Death and Taxes – the only two certainties in life!
Let’s say you decide to invest in an Equity Release scheme through JJC Capital Partners or another Spanish investment fund, as with any other investment, you’ll have taxes to pay.
Please check with us for more detailed reports but this will give you a good rule of thumb.
Sure, returns are huge with equity release, often double-digit returns with virtually ZERO risk, but the tax implications are worth considering too.
New build Equity Release
We’ve had clients who bought property (paid 50%) pre-Covid and now are struggling to come up with the rest of the money.
Whether an Equity Release deal or not, the purchase of a property being sold for the first time in Spain involves the payment of VAT (we call it IVA in Spanish) which is 10% of the price.
You’ll also be expected to pay 1.5% Legal Documentation Tax (AJD). Therefore, your total tax bill is 11.5% if you are investing in a new property in Spain.
How would it work for an investor?
Let’s say Mr and Mrs Smith bought a New Build property in Alicante for 250,000 in March 2020. Now, they are struggling, due to Covid, Brexit, whatever the case may be.
They have paid 125,000 euro cash and now need to come up with the balance but the Spanish banks won’t help. You, the investor can buy their 250k property for 125k and perhaps give them a sale and leaseback deal for life or a right to live in the property for life.
Nobody even needs to know that they are not officially the owners- For all intents and purposes, it is their house. You get the wonderful investment and they get to move to Spain. Win/win!
The majority of our Equity Release deals here in Spain are on older, existing properties. If you are investing in a property that has already changed hands at least once, you are liable for property transfer tax (We call it ITP in Spanish).
It varies but generally, this is 10% in most parts of Spain. It can be as low as 2%. Transfer tax must be paid within one month of completion in the notary.
The majority of our investors buy properties with the original owners retaining some sort of right to continue living there.
As an investor in Equity Release, generally you take ownership of the property, this means you must also pay two taxes annually: council tax and income tax (maybe!).
The IBI or council tax (Impuesto Sobre Bienes Inmuebles), is calculated by the local municipal authority or town hall every year.
The formula to calculate the rate is 0.2-1.5% of the cadastral value on 1st January of the current year. The cadastral value is usually about 20% lower than the true market value of a house.
You can see now why we encourage all our Equity Release buyers to speak to our tax experts!
Personal income tax
This amount varies for our investors depending upon whether they are involved in annuity deals (viager), sale and rent back, or just normal bare ownership.
If you have purchased a regular usufruct/bare ownership deal, you have no income until such time as the deal matures, so no income tax.
The real winner about this type of deal is that you don’t have to deal with property management companies, you have no empty periods, no issues with non paying tenants, no searching for tenants- That is all taken care of by the very nature of the deal.
All invoices are tax-deductible as they will be in the UK or Europe. JJC invoices too are tax-deductible when it comes to paying your tax on the sale of your investment property. (hopefully for a very significant profit).
Many of our investors are asking how they can live in Spain, get residencia yet pay their taxes back home. It does not work like that- If you are moving to Spain, you’re moving here (from a tax point of view).
Our asesores, 347 are delighted to meet you on a video call to discuss the various tax scenarios in Spain either for investing, opening a business in Spain or indeed for relocating to this wonderful country!
Just ask for any advice you may need.
We hope that if you do buy an investment property in Spain through JJC capital partners, that you get a big tax bill at the end of the transaction.
Seriously. We don’t say this to be mean, but rather the opposite. If you have a big bill, it is because when the deal matured, you had a Massive profit! That is when paying tax feels good!! Our investors are making double-digit returns on Equity Release deals in Spain right now!