Owning a Second Home in Spain

Great! Let's focus on the tax aspects related to owning a second home in Valencia, which is located in the Autonomous Community of Valencia. This region has specific tax rules and benefits, so I'll break down how they apply to second homes.

1. Wealth Tax in Valencia (Impuesto sobre el Patrimonio)

• The wealth tax applies to individuals with assets exceeding a certain threshold, and this includes the value of your second home.

• In Valencia, the threshold for wealth tax is generally €700,000 (this is the basic national level, and it may vary slightly depending on the autonomous community). If your total assets (including your second home) exceed this amount, you will need to pay wealth tax.

• However, there’s an exemption for your primary residence up to €300,000. This exemption does not apply to a second home.

• The wealth tax in Valencia is progressive, meaning the more your property is worth, the higher the percentage you pay. The rates range from 0.2% to 3.5% depending on the value of your assets above the €700,000 threshold.

  
  

Example: If the value of your second home is €1 million, and your total assets are also €1 million, you’d pay wealth tax on the €300,000 above the exemption threshold (after accounting for your primary residence).

2. Imputed Rental Income Tax

• Even if you don’t rent out your second home in Valencia, you might still have to pay tax on "imputed rental income" based on the cadastral value of the property.

• Imputed rental income is a theoretical amount, which assumes that you could be renting the property. The Spanish tax authority calculates this based on the cadastral value of the property (an official tax valuation, usually lower than the market value).

• In Valencia, the tax rate for imputed rental income is 1.1% for urban properties and 2% for rural properties.

  • This imputed income is taxed at 19% for EU/EEA residents or 24% for non-residents.

  • If you don’t rent out your property, you may still need to report this income in your annual income tax return (IRPF).

    
    

3. Property Tax (IBI)

• Like the rest of Spain, Valencia requires property owners to pay the Impuesto sobre Bienes Inmuebles (IBI), which is a municipal property tax. This tax is levied annually based on the cadastral value of the property.

• The IBI rate varies depending on the municipality, but in Valencia city, the rate typically ranges between 0.4% and 1.1% of the cadastral value.

• The exact rate is set by the local government and can differ if you live in a more rural part of the province. For instance, if your second home is in the city center, you may face a slightly higher rate than in rural or suburban areas.

4. Capital Gains Tax on Sale

• If you sell your second home in Valencia, you’ll be subject to capital gains tax on any profits you make from the sale.

• The capital gains tax rates in Spain are as follows:

  • 19% for gains up to €6,000.

  • 21% for gains between €6,000 and €50,000.

  • 23% for gains above €50,000.

• The capital gain is calculated by subtracting the purchase price, notary fees, taxes, and improvement costs from the sale price of the property.

• Exemptions: If you sell your second home and use the proceeds to buy another primary residence in Spain, you can benefit from an exemption or deferral of capital gains tax, but only under specific conditions (e.g., you must reinvest the money within 2 years).

  
  

Example: If you bought a property for €200,000 and sold it for €250,000, the €50,000 profit would be subject to capital gains tax, with rates depending on how much of it falls into the different thresholds.

5. Rental Income Taxation (if applicable)

• If you decide to rent out your second home in Valencia, you must declare your rental income and pay tax on it.

• For non-residents in Spain, the rental income tax rate is 24% on the gross income, without the option to deduct expenses like repairs, maintenance, or management fees.

• For residents in the EU/EEA, the tax rate is 19%. You can also deduct various expenses related to the property, such as maintenance costs, property management fees, and mortgage interest.

• It’s important to know that tourist rentals (e.g., renting out through platforms like Airbnb) are subject to specific regulations and taxes, which may vary depending on the region and type of rental.

  
  

6. Inheritance and Gift Tax

• Valencia, like the rest of Spain, has a gift and inheritance tax. However, the rates are progressive and depend on factors like your relationship to the deceased or donor.

• For close family members (e.g., children, spouses), there are certain exemptions and reductions, but the rates can still be quite high. The tax rates can range from 7.65% to 34% for large estates, depending on the value of the inheritance or gift.

• In Valencia, there are regional reductions available, which can make the tax liability lower for family members.

• The exemption for the primary residence of the deceased can also apply in some cases.

7. Non-Residents’ Taxation (Property Owners Who Don’t Live in Spain)

• If you own a second home in Valencia but are a non-resident (i.e., you don’t live in Spain for more than 183 days per year), you will still need to comply with Spanish tax laws.

• You’ll need to declare any imputed rental income (as discussed) and pay the appropriate taxes (24% on rental income for non-residents).

• Additionally, your wealth tax liability will depend on the total value of your assets. The threshold for wealth tax in the Valencian Community is €700,000, but you will still need to account for the value of your second home.

Final Thoughts:

In Valencia, owning a second home involves several key tax responsibilities, particularly in areas like wealth tax, capital gains tax, and IBI (property tax). The wealth tax can be particularly important in high-value properties, so it’s essential to keep an eye on your property’s value relative to the threshold for wealth tax.

If you’re renting out your property, the rental income and any imputed rental income (if the property is not rented) are both taxable. Additionally, if you plan to sell, understanding the capital gains tax and possible exemptions for reinvestment in a primary residence will help you minimize your tax liability.

Since tax laws can be complex, it’s a good idea to work with a local tax advisor who can help ensure that you’re in compliance and can take advantage of any potential deductions or exemptions specific to Valencia.