What are the consequences of not paying the property tax?

Property tax in Spain is called Impuesto sobre Bienes Inmuebles, or IBI, and is sometimes colloquially referred to as the Suma, or Suma Tax, as Suma is a collection agency that operates in various, but not all, municipalities across Spain (IBI is not the only tax collected by SUMA). When the IBI bills are issued, prompt payment results in an indicated discount, but not paying, or paying late, has consequences, which get more severe as time goes on, so what are the consequences of not paying the property tax?

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The owners of real estate, such as homes, premises, garages or land, are obliged to pay the annual Real Estate Tax (IBI) of their municipality. This tax is one of the main sources of income for the municipalities and varies from one locality to another. Given the current precarious situation of a good part of the domestic economies, there are many families that are forced to postpone or even rule out the payment of this tax. Non-payment of the IBI has serious consequences: from an increase in debt in the form of interest, penalties or surcharges, to the seizure of assets, including the home itself.

What is the IBI?

The Real Estate Tax, Impuesto sobre Bienes Inmuebles (IBI), is a direct, real, objective and periodic tax of a local nature that taxes the property, the ownership of real rights of usufruct, of surface or of an administrative concession, on the assets located in each municipal term. It is, therefore, a tribute that the owners of a property, such as a house, an apartment, land, a garage, etc., have to pay to the town hall of the town where they are located.

This tax taxes the value of ownership and other rights that fall on any real estate, but in a different way depending on its nature, whether it is urban, rustic or with special characteristics. For the classification, the cadastre is used, in addition to serving as a source of origin of the ownership of real estate or established real rights.

The IBI is regulated by the Local Treasury Law and the consolidated text of the Real Estate Cadastre Law. Its management is shared between the State Administration and the municipalities. The Local Treasury Law contemplates the possible modulations in taxes, allows additional exemptions to be established in certain cases and to apply different coefficients of the tax rates applicable in each case. It is one of the most important taxes for local treasuries, as shown by the more than 12,8 billion euro that were collected in 2020.

What consequences does a non-payment of the IBI have?

Owners of real estate have a voluntary period to pay said tax. But, what can happen if it is not paid?

Executive period and urgency order

In the case of not paying the tax within the voluntary term, the payment begins in the executive period and an enforcement order is notified. That is, a notification of a procedure initiated by the council in which the existence of a debt is indicated for not having paid it.

In this way, another term similar to the previous one is established for the payment of the debt, but a series of executive surcharges will also have to be paid in the form of percentages on the debt. The aforementioned amount ranges from 5% to 20%, depending on the period of the delay:

5%: when paid after the term but before the notification of urgency.

10%:  if between three and six months have passed (and if there is a notification of urgency by the Administration).

20%:  for the rest of the cases.

Seizure proceedings

If after the voluntary term and the urgency period, the debt continues unpaid, the assets and rights of the tax debtor will be proceeded against: from cash or in accounts opened in credit institutions, to their real estate.

All this, with the premise of covering the amounts related to the debt, interest on late payment, surcharges and the costs of the enforcement procedure. In other words, an embargo procedure will be issued on bank accounts or payrolls, in accordance with article 169 of the General Tax Law.

Who must pay and who is exempt from paying the IBI?

The vast majority of property owners are required to pay this tax, although there are exceptions, since the law contemplates that some properties are exempt. Among the main exceptions are:

• Real estate owned by the Catholic Church under the terms provided in the 1979 Agreement between the Spanish State and the Holy See on Economic Affairs. Also, those belonging to non-Catholic confessional associations recognised by law.
• Those that are owned by the State, the autonomous communities or local entities related to citizen security, educational services (police stations, prisons or schools) or national defence.
• Properties of the Spanish Red Cross (Cruz Roja), non-profit entities and foundations.
• Foreign diplomatic headquarters, communal goods of municipalities and neighbouring mountains.
• Those listed as historical heritage.
• The ancients of the great cities.

Frequently asked questions about the IBI

Who has to pay the IBI on a rental property?

The Council always demands the payment of the IBI from the property owner. But the tenant can be required to pay it, if an agreement has been reached to do so. Of course, this obligation must appear in the lease.

Does paying the IBI give you the right to property?

No. Paying the IBI does not give the right to property.

The IBI is charged to the holders of an administrative concession on the real estate itself, of a right of  surface, of a right of usufruct or of the right of property.

If several people hold each of these rights over a property, it must be paid as follows (but paying it does not imply having the right to property):

• First, the holder of the administrative concession.
• If not, the holder of the surface right.
• Then, the holder of the right of usufruct.
• The owner of the property right.

What happens for the non-payment of IBI of the former owner?

If you have bought a house and the former owner owes the IBI, you should claim it first from the former owner. The law establishes that it is paid by the person who was the owner on January 1 of that year. However, the seller can pass on to the buyer the proportional part, as established by the Supreme Court.

In addition, you must take into account that when a property is sold, the outstanding debts of said tax are attached to it, so the buyer may be forced to pay the IBI that the seller has left unpaid.

How the IBI is calculated

Cadastral value:  it starts from the cadastral value of the property, that which reflects the value of the land on which it is located and that of the building. It is obtained from the Cadastre data, taking the market value as a reference. In general, the cadastral value is usually half the market value and is reviewed every ten years.

Tax rate:  the cadastral value must be applied to the tax or tax rate that each council sets within margins that are already imposed.

Bonus:  it is the reduction of a percentage of the fee that large families or certain properties benefit from, such as subsidised housing.

Tax debt: It is the final sum that must be paid after applying the bonuses to the full fee.