IBI property tax – town halls' residents' sieve?
By James Parkes With IBI property tax payment upon us every September come the moans and groans of how much we pay – and, more precisely, how much our councils rake in every year.
IBI tax is the town halls' main source of income. It represents 64% of the total figure, with second-placed ITVM vehicles tax representing a mere 10% of their income. And on a national scale, only IRPF income tax and IVA (VAT) rake in more income – in these cases both go directly to central and regional governments.
IBI tax income has never dropped in Spain, not even during the worst year of the economic crisis – when the construction bubble burst in 2008, IBI was not affected because it does not depend on sales but on the ownership of a property, regardless of whether it’s a private owner or still the developer's. This is why 10 years ago, IBI tax throughout Spain amounted to a total of six billion euros, and in 2014 was well over 13 billion.
After over 10 years living in a town that officially has one of the highest IBI rates in the region, I can safely say that I have never seen my bill IBI reduced; quite the contrary.
So with all this said, local town halls have a very powerful financial tool in their hands, which has eventually become a residents’ sieve.
The way IBI is calculated favours this. IBI is based on the rateable value of the property (Valor Catastral), which is set by the official Oficina del Catastro. Supposedly it should not be more than 50% of the market value, but due to the property market collapse this does not actually reflect reality. In any case, town halls are then allowed to apply a percentage to that value and are given freedom to choose between 0.4 and 1.3% of it – which is what you pay on your IBI bill.
So councils can actually charge more by increasing the percentage they apply. In some areas, when the Valor Catastral has dropped (during recession), councils have increased the percentage so they don’t ‘lose out’. Now that things are picking up, they seem more reluctant to drop the rate they apply. Some councils claim they have ‘lower’ IBI rates because they apply a lower percentage, but because the Valor Catastral has increased, then effectively residents see no real difference – certainly not downwards. I know of several residents who have moved to ‘the next town’ simply because they could no longer afford to pay their IBI rates. A perfect example are a couple of expats, on a pension, who were unable to face bill of over €2,000 every year and were ‘forced’ to sell up and move to a ‘cheaper town’. But it’s not only an expat problem, it mainly affects Spanish residents who have lived in their own house for decades and suddenly, with less income, can no longer ‘afford’ to live in their own town. Here’s where the sieve comes in. Certain towns have, directly or indirectly, used their IBI tax to boast about the ‘wealth’ of their residents. ‘You must be able to afford to live here’ seems to be the motto. And that’s exactly what has happened. Some towns seem to be targeting an ‘upper-middle-class’ resident.
Effectively, the cost of a property is not the only thing you need to ponder over when buying. The question may not be 'Can I afford to buy here?' but more like 'Can I afford to live and pay IBI here?'
Although this is not always the case, towns sieving out lower-income residents tend to boast they have much better services, facilities and leisure options for their residents – thus justifying the high rates. I insist, this is not always the case and many town halls cling on to IBI income to pay off the huge amount of debt they have because of some huge building project or unnecessary council outlets that were supposed to have been paid by developers who later say their ‘Plan Parcial’ development scheme was scrapped or simply could no longer afford to go ahead with it
But at the end of the day, the higher the IBI, the higher the 'standard' of residents. So if your rates have increased this year, be happy - you're living in a top-class town...