No Tax Benefits For Property Buyers Or Tenants

1/12/2014 – Cinco Dias

Tax incentives for property purchase undoubtedly contributed to the real estate bubble inflation which became one of the main culprits of current Spanish economical situation. The Government decided to eliminate tax deduction for acquisition of a main residence which will be preserved retroactively but will not apply from January 1st 2015 onwards. The same reform approved ten days ago rules out taxable profits arising from main home rental and decreases benefits from the buy-to-lease scheme.

Now, tenants can deduct 10.05% of the annual rental amount in their tax filing, given it does not exceed €9.040 in case of a taxable base below €17.707,2. The allowance is also applicable to higher basis until a €24.107 cap, however, once the previous limit trespassed, the incentive is progressively reduced to zero.

Once the new year begins, tax deduction for both property purchase and lease will disappear but it will apply in a retroactive way, i.e. for the homes acquired before 2013 and the rental contracts signed by the end of December 2014.

In 2015, acquiring a property to lease it afterwards will assure an up to 60% deduction for landlords but they will lose the 100% allowance for renting to under-35 tenants.

Pressured to relax the new taxation conditions for capital gains proceeding from property sales, the Ministry of Finance has amended the reform originally eliminating revaluation rates and abatement coefficients, reduced for homes bought before 1995. The latter decreases the tax liability of the capital gain accumulated from the moment of purchase to January 2oth 2006, turning out extremely beneficial for old property sales. The coefficient goes up back in time. For example, if a home was bought before 1986, accrued capital gains as of January 2006 become exempt to the taxation rules. And if it was acquired in 1987, only 11.12% of the revenue will be a subject to the contribution.

Revaluation rates are set to disappear in 2015. The abatement coefficients will remain in force but will only apply to houses sold for less than €400.000. There will be no allowance for an amount above this topline which additionally will be accumulative. This means that the abatement coefficients enjoyed at a sale for €300.000 may be prolonged only to another sale for €100.000.

Given the amendments, it would be to recommendable to sell a house still this year. One must also crunch the numbers as the complete removal of revaluation rates and the restriction of abatement coefficients will be compensated by a reduction in taxes on capital gains. Thus, proceeds from a home sale now are subject to 21% tax for first €6.000, 25% for next €24.000 and 27% above that amount. From 2015 on, the contribution will be reduced to 20% (first €6.000) and to 19% in 2016, furthermore to 22% for following €50.000 and to 24% for the rest (23% in 2016).

Therefore, an owner should take into consideration that if they sell in 2015, they will pay less taxes and if for less than €400.000, there will be no handicap, except for the elimination of the coefficient recognizing the inflation effect.


Original article: Cinco Días (by Nuria Salobral)

Translation: AURA REE

MOF Checks On 3 Million Homes With View to Property Tax Hikes

4/11/2014 – El Mundo

The Spanish Cadastre workers have sent out letters to detached home and flat owners from over 1.000 municipalities. The notices inform about a lawsuit upon lack of reporting about property enlargement fined with €60. By 2016, more than three million homes will receive the notice letter.

The regulation came into force on the extraordinary basis in 2013 but will be extended until 2016 in order to draw a reliable picture of properties in Spain. The prolongation will also mean increased collection for city halls as the law allows to put a fine if the size of the property is greater than written on the Property Tax bill.

Therefore, the real tax, the only contribution which has risen exponentially during the recession, would steer upwards. Local authorities are the only public administration units that register a surplus boosted by this tax.

Moreover, the municipalities may demand payment of the proportioned part underlying the new cadastral value from the last four years, let alone the interest on the late payment.

This amendment also modifies the Personal Tax imputation for non-main homes as the taxpayers currently pay between 1% and 2.1% and that is to go up. Also, in case of sale, the tax on capital gains linked to the cadastral value would be hiked.

Specifically, thanks to the bird’s eye imagery, the arm of the Ministry of Finance may now prove any unreported change in properties, involving the most common renovations, known to the city halls as they themselves issued building permits for them, or unknown as the home owners aimed at dodging the tax. As an example may serve a house built on a non-urban piece of land.

In large majority of cases, the authority discovers swimming pools, storage rooms, booths, covered balconies and terraces, extension of the house by taking more square meters from the garden, or garages constructed on the parcel. Terraces on the rooftops converted into dwellings complete the list. The Law of Real Estate Cadastre states that any change must be reported within two months’ term after completion. Then, the city hall would increase the cadastral value of the property, as well as the taxation.

This is the perfect scenario. However, often alternations have not been reported or the Cadastre made a mistake taking amendments included in the original plan as enlargement. What makes things worse, contruction sketches from the 80s were frequently done through agents and firms that took the measurments at a guess.

The massive checking which will roll out throught the entire country (excluding the Basque Country and Navarre) started in 2013 by scrutinizing 176 municipalities. In 2014, the investigation embraced one thousand towns more and affected 1.5 million homeowners. In 2o15, another 1.5 million notice letters are expected to be sent.

Firstly, the regulation executors aimed at towns having large urbanizations and multiple detached and semi-detached homes (the best visible and easy to detect), for example Oropesa (Castellon), Fuengirola and Benalmadena (Malaga), or Benidorm, Calpe or Denia (Alicante).

However, it has not been done yet in large cities which gather the population and the ask for the notices. Only house areas in Alicante, Salamanca or Murcia are being checked. Possibly, the helicopters will fly over Madrid or Barcelona next year or even in 2016.

Although the income of the public administration the tax will bring in is unknown, it must be significant as the management and processing costs of the checking amount to more than €124 million.

In opinion of real estate experts, in spite of the Cadastre’s mandate to impose the law, the process ‘exclusively aims at tax collection’. They point out the investigation could have been done in a way that the owners of the areas would not be retrospectively punished and the city halls would be obliged to lower their rates on the real property tax to lighten the burden of the taxpayers.


Original article: El Mundo (by Francisco Núñez)

Translation: AURA REE

Real Property Tax Will Never Disappear

26/09/2014 – Cinco Dias

The real property tax is an agile survivor in the Spanish taxation jungle. Established in 1978, it got an ‘extraordinary’ and therefore ‘transient’ label. In 2008, the Government of Spain led by Jose Luis Rodriguez Zapatero approved its abolishment convinced by the argument that the tax opressed the medium class rather than the affluent part of the society which disposed of all sorts of tricks to dodge the payment.

However, the economic recession pushed the authorities towards reviving the contribution in 2011 and 2012. Thus, the tax increased the treshold exemption amount from €120.000 to €700.000. After the two years had passed, it was supposed to disappear.

But this has never happened. Mariano Rajoy and his Government rolled over the tax’s force twice and made it valid until 2014. If not extended to 2015, the contribution will go away. However, the chances are that the Property Tax is here to stay as the Government prepares a blueprint renewal for the following year, included in the 2015 Budget Plan.

Presently 173.505 taxpayers contribute in all regions of Spain. Some of the public administrations like Madrid can apply a 100% tax rebate. In practice, it means that the residents of the Community of Madrid do not pay the property tax.

Experts recommended that the tax be entriely abolished by the Ministry of Finance. However, the authority focused on amendments in the Personal Income Tax (PIT), the Value-Added Tax (VAT) and social contributions, leaving the question concerning the real property contribution in limbo.

On the other side, great majority of Spanish regions voted for underpining the tax for at least one year more.

The latest update reveals that each year the Goverment collects €1 billion from the property tax, which additionally helps the regions to fill-in the overall deficit. Last year, it averaged at 1.5% and it must be suppressed to 1% this year, to 0.7% in the following and to 0.3% in 2016.

Due to the 2008 abolishment, the Government was obliged to pay around €2 billion annual compensation to the Spanish regions. For this reason, earnings proceeding from the tax recovery should be returned to the State. Right now, they both keep the compensation and the collection.


Original article: Cinco Días (by Jaume Viñas)

Translation: AURA REE

Property Tax Burden Increased 53% In Five Years

21/08/2014 – Cinco Dias

Property tax turned out to be the last resort for local administrations as the constribution was the only one among the main sources of public money (PIT, VAT and the Corporate Tax) that has not suffered during the crisis.

Also, unlike the three, the Property Tax, which was established in 1989, has never stopped to rise. According to the data of the General Directorate of Land Registry, from 2008 to 2012, the duty rose by 43%. Specifically, in 2008, the Government collected €8.35 billion, while in 2012 the amount hit €11.93 billion.

The tax burden, measured in percentage of the tax liability over the regional GDP, has increased by 53% over those five years. In 2008, the burden was equal to 0.7% of the total GDP, while in 2012 the figure settled at 1.07%.

Detailed analysis of the information on the regional level shows discrepancies among the Spanish ´communities´. Thus, the tax affected most the pockets of the Andalusian taxpayers (1.49% of the GDP in the five-year period). To compare, in 2008, they had to contribute with €1.44 billion, while in 2012 they owed already €2.1 billion.

Andalusia has overtaken the lead from the Valencian Community, being the number one since the beginning of the recession. In 2012, the tax contribution represented 1.42% of the GDP, with a rise of 40.5%. Next is Murcia (1.33% of the GDP, burden +66%) and the Balearic Islands (1.32%). It is worth to point out that all of them are located on the coast and they mainly focused the real estate boom.

In general terms, Catalonia earned most on the tax and it still does. In 2008, the regional administrations received €1.78 billion flowing from the property tax and five years later – €2.4 billion. After the second position taken by Andalusia, there is the capital, Madrid, earning now €1.97 billion. Once more, noteworthy is the fact that these three regions concentrate 48% of all inhabitants of Spain.


Original article: Cinco Días (by Carlos Molina)

Translation: AURA REE