If you spend more than 6 months of the year in Spain you are required by law to apply for a residents permit. Many foreigners choose to ignore this regulation and live in Spain illegally. However as a property owner you may wish to consider carefully before deciding to do this as there are a number of tax concessions available to residents which do not apply to non residents.

There are various taxes which relate to property ownership not least of which are the ongoing annual taxes of wealth tax and imputed income tax and on the sale of the property, capital gain tax.

Imputed income tax is a tax on animaginary income resulting by virtue of ownership of the property and is charged as 0.5% of the catastral value. There is a big concession if you are resident in that you will not be charged this on your principle home.

Wealth tax is a tax on all assets in Spain and is charged as 0.2% of the catastral value of any property owned. For residents the first 18 million pts is exempt. And for joint ownership as in the case of husband and wife this would be 18 million pesetas exemption for each owner.

These two taxes are paid annually and continue until the disposal of the property. No relief is granted to non residents who will therefore pay a total of 0.7% of the catastral value every year.

When you come to sell the property, capital gains tax will be charged on any profit. This is 35 per cent for non residents but only 20 per cent for residents. The buyer from a non resident must deduct 5% from the total purchase price and deposit this with the tax authorites as a guarantee against tax liabilities.

A further concession to residents is that if you are over 65 years of age and have lived in your property for at least 3 years you are totally exempt from capital gains tax.

Finally if you are over 60 years old and for the last 3 years you have been a resident of Spain and living in your property as your principle residence you can bequeath the property to your wife or children and aviod inheritance tax on 95% of the valuation. The inheritor must also be resident and agree not to sell the property for 10 years.