Wednesday, February 15, 2023

NB-ESTATES IN DE TIJD: How much taxes do you pay on a property under the Spanish sun?

Are you planning to follow those many thousands of Belgians who bought second homes in Spain in recent years? Then take a moment to consider the costs and taxes.


Are you planning to follow those many thousands of Belgians who bought a second residence in Spain in recent years? Then take a moment to consider the costs and taxes.

Last year, Spain and the Canary Islands were able to tempt 3,400 Belgians to buy a second residence there. Also in previous years, a similar number of our compatriots put some of their savings in a Spanish vacation home. In fact, the supply is still growing, with, among other things, a large real estate project with 400 vacation homes being built by some Belgian entrepreneurial families in Tenerife.

Real estate is and remains a good investment. But apart from the management and maintenance costs of your property, there are other costs and taxes involved.

Taxes on purchase

The percentages of taxes can vary from one autonomous region to another. In addition, a distinction must be made between new construction and existing homes. 'VAT has to be paid on new construction,' says Carl Vorsselmans, a real estate agent of New Construction If you buy an existing home in Spain, you have to pay a transfer tax. The percentage depends on the region and in some cases also on the purchase amount. 

'On the Costa del Sol it is 8 to 10 percent and on Ibiza 11.5 percent,' says Freyke Van Looveren of New Construction in Spain. 'On Tenerife it is only 6.5 percent.'

Annual taxes in Spain

The Spanish tax authorities tax your property as a non-resident of the country based on the 'valor catastral.' If you only use the property for yourself, the basis of calculation is 2 percent of the valor catastral. That percentage drops to 1.1 percent if the valor catastral is still recent, if it was determined or revised in the income year itself or in any of the previous 10 years. On that amount, you pay a tax of 19 percent as an EU national.

'If you rent out your second residence, you are taxed on the gross income, less interest on a loan and any repair and maintenance costs and to a limited extent depreciation,' says Rosanne Van Gael of the Cazimir law firm. 'The final amount is taxed at 19 percent.' Carl Vorsselmans Real estate agent New construction in Spain

On new construction you pay VAT in Spain and on an existing property a transfer tax In addition to this tax on the notional or real income from your second residence in Spain, you must also always pay land taxes, the 'impuesto sobre los bienes inmuebles' (IBI). Another tax is the "basura. This is a tax for waste collection, which costs an average of 90 euros a year.

'For the sake of completeness, we also point out that Spain levies a wealth tax. Belgians with Spanish property must also pay it annually. This is only the case if the net value of their Spanish property exceeds the tax-free allowance. At the federal level, this amounts to 700,000 euros per owner but differs in the various regions,' said Wim Vermeulen of Cazimir.

Income taxes in Belgium

Belgian law requires you to declare your worldwide income. Then, in principle, the Belgian state will tax you on it. 'But Spain and Belgium have entered into a double taxation treaty,' says Rosanne Van Gael of Cazimir. 'As a result, you will not be taxed a second time on your Spanish real estate income. Belgium has to exempt that income.' Evelyne Van der Elst Cazimir law firm. The more foreign income you have, the higher the tax rate applied to your other income in Belgium.

Still, your property in Spain may have an impact on your Belgian taxes. The return may result in higher taxes on your other income on which you do pay Belgian taxes. 'Your Spanish income is taken into account to determine the tax rate of your income taxable overall in Belgium,' says Van Gael. 'The more foreign income you have, the higher the tax rate Belgium will apply to some of your other income.' In practice, until last year, real estate in Spain was often offset in Belgian tax on the basis of the valor catastral multiplied by 2 percent (or 1.1 percent). From the 2022 tax year, however, as with Belgian real estate, this will be done on the basis of cadastral income (KI). This has recently been subject to a declaration requirement. New purchases must be declared within four months.

Tax on sales

Spain levies a capital gains tax on the sale of second homes. It amounts to 19 percent of the net capital gain.

Spanish property inheritance For Belgians with property in Spain, Belgian inheritance law applies. This does not prevent the payment of Spanish and even Belgian inheritance tax. Belgium taxes the worldwide assets of its residents, including foreign real estate. Spain will also levy inheritance tax on the transfer of Spanish real estate. Each Spanish region has its own inheritance tax regime, with each granting its own exemptions and reductions.

'Valencia has an exemption of 100,000 euros per heir,' said Vermeulen of Cazimir. 'After that exemption, the inheritance tax due is calculated. On that amount there is then another reduction of 50 or 75 percent, depending on the age of the heirs. Andalusia gives a 99 percent reduction on gift and inheritance tax for transfers between spouses and in direct line.' Rosanne Van Gael Law Firm Cazimir.

A gift of Spanish property may trigger Spanish capital gains tax for the donor. You may have used the split purchase technique for your second stay in Spain. This means that you yourself keep the usufruct and your children get the bare ownership. After your death the usufruct washes away the bare property. With this system, you do not have to pay inheritance tax in Belgium. But this does not mean you are rid of the Spanish tax authorities. "The acquisition of usufruct is seen in Spain as the transfer of an asset, as a result of which your heirs will have to pay transfer tax again on the acquisition of usufruct," says Van der Elst. Inheritance tax must also still be paid in Belgium because Spain has not concluded a treaty with Belgium to avoid double inheritance tax with Belgium. However, you may deduct the inheritance tax paid in Spain from the inheritance tax due in Belgium on the same property.

Donating Spanish property

You may consider gifting your Spanish vacation home during your lifetime. The gift of foreign real estate is not taxed in Belgium. Only Spain is authorized to tax that transfer, with the tax burden again varying from region to region.

'Please note that a gift may involve a Spanish capital gains tax for the donor. This is calculated on the difference between the purchase value and the value at the time of the gift,' said Van der Elst. 'Spain is one of the countries where estate planning is best looked at at the time of purchase so that the property can be purchased in the right proportions and no transfer has to take place at life or death.'

©COPYRIGHT Michael Kooren./HH

Source: De Tijd - Dirk Selleslagh