Can I live in an investment property?


If you are buying a property on the Costa del Sol, you either want to live in it or because you want it as an investment. In this case, you can profit from the purchase in two ways. One is to rent it out (to tourists or for the long term) and the other is to buy it with the intention of investing in order to sell it later at a profit.

If you are buying for investment purposes, Spanish taxation allows you to pay just 2% tax instead of the usual 7% registration tax. In this article, we will explore this issue to fully inform you and cover several aspects of the transaction.

CONVENIENT TAXATION OF REAL ESTATE PURCHASED AS AN INVESTMENT

If you are buying an apartment in Spain with the intention of investing and want to pay reduced taxes, you must create a Spanish partnership for this purpose. The main field of activity of this business must be real estate development, and only its managing director can be a Spanish resident. It can be owned by a foreign or Spanish company or a private individual, but the managing director can only be a resident. Social insurance must be paid for the manager, which is a minimum of €350-380 per month. The additional cost of maintaining the business is 150-200€ per month in the case of a minimum invoice turnover. We can calculate that it costs approximately €5,000 per year to maintain such a business.

If, for example, you buy a house for 1 million euros, the official registration tax would be 7%, or €70,000, but if you buy with investment intent, in the name of a company, then only €20,000. It is true that maintaining the company costs €5,000 per year, but you can still save significant taxes.

OBLIGATIONS WITH PROPERTY PURCHASED AS AN INVESTMENT

Discounted taxation is one side of the deal, which results in tax savings. Of course, the deal also comes with obligations: the property must be sold within 5 years. Staying with the example, if you buy a property for 1 million euros, carry out renovation work on it for about 200,000€ and put it on the market for 1,600,000€. When you sell it, you will have to tax the generated €400,000 gross profit. The business is profitable, even if the profit is subject to a tax rate of 24%, since it still generates a net profit of more than €300,000.

WHAT HAPPENS IF IT FAILS TO SELL WITHIN 5 YEARS?

If you fail to sell the property within the statutory deadline (5 years), you must pay the tax difference, i.e. 5%, which was waived by the tax office as a discount at the time of purchase. In many cases, the owner likes it so much that he no longer wants to sell it, but wants to use it himself. In such cases, the tax office must be notified in advance voluntarily that the owner decides to keep the property.

IS IT POSSIBLE TO LIVE IN THE PROPERTY PURCHASED AS AN INVESTMENT BEFORE THE END OF FIVE YEARS?

You can’t officially live in it, because the company bought it as an investment, so its primary task is to recycle and sell it. That’s why he got the tax break. Practice differs somewhat from this: most people live in properties purchased with tax incentives. The owner or the manager of the company cannot officially live there, and if this is revealed during a tax audit, not only the tax difference, but also the fine will be paid to the company. A more acceptable explanation is that the company rents it out – that is, uses the property and deducts the income from the expenditure.

THOUGHTS ON THE ABOVE

If someone takes advantage of a tax discount, they have to consider the possible consequences. It is very unlikely that the tax office will hold an inspection, as there are thousands of properties of this type on the Costa del Sol, and they are usually occupied by the buyer or family members. It may happen, although the chance is minimal, that the tax office will suddenly call the property due to increased electricity and water consumption. It is worth considering the advantages and possible disadvantages in this case, but whoever chooses preferential taxation should cover himself with at least one rental agreement.

The specialists of our office are ready to help you make the optimal decision regarding purchase and utilization. Feel free to contact us, we will keep you fully informed and there will be no surprises. Buy with our help and legal guarantees.