STAY AHEAD: Every week you can read one resource from leaders and experts in niche
Welcome back to the second part of our taxation guide for housing. Boring?! Not necessarily. Important enough though to have a basic understanding of it, don’t you think?
Last week we started with some of the sellers’ obligations but we didn’t finish it. To start with, capital gain needs more explanation. But also the buyer, landlord, and tenant will be covered here.
What is the municipal capital gains tax (IIVTNU)?
The Tax on the Value of Urban Land is another tax that must be paid by the seller. This is better known as plusvalía municipal. This tax is of a municipal nature and is developed through the tax by-laws of each Town Hall. The aim of this tax is to collect part of the value increase that occurs in urban land due to the passage of time at the time of the transfer of the property.
Who pays the capital gains tax?
It will be the seller who will pay the capital gains tax on the property, as established by the Law of Local Treasuries. However, in some cases, it can also be paid by the buyer if so agreed between both parties.
When and how must the municipal capital gains tax be filed?
The regulations provide for a period of 30 working days from the signing of the deed of sale of the property, although it happens that, once the transaction has been communicated to the Town Hall, the latter proceeds to issue the tax settlement and may delay it in time.
The tax will be calculated according to three factors:
the cadastral value that exists at the time of the transfer of the property, the number of years that the seller has owned the property with a legal maximum of 20 years and the tax rate to be determined by the Town Hall in its tax ordinances.
What tax obligations does the buyer have?
When buying a property, the buyer is liable for indirect taxation, i.e. the taxes that are levied on the value of the property. In this case, Value Added Tax (VAT) or Transfer Tax (ITP) may be applicable.
How can VAT be distinguished from ITP?
VAT will be applicable when we are dealing with the first supply of a new home or dwelling (obra nueva). In other words, when a new home is purchased directly from the developer or builder. This is a state tax that is paid on the basis of the purchase price and it is the seller who is responsible for paying it to the Treasury.
VAT will be 10% for homes with a maximum of two parking spaces and a storage room, as long as they are included in the same deed. It may be 4% in the case of special regime or public housing.
The Transfer Tax in its modality of Onerous Patrimonial Transfers is applied in the purchase of second-hand housing or those that are carried out between individuals. The ITP must be settled based on the deed value and this must coincide with the real value of the property, otherwise, the buyer could be subject to verification of values issued by the corresponding Autonomous Community.
The applicable tax rate will vary between 6% and 10% depending on the specific regulations of each community and will be presented within 30 working days from the date of execution of the deed of sale at the corresponding tax office depending on the area where it is located. In Catalonia, ITP tax is 10% of the sales price.
What tax obligations does a property rental contract entail?
A rental contract is a contract whereby a person undertakes to cede the use and enjoyment of a property of which he or she is the owner in exchange for a certain and determined price that is usually paid in the form of a monthly rent. In this case there are obligations for both the lessor and the lessee of the property.
What obligations does the landlord have?
The rental generates an annual income that is included in the so-called ‘Rendimientos de capital inmobiliario’ and this must be declared in the Income Tax Return for the year in which it is received. However, the Personal Income Tax Law provides for the possibility of deducting a series of expenses such as community fees, IBI and rubbish tax, insurance on the property, depreciation of the building, etc. Consequently, all these expenses inherent to the rental will be deducted from the gross income to obtain the net yield.
It is also worth mentioning that when the property is the tenant’s habitual residence, the landlord can apply a 60% reduction on the net yield, which will finally be the amount that will be taxed in the landlord’s income tax return.
And what about the tenant?
The tenant is also obliged to file the transfer tax in the form of onerous transfer of assets, in which a gradual quota will be paid depending on the rent paid. However, Royal Decree-Law 21/2018, of 14 December, approved the exemption from ITP applicable to residential leases, in those cases of rentals of dwellings intended for stable and permanent use in accordance with article 2 of the Urban Leases Law, this exemption not being applicable to rentals for use other than as a dwelling.