What is IBI and how is it calculated?

When signing a lease contract, do you know what costs the landlord and the tenant have to pay? What are the tax obligations arising from a lease? One of the taxes derived from the ownership of a property, whether leased or not, is IBI. What is this tax? Who pays it?

What is the IBI for a house?

The Property Tax, better known as IBI, is a municipal tax obligation, of a periodic, real and obligatory nature in all local councils, which is levied on the value of all properties owned by private individuals. This tax is payable when you’re a property owner. This varies depending on the value of the property and must be paid to the Town Council where the property is located. The local authorities are responsible for managing, calculating and collecting IBI. 

IBI is a general tax and is levied on everyone who owns a property (whether it is a permanent residence, leased or commercial premises, as well as undeveloped land, garages, etc.). Collecting IBI is very important for local councils, as it is one of the municipality’s main sources of income. 

How is IBI calculated?

Now that you know what IBI is, you need to understand how much to pay. How is it calculated? Unfortunately, the IBI calculation is not like the VAT calculation which is a fixed percentage (10%). The calculations that can be made only act as a guideline, as the final and real amount will only be known when you are duly notified by the tax authority. IBI varies from one municipality to another and by the cadastral valuations made at district level.

For a rough idea of how much IBI you’ll have to pay, the first thing you should do is consult the property cadastral reference. This will let you determine the value of the property and the land on which it is located. Note that this is not the market value of the property, but the value it has for the registration authorities. The value of the building and the land constitute the taxable base on which IBI is calculated. 

The cadastral value of a property is not determined by an appraisal that you submit upon purchasing the property, but is established by the Land Registry itself. To do so, it takes as a reference its location, as well as the cost of the materials used to build it or its age, among other parameters. 

Once you have the cadastral value of the property, you’ll need to know the tax rate of the community where the property is located. This can be easily consulted at the Central electronic offices of the Ministry of Finance. The tax rate also varies according to the location of the property, as well as the type of property (rural, urban, industrial). Therefore, the tax will be higher or lower depending on this. So, IBI rates may vary from 0.3% to 11%. 

Once you know this information, all you have to do is multiply the cadastral value by the tax rate consulted at the Ministry of Finance. Don’t forget that this is an estimated calculation and that, what’s more, you may benefit (if applicable) from certain discounts and reductions. This means that you may pay more or less than the estimated amount. 

Who pays IBI?

IBI is paid on an annual basis and in advance. During the year, you’ll have only one IBI collection and that will not be for the current year, but for the following year. In some municipalities you can pay in instalments whether quarterly, half-yearly or even monthly. This way you won’t have to pay a hefty sum.  

So, what is the IBI for a leased flat? When a property is not leased, the owner is solely responsible for paying for the property. This may change if the apartment or house is leased. Logically, IBI should be paid by the landlord, as he/she is the one who owns the house or apartment, even if the tenant is the one who actually uses it. Remember that the tenant only has possession of the property, but not ownership thereof. Nevertheless, lease contracts are nothing more than the good intentions of the parties and the agreement may set forth that the tenant is responsible for paying IBI, provided that he/she receives compensation or benefit for this payment. For example, using a storage room or a parking space that is not charged in the lease, but for which the tenant pays indirectly by paying IBI. 

To sum up, IBI or Property Tax (Impuesto sobre Bienes Inmuebles) is levied to tax the real rights (ownership) over a property, regardless of its nature. It is general and annual, but can be paid, if the collecting authorities so allow, in instalments. The amount of IBI varies according to the cadastral value of the property, as well as where the property is located. That’s why IBI is not the same for everyone. Note that, if you sell the property, you will be obliged to pay IBI for the year in which the transaction takes place.