Blog post explaining the importance of IBI tax and the consequences of non-payment.
Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.
By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
30th of July 2018
Unbeknownst to most non-resident property owners, on buying property in Spain, you become liable to pay IBI tax on the following year. No one will give you the heads up on it, so it is up to you to find out how much you owe and comply with the Tax Authorities. This is Spain’s equivalent of the UK’s Council Tax.
The idea of writing this blog post has come about on filing taxes for expats, specifically holiday letting income tax. We have realized there is a huge number of foreign owners who remain completely unaware of the existence of IBI tax and the grievous consequences of its non-payment.
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.
Cadastral Value - Definition
Is the assessed value local Tax Authorities give to a property. It is usually well below the market value. This rateable value is used as the taxable base to calculate a series of taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI). Be aware that a store room or garage space may be regarded legally as a distinct separate entity from your main home and therefore subject to their own individual cadastral values. A cadastral value, in general terms, is 30 to 40% below the current market price of a property. So it does not equate to a property's true market value, it is actually well below it (which is good news).
IBI tax, it's relevance
In other words, if you don’t have IBI tax set up, you cannot pay Non-Resident Imputed Income Tax nor Non-Resident Income Tax on your quarterly holiday lettings. Although this may sound good on paper, it really isn’t.
Not paying IBI is a huge bummer from a taxation point of view. But far more importantly, it leaves the door ajar for your town hall to impound your property and sell it through a public auction. You will only be served notice of this procedure on your Spanish home address. So, chances are that if you live abroad, you will only find out when you come over to Spain - which will already be too late.
Bottom line, setting up IBI tax and paying it on time, is of paramount importance and it just cannot be stressed enough; unless of course you fancy losing your property to the local Authorities...
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.
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). It is equivalent to the UK’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 it can be as low as a few euros (think rural land) whereas posh pads, in sought-after prime locations such as Marbella, may command several thousand euros/year.
Sample IBI tax invoice
Just follow the link supplied: sample IBI invoice
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.
(Dire) consequences of not setting up IBI tax payment
Non-payment of IBI tax is the stupidest fastest way to lose ownership of your Spanish property.
If you haven’t been paying this local tax, you should contact Larraín Nesbitt Lawyers ASAP to get it set up and start paying it. We strongly recommend you set it up as a direct debit against your Spanish bank account.
Non-payment of IBI tax may lead your town hall to impound your property and sell it off in a public auction. Do not expect to be refunded part of the auction proceeds: If you can’t sell it, you can always auction it.
For your own sake, double check and ensure you are paying IBI tax.
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Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.
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