2015 Tax Year: Treasury Raises Tax Rate On Second Homes

18 April 2016 – Cinco Días

The owners of second homes must pay tax on them in their annual income tax returns and many will incur a tax increase this year. The tax percentage on second home properties was fixed at 1.1% until now for homes whose cadastral values have been reviewed since 1994 and at 2% for homes reviewed before that date. The reference date now has been set as 2005, which means that more taxpayers will have to pay 2%.

The campaign for the filing of tax returns for 2015, which began last week, incorporates the new features of the tax reform approved by the Government, which mainly resulted in reductions in tax rates and tax brackets. Nevertheless, as a study published on Thursday by the Registry of Tax Advisors (REAF), an independent body formed by the General Council of Economists, shows there are also some changes that will harm the taxpayer. One of those affects the owners of second homes.

The legislation establishes that taxpayers who own second homes must pay a real estate tax on the basis of the general tax base. Until now, if taxpayers owned homes whose most recent cadastral review took place after 1994, they reported a tax charge in their tax returns equivalent to 1.1% of the cadastral value of their properties. For reviews before that date, the tax rate was 2%. For example, the owner of a second home with a cadastral value of €300,000, which was last updated in 1998, used to have to pay €3,300 (i.e. 1.1% of €300,000). From this year onwards, only homes whose cadastral reviews have been reviewed since 2005 may apply the 1.1% rate; all others have to apply 2%. This means that the owners of homes with valuation updates between 1994 and 2005 will incur a tax increase. In the case of the example described above, the owner of the €300,000 home will have to pay €6,000 from this year, compared with €3,300 that he previously recorded in his tax return.

Town halls are responsible for approving cadastral reviews. In theory, the more time that has elapsed since the last update, the larger the difference between a property’s cadastral value and its market price. For this reason, the Treasury has established a higher tax rate for homes with older cadastral values. In fact, the tax reform establishes that the 1.1% rate will apply to homes whose cadastral values have been reviewed within the last ten years. In other words, for the tax year 2016, the date for determining the application of the different rates (1.1% vs 2%) will be 2006. (…).

Original story: Cinco Días (by Jaume Vías)

Translation: Carmel Drake