What is IBI Tax?

Raymundo Larraín Nesbitt, July, 30. 2018

Blog post explaining the importance of IBI tax and the consequences of non-payment.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
30^th of July 2018

Introduction

Unbeknownst to most non-resident property owners, on buying property in Spain, you become liable to pay IBI tax on the following year. No one will give you the heads up on it, so it is up to you to find out how much you owe and comply with the Tax Authorities. This is Spain’s equivalent of the UK’s Council Tax.

The idea of writing this blog post has come about on filing taxes for expats, specifically holiday letting income tax. We have realized there is a huge number of foreign owners who remain completely unaware of the existence of IBI tax and the grievous consequences of its non-payment.

IBI tax is of crucial importance because it has associated a valuation for tax purposes of your home known as 'cadastral value' (valor catastral, in Spanish) which is used as the benchmark to calculate all your property-related taxes.

Cadastral Value - Definition

Is the assessed value local Tax Authorities give to a property. It is usually well below the market value. This rateable value is used as the taxable base to calculate a series of taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI). Be aware that a store room or garage space may be regarded legally as a distinct separate entity from your main home and therefore subject to their own individual cadastral values. A cadastral value, in general terms, is 30 to 40% below the current market price of a property. So it does not equate to a property's true market value, it is actually well below it (which is good news).

IBI tax, it's relevance

In other words, if you don’t have IBI tax set up, you cannot pay Non-Resident Imputed Income Tax nor Non-Resident Income Tax on your quarterly holiday lettings. Although this may sound good on paper, it really isn’t.

Not paying IBI is a huge bummer from a taxation point of view. But far more importantly, it leaves the door ajar for your town hall to impound your property and sell it through a public auction. You will only be served notice of this procedure on your Spanish home address. So, chances are that if you live abroad, you will only find out when you come over to Spain - which will already be too late.

Bottom line, setting up IBI tax and paying it on time, is of paramount importance and it just cannot be stressed enough; unless of course you fancy losing your property to the local Authorities...

IBI Tax - Definition

The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents. In some parts of Spain, it is known as SUMA.

This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). It is equivalent to the UK’s Council Tax. It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum); for cheap properties it can be as low as a few euros (think rural land) whereas posh pads, in sought-after prime locations such as Marbella, may command several thousand euros/year.

Sample IBI tax invoice

Just follow the link supplied: sample IBI invoice

When is it due?

Town halls are empowered to rule on this, so it varies. Normally, it is payable once a year, typically from August through to September.

Whoever owns the property on the 1st of January is liable to pay this tax, by Law.

Importance

IBI tax is used as benchmark to calculate all property-related taxes.
On selling, a buyer’s lawyer will demand copies of the IBI invoices for the previous 4 years.

(Dire) consequences of not setting up IBI tax payment

It may lead to your property being seized and sold off in a public auction. Spanish town halls, beleaguered by dropping revenue, are becoming increasingly adept at pursuing aggressively this local tax post-credit-crunch; particularly for high-end property.
It is not possible to file and pay NRIT and NRIIT taxes, as it requires for its calculation IBI tax. This in turn will attract fines, delay interests and surcharges against your Spanish property.
On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax. Moreover, it may even jeopardize the sale of your property as an administrative procedure may be under way to repossess your property.
If you are non-resident and selling, buyers must withhold 3% of the sales proceeds by law. As a seller, you will forfeit this 3% sales tax rebate (plus legal interests) to which you may be entitled to.

Conclusion

Non-payment of IBI tax is the stupidest fastest way to lose ownership of your Spanish property.

If you haven’t been paying this local tax, you should contact Larraín Nesbitt Lawyers ASAP to get it set up and start paying it. We strongly recommend you set it up as a direct debit against your Spanish bank account.

Non-payment of IBI tax may lead your town hall to impound your property and sell it off in a public auction. Do not expect to be refunded part of the auction proceeds: If you can’t sell it, you can always auction it.

For your own sake, double check and ensure you are paying IBI tax.

We offer the most competitive fees in the market.

Setting up IBI tax from €400

We are specialized in taxation

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance, and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal & Tax services Larraín Nesbitt Lawyers can offer you

Setting up IBI Tax
Conveyancing – Buying from €995
Conveyancing – Selling from €795
Non-Resident Income Tax (Fiscal Representation) from €90/year
Holiday Rentals Accounting Service (HRAS) from €100

Taxation-related articles

Taxes on Selling Spanish Property – 8th December 2014
Taxes on Buying Spanish Property – 8th July 2015
Non-Resident Taxes in Spain – 8th December 2015
Spain’s Non-Dom Tax Scheme – 8th July 2016
Renting in Spain - Landlord´s Taxation – 8th of January 2017
Holiday Home Taxation in Spain – 8th of July 2017
Non-Resident Income Tax – 8^th December 2017
Tax advantages on becoming resident in Spain – 8th March 2018
Holiday Rental Taxation in Spain – 8th July 2018
Holiday lettings: with or without VAT? – 21st June 2018

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.