Spain Property Tax for Foreign Investors: Madrid 2026 Guide

Spain's property tax framework is among the most layered in Western Europe, with acquisition taxes, annual holding taxes, rental income taxes, and capital gains taxes each governed by separate legislation and administered at different levels of government. For foreign investors in Madrid, understanding the full tax stack is essential to accurately modelling net returns and avoiding costly compliance failures.

Acquisition Taxes: ITP, VAT, and AJD

The primary acquisition tax depends on whether the property is a new build or a secondary market purchase. For secondary market properties — which represent the majority of investment transactions in central Madrid — the applicable tax is the Impuesto sobre Transmisiones Patrimoniales (ITP), or Property Transfer Tax. In the Community of Madrid, the ITP rate is 6% of the purchase price, one of the lowest in Spain. By contrast, Catalonia charges 10% and Valencia 10%. New build properties purchased directly from a developer are exempt from ITP but subject instead to VAT at 10% of the purchase price, plus the Actos Jurídicos Documentados (AJD) stamp duty at 0.75% in Madrid.

Non-Resident Income Tax on Rental Income

Foreign investors who do not establish Spanish tax residency are subject to the Impuesto sobre la Renta de No Residentes (IRNR). For residents of EU member states and EEA countries, the rate is 19% on net rental income after allowable deductions, which include mortgage interest, property management fees, insurance, and depreciation. For investors from non-EU countries — including, post-Brexit, UK nationals — the rate rises to 24% on gross income with no deductions permitted. This distinction creates a meaningful tax differential between EU and non-EU investors and should be factored into yield comparisons.

Imputed Income Tax on Vacant Properties

Spanish law imposes an imputed income tax on properties that are not rented out. The taxable base is calculated as 2% of the cadastral value (or 1.1% if the cadastral value was revised after 1994), and this imputed income is taxed at the IRNR rate applicable to the investor's country of residence. This provision means that even an unoccupied investment property generates a tax liability, incentivising owners to either rent the property or sell it.

IBI: Annual Property Tax

The Impuesto sobre Bienes Inmuebles (IBI) is the Spanish equivalent of council tax, levied annually by the local municipality. In Madrid, the rate ranges from 0.4% to 1.1% of the cadastral value, which is typically well below market value. For a central Madrid apartment with a market value of €600,000, the cadastral value might be assessed at €200,000, resulting in an annual IBI charge of €800 to €2,200. IBI is paid by the owner regardless of whether the property is tenanted.

Wealth Tax

Spain levies a Wealth Tax (Impuesto sobre el Patrimonio) on the net value of assets held in Spain by non-residents. The first €700,000 of net assets is exempt, and rates range from 0.2% to 3.5% above that threshold. The Community of Madrid historically offered a 100% bonus on the wealth tax, effectively eliminating it for Madrid-based assets, but this bonus has been subject to legislative uncertainty. Investors should verify the current status of the Madrid bonus with a local tax adviser before relying on it in their financial models.

Capital Gains Tax and Modelo 210

Capital gains on the sale of Spanish property are taxed at 19% for EU residents and 24% for non-EU residents. The gain is calculated as the difference between the sale price and the acquisition cost, adjusted for documented improvement expenditures. Non-residents must file the Modelo 210 form to declare rental income and capital gains. The form is filed quarterly for rental income and within three months of the sale for capital gains. Engaging a gestoria — a Spanish administrative professional — is strongly recommended for non-residents, as the filing requirements are procedurally complex and errors attract penalties.

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