Tax on a second home in Spain: what do you pay in the Netherlands and Spain?

Two countries, one property

A second home in Spain touches two tax systems: that of Spain, where the property is located, and that of the Netherlands, where you are liable for tax. Both countries want their share, but thanks to the tax treaty between the Netherlands and Spain you do not pay twice on the same thing.

In practice, each country levies tax on its own part. Spain taxes the ownership and any rental income in Spain, while the Netherlands includes the property in box 3 but grants a reduction for it. So it is not a matter of paying twice, but it does mean filing a return twice.

What you pay in Spain: the IBI

The IBI (Impuesto sobre Bienes Inmuebles) is the Spanish property tax, comparable to the Dutch OZB municipal property tax. You pay it annually to the municipality, based on the cadastral value (valor catastral) of the property rather than its market value.

The rate varies by municipality, but roughly ranges between 0.4 and 1.1 percent of the cadastral value. Because that value is usually lower than the market value, the amount is modest: for a property worth several hundred thousand euros, it is often a few hundred to just over a thousand euros per year.

Non-resident tax, even without renting out

This surprises many buyers: even if you do not rent out the property and use it yourself, you pay non-resident income tax in Spain (the modelo 210). The tax authorities assume that you derive a notional benefit from owning a second home.

The charge is calculated on a percentage of the cadastral value (usually 1.1 percent of it), on which you then pay 19 percent tax as an EU resident. In practice this is a modest amount, but the return is mandatory and must be filed every year.

Tax on rental income

If you rent out the property, Spain taxes the rental income. For EU residents a rate of 19 percent applies to the profit, and you may deduct costs such as maintenance, interest, comunidad fees, IBI and depreciation, in proportion to the rental period.

This deductibility is an important advantage of EU membership; non-EU residents pay 24 percent with no deductions. The return is filed quarterly via the modelo 210. So keep your rental records in good order, because solid documentation directly lowers your taxable profit.

And in the Netherlands: box 3

In the Netherlands you declare the Spanish property in box 3 as wealth. In return, you are entitled to a relief to avoid double taxation, because the right to tax the property lies with Spain.

• The property counts towards your box 3 wealth at a WOZ-style assessed value
• You claim the relief to avoid double taxation in your Dutch return
• On balance you pay little to nothing extra in the Netherlands on the property itself
• Any financing can affect your box 3 position
• Have this reviewed by a tax adviser, as the box 3 rules are set to change in the coming years

In practice: how to arrange this without headaches

The Spanish returns (IBI, modelo 210) are usually handled by a local gestoría or tax adviser, who calculates the amounts and files them on time. The cost of this is limited, often a few hundred euros per year, and it keeps you clear of fines.

In the Netherlands you include the property in your regular return, possibly with help from your own adviser for the relief to avoid double taxation. The most important advice: do not underestimate the filing obligations. In recent years the Spanish tax authorities have become considerably more active in tracking down foreign owners who fail to declare.