Taxes When Buying and Owning Property in Mallorca

Purchasing property in Mallorca is an exciting venture, but it's essential to understand the associated taxes to ensure informed financial planning. This guide provides an overview of the key taxes involved in buying and owning property on the island.

Taxes When Buying Property

1. Property Transfer Tax (Impuesto de Transmisiones Patrimoniales - ITP)

For resale properties, buyers are subject to the Property Transfer Tax. The rates are progressive, based on the purchase price:

• Up to €400,000: 8%
• €400,001 to €600,000: 9%
• €600,001 to €1,000,000: 10%
• €1,000,001 to €2,000,000: 12%
• Over €2,000,000: 13%

Example: For a property priced at €650,000: - First €400,000 at 8%: €32,000 - Next €200,000 at 9%: €18,000 - Remaining €50,000 at 10%: €5,000 - Total ITP: €55,000

2. Value Added Tax (Impuesto sobre el Valor Añadido - IVA) and Stamp Duty (Actos Jurídicos Documentados - AJD)

For newly built properties purchased directly from a developer:

• IVA: 10% of the purchase price
• Stamp Duty: 1.5% of the purchase price

Note: These taxes are typically paid at the time of purchase.

Annual Taxes for Property Owners

1. Property Tax (Impuesto sobre Bienes Inmuebles - IBI)

An annual municipal tax calculated based on the cadastral value of the property. Rates generally range from 0.4% to 1.1%.

2. Wealth Tax (Impuesto sobre el Patrimonio)

Levied on the net assets of individuals:

• Residents: Taxed on worldwide assets exceeding €700,000, with an additional €300,000 exemption for the primary residence.
• Non-residents: Taxed only on assets located in Spain exceeding €700,000.

Tax rates range from 0.2% to 3.45%, depending on the total value of assets.

3. Income Tax on Rental Income

If you rent out your property:

• Residents: Rental income is added to general income and taxed at progressive rates.
• Non-residents: Taxed at a flat rate of 24% on gross rental income.

Tax Optimization Strategies

To manage and potentially reduce your tax liabilities:

• Deductions: Ensure all allowable expenses, such as maintenance and repair costs, are deducted from rental income.
• Depreciation: Apply depreciation to the value of the property to offset taxable income.
• Double Taxation Agreements: Spain has treaties with various countries to prevent double taxation. Verify how these agreements affect your tax situation.
• Professional Advice: Engage with a tax advisor familiar with Spanish property taxation to receive personalized guidance.

Recent Developments

As of January 2025, the Spanish government has proposed significant tax reforms affecting non-EU buyers:

• Increased Taxes: A potential 100% tax on property purchases by non-EU buyers without legal residency, effectively doubling the cost.
• Objective: To address housing affordability and availability for residents.

Note: These proposals are subject to legislative approval and may face political challenges.

Source

Conclusion

Understanding the tax landscape is crucial when purchasing and owning property in Mallorca. Staying informed about current rates and potential legislative changes will aid in effective financial planning. Always consult with a qualified tax professional to navigate the complexities of Spanish property taxes and to develop strategies tailored to your circumstances.