Like most countries, you must pay council tax in Spain. But what is it and how is it calculated? In this article Linda Robertsson Posada, from the fiscal department, explains IBI and the role that the valor catastral has to play.
However, we would like to remind you that taxes in Spain can be complicated and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should seek fiscal advice from an expert to avoid possible complications.
IBI and Imputed income tax
We all know that whatever country we buy in there will be property taxes to pay. In Spain both residents and non-residents must pay the Impuesto Sobre Bienes Inmuebles (IBI) and non-residents must also pay imputed income tax if they don’t rent out their property and rental tax if they do.
The IBI council tax is collected by either your local town hall or by SUMA. It is used to pay for the local services that the town hall provides and the infrastructure that we all use on a daily basis. It is payable by whoever is the owner of the property on January 1st of any given year and does not depend upon the completion of your urbanisation.
What is the valor catastral?
Both the IBI and imputed income tax are calculated using the valor catastral. The valor catastral is the rateable value of a Spanish property and is the key ingredient that dictates how much you will be charged in council tax. It is calculated according to the size, condition, location, title, lease details, cost of improvements and construction cost of the property. A report is compiled and a valuer assesses what the rateable value should be.
This value (valor catastral) is then recorded at the Catastral Registry. It should be noted that this is different to the Land Registry and is usually based at the town hall where the property is situated. You can find out how much the valor catastral is from looking at your IBI bill or your receipt if you do online banking and your IBI is paid by direct debit.
Increases in the valor catastral
If you watch your IBI charges closely you will see that the valor catastral normally increases annually in line with inflation. It is also affected by the tax rate charged by each town hall which varies enormously from between 0.4% to 1.17%. Occasionally the valor catastral is reviewed on an area-wide basis and this should take place approximately every 10 years.
When calculating the imputed income tax the percentage to pay depends on what year the valor catastral was last revised. When calculating the non-resident taxes it will have an effect on the tax to pay as some of the areas were renewed more than 10 years ago.
Changes to your property
Currently the Catastro is conducting a revision of individual properties’ rateable value in some areas. They have been taking aerial photos and comparing them with the records that they have. If there are differences; for example if there is a swimming pool that has been added or even a storage shed, they are using this information to adjust your valor catastral.
Where a difference in the site or structure is noted they will make a change to their records and send out a letter that you normally have to sign for. The letter will inform you of this with a charge of €60 for the administration costs. When your rateable value increases so does the amount of council tax to pay. You may find that not only is your tax increased this year but you are charged back tax for the previous four years too.
If you do find yourself in this situation the town hall or SUMA may charge you for the full IBI for each of the past four years rather than just the difference between what you’ve paid and what it should have been. This can result in a hefty tax bill. Please contact Ábaco if you find yourself charged with back tax for your council tax as a result of one of these revisions. You can end up paying far more than you should have to and waiting for a refund that could take a long time to receive.
Difficulties with selling and inheritance
Even if your extension hasn’t been identified by the Catastro you could run into complications when you come to try and sell your home or bequeath it. When a solicitor acts on the part of a buyer to make sure that the property is legal and problem-free, one of the checks they make is on whether the property matches the catastral registry and land registry description. If it doesn’t then it’s the responsibility of the vendor to make the necessary adjustment.
Our best advice is to ensure before you put your property on the market that your house will get a clean bill of health rather than running into problems with a potential buyer. The market may have improved but the buyer still has the advantaged and you would not want to jeopardise losing your sale.
To help navigate the bureaucracy of the Spanish tax system, our dedicated advisers are on hand to help at every step of the way. Contact us and we will offer you a free consultation without obligation.