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Ibiza for Expatriates: what you need to know if you own a house, boat or investment in Ibiza
Ibiza for Expatriates: what you need to know if you own a house, boat or investment in Ibiza

Ibiza for Expatriates: what you need to know if you own a house, boat or investment in Ibiza

Ibiza for expats

Do you think of Ibiza as merely a party island? You’d be so wrong. Ibiza is the home to thousands of expatriates who value its warm climate, rich cultural heritage and peaceful environment which allows them to ‘disconnect’ from their busy lives. So here are a few reasons why you should consider buying a home in Ibiza and possibly even becoming a permanent resident… what you need to know if you own a house, boat or investment in Ibiza

Ibiza has wonderful weather all year (almost)

Part of the Balearic Islands which also consist of Mallorca, Menorca, and Formentera, Ibiza has approximately 300 days of sunshine – that’s probably 299 more than you’d get in the UK. Although it gets colder in the winter, temperatures rarely drop below 10 degrees, even at night. 

Ibiza is a beautiful place to relax

Ibiza is home to crystal-clear waters and white sandy beaches, making it the perfect place for rest and relaxation. As well as sea-based activities such as sailing and water sports, the beauty of the landscape makes Ibiza popular for hiking, biking, and horse riding. You can also wander through the winding streets in many of its quaint towns and soak up the historical atmosphere and heritage. 

Ibiza’s culture is more than just nightclubs 

Ibiza has an established gastronomic culture fuelled by fresh and organic food sourced from local markets. From five-star international dining experiences to rustic Mediterranean restaurants, there are options for every taste and budget. There are also lots of options to relax, from high-end yoga retreats to beautiful art galleries, providing a rich and active Ibizan cultural scene. 

Ibiza is a place for community and family

Ibiza has an exceptionally diverse culture which attracts many nationalities as residents. A very friendly island, there is a strong sense of community, a good expat social scene, and the respectful nature ingrained in Spanish culture makes for a good place for families.  Despite being a small island, it has a range of good public and private schools. 

Morna International College is the obvious choice for British families sending their children to an international school in Ibiza. This school has over 40 years of history, educating children from Ibiza’s international and local communities. It offers the British education system, leading to internationally-recognised qualifications allowing children to receive a broad education taught in English and to use their results to access universities almost anywhere in the world. The advantages of an international education cannot be underestimated – children are offered a wide-range of opportunities, allowing them to be creative, to develop sporting skills, to explore and understand technology, humanities and literature. Through this kind of education, children are properly prepared for future success, as the focus is on equipping them with the self-belief that they can gain from being in a happy and supportive educational environment. 

Ibiza as a place to work

Traditionally people used to focus on finding a job ‘in Ibiza’ but in our virtual, digitally-connected world, many expats moving to Ibiza have found they can run their business remotely from the island. Many of our clients are consultants, professionals, writers, or artists who have found the work-life balance is embraced in Ibiza. And if you do have to travel for work, Ibiza is a mere two-hour flight from most European capitals.

As Ibiza-based real estate agent John Broekman, director of The Blue Pearl Real State Agency, puts it: “Covid-19 has encouraged us all to think more about how we want to be living our lives, according to our means. As a result, more than ever we are seeking a work-life balance that best suits us. A permanent or occasional residence in Ibiza (where English is our second language) gives you the necessary security and flexibility to create a base from where your business can continue to thrive. This is a unique island which not only boasts great international schools and hospitals, but also places emphasis on a quality of life that is very rewarding! It’s certainly worth seeking international tax & legal advice to ensure your residence is efficiently managed so that you can benefit from all this island has to offer.

Ibiza Property Market

Ibiza is distinguished by many exclusive, high-end properties and the real estate market has remained a safe and solid place for foreign property investment – the last five years have seen property values increase by 56.5% right across the island. International buyers drive demand in Ibiza real estate, raising property values and improving the overall infrastructure. However, new planning permission regulations have made new build licenses more difficult to obtain and legal guidance is essential to move the process forward.  

Local Tax & Property Law Issues for Expats living the Balearic Islands

If you are a foreign national (expat) with Spanish residency who owns a property in Mallorca, Menorca, Ibiza or Formentera you are liable to pay a number of taxes consisting of personal income tax on property or any rental income, capital gains tax, city council tax and tax on assets such as boats. Del Canto Chambers, the go-to set of chambers for international tax and legal matters with offices in both the UK and Spain, outlines some of the key issues concerning Spanish assets and why specialist advice should be sought so that your residency status and global wealth is also taken into account.

Property Income Tax in the Balearic Islands 

Spanish income tax and residence rules must be considered carefully when owning property or investing in Ibiza. For example, in the case of a holiday home or rental, you are liable to pay taxes to the Spanish tax authorities on property you own and other assets and investments. If you do not pay the appropriate tax to the Spanish authorities your property may build up a debt against it on which interest is also due, which often leads to difficulties in selling it and your bank account could be embargoed.

In 1998, the Spanish non-resident income tax law introduced a tax liability on properties in Spain owned by non-residents. Tax on property transfers ITP (Impuesto Sobre Transmisiones Patrimoniales) is applied to the purchase of ‘second-hand’ properties, and value-added tax IVA and AJD (Impuesto Sobre el Valor Añadido and Impuesto sobre Actos Jurídicos Documentados) to new build properties bought from the developer.

To mitigate their tax liabilities, some people buy their property in Ibiza through a company. Whilst this can be effective, it obviously has tax and legal implications that need to be considered, and professionals should review the structures used to buy property to ensure compliance. 

Unfortunately, many Spanish property owners created corporate structures to purchase their property years previously and have given them little consideration since. The Spanish tax authorities are aware of this and if a company was created before 2018 and the tax position has not been assessed recently, they are likely to investigate.

Local Property Tax in Ibiza – IBI

If you own an Ibiza property, regardless of whether or not you are a resident, you must pay a property tax annually known as ‘Impuesto Sobre Bienes Inmuebles’ (IBI). IBI is a municipal tax based on the ‘cadastral’ value of the property. The tax rate will have been approved by each Town Council, therefore is the same for all properties within the municipality, and will be applied to this value.

Personal Income Tax is known as Impuesto de la Renta de no residentes, declaración ordinaria, (IRNR). Owners of properties in the Balearics who don’t live in Spain have to present their income tax return on a yearly basis. If you are a non-resident in Spain, this tax applies only to the income from a property. Income from salary or self-employment will be declared in the country where you are a resident for tax purposes.

Spanish property income tax (Impuesto Sobre las Ganancias Patrimoniales) 

Property income tax must be paid on the profit made when selling a property.  It is advisable to hire the services of a tax expert as there are a number of tax-deductible costs – for example, if the property was bought before 1986.

Municipal capital gains tax in Ibiza (plusvalía municipal) is a tax on the increase in the value of urban plots that is accrued when a property is being sold. According to the law, it is the seller who pays this tax, although it could be passed over to the buyer if specified in the contract. The amount of this capital gain depends, amongst other things, on the surface of the piece of land and the length of time that it belonged to the seller.

Spanish Power of Attorney

It is common in Spain for foreign non-residents to grant Power of Attorney to legal firms so that lawyers can deal with matters on behalf of their clients when they are not in Spain. A Power of Attorney will often be the most practical way of enabling a Spanish lawyer to undertake tasks and sign documents on behalf of their clients so that they do not have the expense and the inconvenience of having to attend in person to sign or authorise each part of a legal matter.

Spanish Wills & Inheritance

Spanish Wills and Inheritance Tax are both important considerations if you have property and/ or investments in Ibiza. It is normally recommended that you draft a Spanish Will to cover assets located in Spain and a foreign Will to cover any assets in other countries. It is important that there are no legal or tax conflicts between the application of the Spanish Will and the international Will.

If you own property in Ibiza, or if your beneficiaries reside in Spain, then you will be liable for inheritance or succession tax. The main difference between UK and Spanish inheritance tax is that there is no exemption between husband and wife. When one dies, the other is liable for inheritance tax on worldwide assets. A surviving spouse may be left a `life interest´ in the property instead. If you are UK domiciled you are liable to pay tax in both countries, but these liabilities can be offset against each other. An offshore trust can mitigate inheritance tax and further protect your assets.

Matriculation Tax on Boats in Ibiza

It is not uncommon for people who have a property in the Balearic Islands to also want to purchase and own a boat to take advantage of the beautiful sea. However, buying a boat in Spain requires understanding many complicated tax laws. For non-residents in Spain, there is a route to avoid the payment of these taxes, but it is dependent on whether the purchaser is an EU resident or from outside the EU. Under the scheme called “matricula turística”, a non-Spanish resident from another EU country will benefit from an exemption on the matriculation tax, therefore avoiding the extra 12%, although VAT must be paid. If the buyer is from outside the EU, the total amount (both the matriculation tax and VAT) will be exempt.

Who is buying or selling the boat can also make a difference regarding the amount of tax to be paid.

If there is a professional agent/ intermediary acting on behalf of the buyer/seller in the boat Transaction, then the tax liability may differ. If the transaction takes place between two individuals, but the buyer is non-resident in Spain, the transaction will be tax-exempt in Spain. With such complicated tax implications, it is important to seek advice before buying or selling a boat in Ibiza.

With Spanish tax inspections and investigations on the rise, it is more important than ever to have a qualified international tax and legal team who have expertise in both areas if you have property or assets in Ibiza. Del Canto Chambers has a team of expert lawyers who are dual-qualified in the UK and in Spain, meaning we are perfectly positioned to support our clients with any legal or tax requirements. We help ensure you are fully compliant with your tax position, helping you plan and protect your income as best as possible.

By Malini Peñalva, Spanish Abogada at Del Canto Chambers Ibiza.

Our office in Ibiza:

Calle Illa Plana 7
07800 Ibiza
Islas Baleares

Telf. 971761171

To make a no-obligation enquiry, please either call Del Canto Chambers now on: +44 2070 430648 or complete our online form on our website’s contact page, which after receipt we will come back to you within 24 hours.

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