IBI the property tax in Spanish is an annual tax on property that the owners of any type of property, whether it be residential properties, garages, business premises etc, are obliged to pay, and constitutes one of the main sources of revenue for town councils. For this reason many town councils have already announced that that they are going to increase property tax in order to increase revenues. However, since many taxpayers still find it difficult to understand how the tax is calculated so we will try and answer the major issues concerning the tax. this is just one of the very few examples why the Spanish property market is so complex
At this time of the year the dreaded property tax notice is being sent to millions of property owners. This is a tax that is almost universally disliked by taxpayers, and a tax that virtually no-one understands.
Who has to pay property tax?
Almost all property owners are obliged to pay this tax, although there are some exceptions as, by law, some types of real estate are exempt. One of the best-known exemptions is property that belongs to the Catholic Church, a topic that has been the subject of hot debate in the media recently. However, church property is not the only kind of property that is exempt, as there are other property owners who do not have to pay this tax. These include:
– Property owned by the state, the regions, or local entities which is directly related to public safety or educational services (police stations, prisons, and schools).
– State-owned property dedicated to national defence.
– Property owned by the Red Cross.
– The diplomatic offices of other countries.
– Registered heritage buildings of historical importance.
– Old buildings in big cities or buildings owned by legally recognised non-catholic religious associations.
How is the property tax calculated?
The town council of each municipality establishes, within certain limits, how much tax has to be paid for all the properties in the municipality. In the case of urban properties, this is done by taking the assed value – a value which reflects the value of the land and also the building on it -and applying a coefficient that ranges from between 0.4% to 1.3% to it. For example, the tax due on a residential property in the capital city of Madrid (where the tax rate is 0.581% for 2012) with an assessed (not real) value of 79.215 euros is 460 euros.
You can find out what the assessed value of a home is by asking at the Cadastre. It also appears in the property tax notice sent to all property owners each year.
The property tax can differ widely across municipalities, depending on whether a property is located in the capital of a province, used for the provision of public services by the council etc.
How the assessed value of a residential property is determined
The assessed value, to which the town council applies the percentage established, is calculated by the Cadastre in accordance with a set of criteria. The most important of these include:
– the location of a property
– the market value of each property
– the cost of the labour and material used to build a property
– the taxes that the building is liable to, and the quality
– the age of the building, among others
The resulting value is significantly lower than the property’s market price, usually about half the market price. Every 10 years town councils have to review the assessed values of all the properties in their municipality. The values are usually revised upwards, which means that the amount of tax to be paid increases.
Are there any discounts applied to the payment of this tax?
There are several general discounts which can be applied to the property tax, such as a discount for state-subsidised housing (VPO) – which has a 50% reduction for the first three years – or for the agricultural assets of agricultural cooperatives – which are entitled to a 95% discount.
In addition, each town council can establish additional discounts in its municipal regulations, as Madrid Town Hall has done for large families.
Some town councils also offer a discount to taxpayers who pay the property tax by direct debit through their bank. An example of this is Madrid Town Hall, which offers taxpayers who pay by direct debit a 5% discount on the amount to be paid. In the case of Barcelona, taxpayers who pay in this way will save 2%.
Property tax increases: Why?
Every 10 years town councils have to review the assessed value of the properties in their municipality. It is estimated that a total of 4.2 million properties will be subject to an assessed value review in 2012, and that as a result millions of property owners will have to pay a higher property tax.
In order to soften the effects of this increase, after the assessed values have been reviewed some town councils, such as Madrid, apply a reduction coefficient to the new assessed values. This reduction coefficient is reduced each year, and as a result the amount of tax to be paid increases every year. Thanks to this system, the “impact” of the tax is not so punitive. Instead the amount to be paid steadily increases over the ten years following the review.
What is more, it is also necessary to take into account a change in the law which will result in many property owners having to pay more tax. At the end of last year the government of Mariano Rajoy announced that, as a temporary measure, the tax rate for property tax would be raised during 2012 and 2013 in order to help town councils collect more revenue , around 918 million additional euros. This change allows municipalities that have not carried out a review of assessed values since 2006 to increase the tax due for properties with a higher value by up to 10%, depending on the year in which the council last reviewed assessed values.
It must be remembered that many town councils have not reviewed the assessed values of the properties in their municipality in over a decade, despite the fact that ten years is the recommended assessment period. In fact, of the 7,591 municipalities that exist in Spain, almost half have not updated land values in 18 years, which means that they can now charge 10% more, thanks to this new government measure. This increase will be followed by another, much more dramatic, tax hike which will take place when town councils finally review the values of the properties in their municipality. By that time the assessed values will have risen so much since the last review that the amount of tax to be paid by residents will increase significantly.
When a property is sold does the buyer or purchaser pay the property tax?
The property tax for each year should be paid by the person who is the owner of the property on 1 January. If, during the year, a property is sold, the tax due should be paid by the person who owned the property on the first day of the year.
If the property is rented, should the tenant or the landlord pay the tax?
The town council will send the notice of payment to the homeowner, but they can get the tenant to pay the tax if this has been established in the terms of the rental agreement.
So if your looking to buy a villa for sale in Spain we hope this information will be useful to you.