Buying real estate property in Spain can be a profitable way to invest money sustainably. For this reason, the purchase of a property can be seen purely as a financial investment. But also the acquisition of a profitable object as a holiday home or temporary residence. If you are thinking about buying or selling a property in Spain, there are several taxes that require your attention.
Buying a second-hand property
Purchases of second-hand residential property (viviendas de segunda mano) are subject to property transfer tax (ITP – Impuesto sobre transmisiones patrimoniales). Depending on the Autonomous Community, it is between 6 and 10%. In the Canary Islands (special status), instead of the real estate transfer tax, a 7 % acquisition tax (IGIC – Impuesto General Indirecto Canario) is payable.
You will not be asked to pay the property acquisition tax. Instead, you will have to assess the tax yourself (autoliquidación) by paying the tax amount to the tax office within 30 days. The payment should be made as soon as possible, as the receipt is necessary for the final registration in the land register.
In addition, there are the costs of the notary and the land registry, plus any costs for translators, estate agents, and lawyers.
Buying a new house or apartment
When buying a new house or apartment from a building contractor, there is no land transfer tax, but a value-added tax (VAT). The value-added tax (impuesto sobre el valor añadido) is 10% for new apartments and houses, 4% for social housing, and 7% for the Canary Islands.
You have to pay the value-added tax to the Spanish contractor and the Spanish contractor must pay the tax to the tax authorities. If you negotiate with a building contractor, make sure that he understands the prices quoted as gross or net, so that your calculation is not underestimated.
In addition, there is also the legal document tax – AJD (Impuesto de Actos Jurídicos Documentados) – (tax rates vary between 0.1 and 1.5% in Autonomous Communities).
Capital gains tax and retention when selling a property
In addition to the purchase taxes already mentioned, still, the capital gains tax has to be paid by the seller. This is a part of the income tax. The capital gain in Spain is taxed at 21%. But the longer the sale is in the past, the less tax you have to pay.
Depending on the year of purchase a coefficient is applied to the earlier purchase price. In practice, however, it usually happens that only the 3% retention on the sale price is paid to the tax office and the seller neither submits an income tax return nor pays any remaining amount in relation to the 21%.
This means that the seller actually pays only a 3% tax on the purchase price mentioned in the notary contract. However, the seller can claim a refund if it believes that its tax liability is less than 3%.
How is the capital gain calculated for capital gains tax?
The coefficients are determined anew each year. The purchase value is made up of the purchase price including ancillary purchase costs, which are adjusted by certain update coefficients depending on the year of purchase, which is determined annually in the budget law. The difference between the transfer value and the purchase value is the taxable profit (tax rate of 21%).
A transitional regulation applies to properties acquired before 31.12.1994. The 3 % lump sum is calculated on the purchase price, and the 19 % is calculated on the calculated capital gain.
Municipal capital gains tax on property (Plusvalía)
This tax (impuesto sobre el incremento del valor de los terrenos de naturaleza urbana) is often confused with capital gains tax, which is part of income tax. When buying a property, both taxes are basically due at the same time.
The Plusvalía tax only taxes the increase in value of the land, i.e. not the increase in value of the house or apartment, so it can be generally said that when buying an apartment in a large apartment building, this tax will be relatively low, because the share of the land belonging to the community of owners attributable to the owner is normally very small, as the land is divided proportionally between the number of apartment owners.
If, on the other hand, someone buys a large plot of land with a high increase in value, the value-added tax will be relatively high. Spanish law stipulates that the seller has to pay the tax on capital gains. If the seller is a non-resident foreigner, the buyer is liable for this tax. When all documents have been checked, all questions have been clarified and there is agreement on the purchase price and other contractual conditions, the purchase contract can be concluded.
At this stage at the latest, you should also be aware of the approximate amount of the additional purchase costs, notary and registration fees, possible consultancy costs, commission, and taxes.
If you want to buy or sell a property in Spain with all the guarantees, you should take precautions and seek the professional advice of a lawyer. We are at your disposal for any further questions on this subject. Contact our tax advisors in Barcelona by email or phone.
