,000, with an additional €300,000 allowance against the main home. The ‘solidarity tax on large fortunes’ again impacts individuals with wealth above €3,000,000, with allowances amounting to €1,000,000.

5. Spanish inheritance tax

Plan ahead for Spanish succession and gift tax, which is always due on Spanish property. Tax rates depend on who the beneficiary is and the amount inherited/gifted, with no blanket exception for spouses. Rates and allowances vary per region.

6. Owning property through a company

Changes over the years have diluted the tax advantages of owning Spanish property through a company – it may even be a disadvantage. ‘Enveloped’ property attracts savings income tax on profits and is liable for wealth and succession taxes without receiving the main home allowances. Spanish corporation tax may be due.

Everyone’s situation is different. Take specialist wealth management advice to establish what you could do to lower your tax liabilities.

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com