A guide to the Spanish tax system for residents and property owners in Benidorm.
Moving to Spain or purchasing property in Benidorm inevitably brings you into contact with the Spanish tax system. While the prospect of dealing with foreign tax authorities might seem daunting, understanding your obligations and planning appropriately ensures you remain compliant while minimizing your tax burden legally. This comprehensive guide covers the key taxes affecting residents, non-residents, and property owners in Benidorm, providing a foundation for informed decision-making while emphasizing the importance of professional advice for individual circumstances.
Tax Residency: The Fundamental Question
Before examining specific taxes, understanding tax residency is essential, as it fundamentally determines your tax obligations. Spain considers you a tax resident if you meet any of the following criteria: you spend more than 183 days in Spain during a calendar year, your main center of economic interests is in Spain, or your spouse and dependent children live in Spain (unless you can prove tax residence elsewhere).
Tax residents must declare and pay Spanish tax on their worldwide income – meaning all income from any source anywhere in the world. Non-residents only pay Spanish tax on Spanish-source income and gains. The distinction has profound implications for your tax situation.
The 183-day rule is calculated per calendar year, not rolling periods. Days of entry and exit count as days in Spain. The Spanish tax authorities can and do check passport stamps, flight records, and other evidence to verify claims of non-residence. Attempting to claim non-resident status while actually living in Spain risks serious penalties.
Income Tax (IRPF) for Residents
Spanish residents pay income tax (Impuesto sobre la Renta de las Personas Físicas, or IRPF) on their worldwide income using a progressive rate structure. The rates combine national and regional components, with the Valencia region (which includes Benidorm) applying its own regional rates alongside the national rates.
The combined rates for the Valencia region currently apply as follows: income up to €12,450 is taxed at approximately 19%, income from €12,450 to €20,200 at 24%, income from €20,200 to €35,200 at 30%, income from €35,200 to €60,000 at 37%, income from €60,000 to €300,000 at 45%, and income above €300,000 at 47%.
These rates apply to general income including employment income, self-employment income, rental income from properties outside Spain, and most pension income. Savings income (dividends, interest, capital gains) is taxed separately at rates ranging from 19% to 28% depending on the amount.
For retirees, understanding how pension income is taxed requires careful analysis. UK state pensions are taxed exclusively in Spain for Spanish residents under the UK-Spain double taxation treaty. Private pensions may be taxed in Spain, the UK, or both depending on the pension type and treaty provisions. Proper structuring of pension withdrawals can significantly impact total tax liability.
Various deductions and allowances reduce taxable income, including personal allowances, allowances for dependents, and deductions for certain investments and charitable donations. Professional advice helps identify all available deductions for your specific situation.
Property Taxes for Owners
Property ownership in Spain triggers several annual tax obligations regardless of your residency status.
IBI (Impuesto sobre Bienes Inmuebles) is the annual property tax paid to the local municipality. The tax is calculated as a percentage of the property's cadastral value (valor catastral) – an administrative value typically well below market value. Rates vary between municipalities but typically range from 0.4% to 1.1% of cadastral value. For a property with a €100,000 cadastral value, annual IBI might range from €400 to €1,100.
The cadastral value is reassessed periodically, and recent reassessments in some areas have increased values substantially, with corresponding increases in IBI bills. Properties can be checked against the Catastro (land registry) to verify their recorded value.
Basura (rubbish collection tax) is charged separately in most municipalities, typically ranging from €100 to €300 annually depending on property size and location. This municipal charge covers waste collection and disposal services.
Community fees (gastos de comunidad) are not technically taxes but represent a significant ongoing cost for apartment owners. These fees cover maintenance of common areas, building insurance, cleaning, gardening, lifts, swimming pools, and reserve funds for major repairs. Fees vary dramatically depending on the building's facilities and age – from under €50 monthly for basic buildings to over €300 monthly for luxury complexes with extensive amenities.
Non-Resident Property Owner Taxes
Non-residents who own property in Spain face specific tax obligations even if the property is never rented out.
Imputed income tax assumes that owning a Spanish property provides you with a benefit (the potential to use it) even when vacant. Non-residents must pay tax on this imputed income, calculated as either 1.1% or 2% of the cadastral value depending on when the value was last revised. This amount is then taxed at 19% for EU residents or 24% for non-EU residents. For a property with €100,000 cadastral value, the annual tax might be approximately €200-400 depending on circumstances.
When properties are actually rented, non-resident owners must pay tax on the rental income. EU residents can deduct allowable expenses and pay 19% on the net profit. Non-EU residents pay 24% on gross rental income without expense deductions – a significant disadvantage that makes rental investment less attractive for non-EU owners.
Quarterly tax declarations (Modelo 210) are required for non-residents, either reporting rental income or imputed income for periods when the property was vacant. Many non-resident owners appoint fiscal representatives in Spain to handle these obligations.
Capital Gains Tax on Property Sales
Selling Spanish property triggers capital gains tax on any profit. The gain is calculated as the difference between the sale price and the acquisition cost, with the acquisition cost including purchase price, purchase taxes and fees, and the cost of any improvements (not repairs or maintenance).
For residents, capital gains are taxed as savings income at rates from 19% to 28% depending on the total amount. For non-residents, a flat 19% rate applies. In both cases, the buyer is required to withhold 3% of the purchase price and pay it directly to the tax authorities as an advance against the seller's capital gains tax liability. If the actual tax due is less than the withheld amount, the seller can claim a refund.
Properties owned before 1994 may benefit from transitional relief that reduces the taxable gain. Properties that served as the seller's primary residence may qualify for rollover relief if the proceeds are reinvested in a new primary residence. Sellers over 65 selling their primary residence may be exempt entirely under certain conditions.
Wealth Tax and Solidarity Tax
Spain levies an annual wealth tax (Impuesto sobre el Patrimonio) on net worldwide assets for residents and Spanish assets for non-residents. A national allowance of €700,000 applies, plus an additional €300,000 for the primary residence (residents only). Assets above these thresholds are taxed at rates from 0.2% to 3.5%.
The Valencia region applies its own wealth tax rates, which differ from national rates. Professional advice is essential for high-net-worth individuals to understand their exposure and legitimate planning opportunities.
A temporary Solidarity Tax was introduced in 2023, applying to net assets exceeding €3 million at rates from 1.7% to 3.5%. This tax was designed to ensure minimum wealth taxation in regions that had effectively eliminated wealth tax.
Double Taxation Treaties
Spain maintains double taxation treaties with most developed countries, including the UK, Germany, Netherlands, and Scandinavian countries. These treaties determine which country has the right to tax specific types of income and provide mechanisms to avoid paying tax twice on the same income.
Understanding treaty provisions is crucial for expats with income from their home countries. While treaties prevent double taxation, they don't eliminate tax – instead, they allocate taxing rights between countries. In many cases, income taxed in one country receives a credit against tax due in the other.
The UK-Spain treaty, for example, gives Spain exclusive rights to tax UK state pensions received by Spanish residents. Other income types have different treatment, and the interaction between treaty provisions and domestic law can be complex.
Professional Help and Compliance
Given the complexity of Spanish taxation, engaging professional help is strongly recommended. Two types of professionals commonly assist with tax matters.
Gestors are licensed administrative agents who handle routine tax filings and bureaucratic procedures. They can prepare and file annual tax returns, handle non-resident property owner declarations, and navigate administrative processes efficiently. Gestor fees for annual tax returns typically range from €50-150.
Tax advisors (asesores fiscales) provide more comprehensive planning advice, particularly valuable for complex situations involving multiple income sources, international elements, or significant assets. They can help structure affairs tax-efficiently while ensuring compliance. Fees are higher than gestors but the planning benefits often outweigh costs.
Annual tax returns (declaración de la renta) for residents are filed between April and June for the previous calendar year. Missing deadlines incurs penalties and interest. Professional assistance ensures timely, accurate filing and identification of all available deductions.
For non-residents, quarterly Model 210 declarations are required, with different forms and deadlines depending on whether income is rental or imputed. Keeping current with these obligations prevents accumulating problems that become expensive to resolve later.
