When purchasing a property in Spain, there are a series of additional costs that must be added to the price of the property, such as VAT or ITP taxes.
We will provide a general outline of the taxes involved when purchasing a property in Spain, taking into account that each specific case will require a study in order to determine the correct taxes to be paid in each case.
New homes in Spain from a developer as a first transfer of ownership
The purchase of new homes in Spain (first transfer), when the seller is a developer (entrepreneur or professional), will be subject to VAT and Transfer Tax and Stamp Duty (AJD). The VAT rate applied to these properties in Spain is 10% in general and 4% in the case of Social Housing (VPO).
The AJD is a tax that is levied on notarial, mercantile and administrative documents and will vary depending on the autonomous community where the property is located.
In Andalusia, for example, the purchasing of a new property (not VPO) will be subject to 10% VAT and 1.5% AJD.
What do we mean by new homes in Spain?
A property that is purchased from a developer, once the property is finished or the renovation is completed, unless the property has been in continuous use for a period of at least 2 years by persons different from the purchasers, in which case, the property will not be considered as a first transfer.
For example, if a developer, once the works have been completed, has rented the property and after 2 years decides to sell it:
– The sale will be subject to VAT, if the buyers are the tenants themselves, understanding that this sale is a “first transfer”.
– The sale will be subject to AJD, if the buyers are different to those who were tenants of the property in the last 2 years. In this case it is understood that the property is a “second transfer”.
Second transfer of properties in Spain between two private individuals:
Second-hand properties, normally between two private individuals, are subject to Transfer Tax (ITP), the management of which is assigned to the Autonomous Communities, with the tax rate varying from one region to another.
For example, in Andalusia, the purchase of a second-hand properties is subject to 8% transfer tax on the first 400,000.00 euros.
A purchase subject to ITP cannot be subject to VAT and/or AJD, so they cannot be paid at the same time.
Purchase and sale between two promoters, entrepreneurs and/or professionals
In these cases, we must consider whether it is a new home or a first or second transfer, as follows:
The sale of a new home between two entrepreneurs or professionals will be subject to VAT.
This would be a first transfer by a businessman/professional subject to VAT.
Sale of a second transmission property between two entrepreneurs/professionals.
In these cases this sale would be subject to VAT but exempted, in which case, there are two possible scenarios:
– Sale subject to VAT but exempted, where the VAT exemption can be renounced. In this case VAT is paid
– Sale subject to VAT but exempt, where the VAT exemption is NOT renounced. In this case the sale will be subject to ITP.
We would not wish to end this blog without commenting on a special case that we have been given in our law firm in Marbella.
The transfer of a property in Spain in a state of ruin or the necessary rehabilitation by the purchaser could be subject to VAT, which in this case, would not be at the reduced rate of 10% but at 21% VAT. In this case, it must be kept in mind that the purchaser is acquiring the “house” for demolition and/or total rehabilitation. This is the case that was proposed to us in our law firm in Marbella: a bank, owner of a property by mortgage adjudication, intends to subject the sale of a property in a dilapidated state or in need of rehabilitation, to 21% VAT, even though the buyer is a private individual who is not a businessman/professional subject to VAT. In this case, the buyer may be faced with a significant tax impact of 21% VAT and AJD.
If you have any doubts about the taxes you have to pay when buying a property in Spain, do not hesitate to contact the offices of Welex, expert lawyers and tax experts dedicated to the real estate market.
The Tax on Real Estate (IBI) is a tax framed in the Local Spanish tax system. It management is shared between the State Administration and the Town Councils and the tribute is collected by each Town Hall for the properties on its municipality. It’s been in forced since January 1st, 1990.
Coming into vigour as of 28th April 2021 and with exclusive duration until 31st December 2021, specifically in the modality of Onerous Property Transfers. This reduction of taxes in Andalusia, Spain, is applicable to the transfer of real estate and to the constitution and transfer of rights over the same, except those of guarantee.
The purchase and sale of a second transmission property in Spain, that is to say, where the seller is a private individual or the property has already been inhabited, is subject to the Property Transfer Tax in Spain. This tax varies depending on the autonomous community where the property is located.