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I am thinking of buying a property in Spain, what taxes will I have to pay on purchasing the property?  Will I have to have to pay tax on rent received, what about the capital gains tax if I sell it?

On purchase You pay either VAT(7%) and stamp duties of between 1%-2%  or transfer tax(7%). If you use the property for a business activity VAT may be recoverable, this does not include rent from a private residential property.  Assuming that you are buying a private residential property then VAT is not recoverable then transfer tax(7%) is cheaper than VAT + stamp duties(8%-9%).

You will be liable for Spanish income tax at 25% of the gross rent, assuming gross rent of €10,000, income tax of €2,500.  You do not get any deduction for interest or other expenses. Your tenant withholds the tax and you should get a receipt from the tenant to prove you have paid the tax. You also pay Irish income tax at 42% of the net rental income (€10,000-€2,500), i.e., 42% x €7,500 = €3,150 assuming the higher rate of tax.  Under the Ireland-Spain tax treaty, you can credit the Spanish tax withheld €2,500 against the Irish tax €3,150. Assuming that the property is valued at €500,000 you will also be liable for a Spanish wealth tax of €1,665 per annum. There is also an annual charge of 1.1%-2% of one quarter of the cadastral value if non-resident – 2% x assuming value of €200,000 x 25% = €1,000 per annum.

You may consider buying the property through a company that is resident in Spain saving tax on rental income as the company gets a deduction against rental income for local tax, estate agency cost depreciation and interest and avoids the annual charge.  You could then receive dividends from the company which would be subject to 15% withholding tax and is allowable against your Irish tax on the same income.

Assuming you sell the property for €600,000, bought in your name as a non-resident will have to suffer Spanish CGT at 35% on the difference between the sale price (€600,000) and the acquisition cost (€500,000), adjusted for inflation. This amounts to 35% x

€100,000=€35,000.  The purchaser must withhold 5% of the purchase price (€30,000). You must pay the balance of €30,000. If you were Spanish resident, and owned the property for one year, the gain would be taxed at 15%.

Louise Carey is an Accountant/Tax Consultant based at 32 The Square, Listowel, Co Kerry tel: 068 21109, email:lc@taxconsultant.ie, www.taxconsultant.ie