Tax increases for 2012 and 2013

Just in time for the start of the New Year the Spanish government announced drastic tax increases in order to get the fiscal deficit under control. Thus, owners of Majorca properties have to expect higher tax charges.

Generally, these new rules apply for two years. These new arrangements relate to the income tax (IRPF) as well as the capital gains tax from property sales and rentals and the property tax (IBI).

Mostly those with high income, will apparently be charged more from now on. Therefore, taxpayers with a taxable yearly income of up to 17.706 € will be charged 0,75% more (24,75% instead of 24%). 30% taxes have to be paid on an income from 17.707 €, and 40 % are to be taxed on a yearly income from 33.007 € for the next two years. With a yearly income above 53.407 €, 4% more become taxable (47% instead of 43%). Especially for the high incomes that are from 100,000 €, the new tax rule is highly noticeable. As such, 49% will be charged with a yearly income from 120,000 € (instead of 44%) and 52% from 175.000 €. The top rate of 52% with a yearly income of more than 300.000 €.

Residents as well as non residents have to expect significantly higher tax rates on capital gains from property sales and rentals. So far, the payable tax on profits from property sales and rentals has been 19% for non residents. However, this tax rate increased has to 21%.

The same tax increase, from 19% to 21%, applies for residents on gained profits from property rentals.

According to the capital gains tax of up to 6.000 € for property sales from residents, this has been equally increased from 19% to 21%. The tax rate between 6.000 € and 24.000 € amounts to 25% (instead of 21%) and with a capital return on property sales of more than 24.000 €, 27% taxes become payable (instead of 21%).

Also owners of a Majorca property may be adjusted to more taxes due to the increase in the property tax (IBI). On average, the increase amounts to 6% - a minimum of 4% and a maximum of 10%. Generally, the tax rate depends on the last update of the land register value. As a general rule, 50% of the property owners are not affected by the new increase; indeed all those with a very low land register value.

However, the year 2012 entails as well tax relieves. The 2011 introduced reduction of VAT (IVA) for property purchases, from 8% to 4%, will continue until 31.12.2012. Though, it should be noted that the reduction applies only to new construction homes that are already completed. Used homes are excluded. By means of the reduced VAT, the government still hopes to revive the construction industry and to reduce the vacancy rate for apartments and houses.