There are many aspects that are undoubtedly taken into account when buying a property in Spain (location, size, etc.). However, it is common for buyers to also be concerned about another circumstance: taxes.
The tax to be paid by those who buy a property in our country is the Transfer Tax, in those cases where the seller is a private individual (not a businessman) or when the seller is a businessman and a “second hand” property is transferred. On the other hand, when the property being transferred is “new”, the tax to be paid is the Value Added Tax or VAT, plus an additional tax, the Stamp Duty.
- TRANSFER TAX
This is a state tax ceded to the Autonomous Regions, both in 100% of its collection and in the exercise of certain regulatory powers, in the terms contained in Law 22/2009, of 18 December. In this article, we will focus on the Balearic Islands region, where the Transfer Tax is regulated by Legislative Decree 1/2014, of 6 June (articles 10 to 14).
As advanced, the taxpayer (the person who must pay the Transfer Tax) is the buyer.
The tax rate applied changes considerably depending on the Autonomous Region in which the property is located. In the Balearic Islands, the taxation general rate (note that there are some reduced rates) results from applying the following table to the taxable base:
The taxable base corresponds to the reference value set each year by the Spanish Cadastre, although if the price agreed between buyer and seller is higher than the reference value, this price will serve as the taxable base. In other words, the reference value, if it exists, is the minimum taxable base that must be declared. Only in those cases where a higher price is agreed, the taxable base will be different from the reference value of that property.
In order to facilitate the calculation of the Transfer Tax, below is the link to an Excel tool designed by our partner Alejandro del Campo Zafra, also partner of the law firm DMS Legal Intelligence, which allows you to calculate the Transfer Tax to be paid according to the above-mentioned table by simply entering the acquisition value: [DMS tool].
Note that, nowadays, the Balearic Islands region has the highest tax rate in Spain. In other regions, such as Madrid, the general Transfer Tax rate is 6%.
However, when the property to be acquired is a parking space, the Transfer Tax to be paid will be calculated according to the following table:
As mentioned above, there are a series of special and lower tax rates that can be applied when some requirements are met:
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- Reduced rate of 4%. Applicable when (i) the value of the property is equal to or less than 270,151.20 euros, (ii) the property will be the buyer’s habitual residence and (iii) it is the buyer’s first home.
- Reduced rate of 2%. Applicable when, in addition to meeting all the requirements for the application of the reduced rate of 4%, any of the following three conditions are met: (i) the buyer is under 30 years of age, (ii) the buyer has a certain degree of disability or, (iii) the property acquired is the habitual residence of a large family or a single-parent family.
Finally, there is a 100% rebate (which means paying no Transfer Tax at all) in those cases where the following requirements are met: (i) the buyer is under 36 years of age or has a disability equal to or higher than 33%, (ii) the property acquired is the buyer’s first habitual residence, (iii) the value of the property does not exceed 270,151.20, (iv) that the taxable income of the buyer does not exceed 52,800 euros in the case of individual taxation or 84,480 euros in the case of joint taxation and (v) that the buyer has contracted with a financial institution a loan with mortgage guarantee for an amount equal to or greater than 60% of the appraised value of the property.
Note that there are many issues that must be taken into account when buying a property located in Spain, since, depending on the particularities of each case, taxation may vary considerably.
- VALUE ADDED TAX
Unlike Transfer Tax, only 50% of the VAT collection is transferred to the Autonomous Regions and, moreover, they do not have regulatory powers in relation to this tax.
Firstly, when buying a property, it should be known that Transfer Tax and VAT are two incompatible taxes, i.e. it is not possible to pay both taxes in the same transaction, as depending on the circumstances, one or the other will come into play, but never both simultaneously.
As mentioned in the previous section, the Transfer Tax is paid by buyers when the property purchased is a “second-hand” property (second or subsequent transfer of a building). In contrast, VAT is payable by buyers when the acquired property is “new” (first transfer). The most common example of a first transfer is the purchase of a property that has just been built by a developer, although there are occasions in which the sale of a second-hand property is considered as a first transfer if said property has been rehabilitated by the seller (such rehabilitation works must meet some quantitative and qualitative requirements).
Also, a transfer made by the developer after the property has been in uninterrupted use for a period of two years or more by its owner or by virtue of leasing agreements without option to purchase is also considered to be a second transfer and is subject to Transfer Tax, unless the buyer is the one who used said property during the aforementioned period.
As it is a tax whose regulatory powers have not been ceded to the Autonomous Regions, the tax rate applied is the same for the whole territory, with no differences depending on the location or value of the property. The general rate is 21%, although a reduced rate of 10% is established if buildings suitable for use as dwellings are transferred, and a maximum of two parking spaces may be included if they are acquired at the same time.
There is also a special tax rate of 4% which is applied to the transfer of dwellings administratively classified as special regime social housing or public housing, when the transfers are made by their developers, including garages and annexes located in the same building which are transferred jointly.
- STAMP DUTY
Additionally, in those cases in which the transfer of a property is subject to VAT, another tax is should be paid: Stamp Duty. This is because, unlike Transfer Tax, Stamp Duty is not incompatible with VAT and, furthermore, in the sale of real estate, all the requirements are met for this tax to be paid by the purchaser of the property.
In the Balearic Islands, the general tax rate on the transfer of real estate is 1.50%, although there are other special rates, of which the following should be highlighted:
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- Reduced rate of 1.20%. Applicable when (i) the value of the property acquired is equal to or less than 270,151.20 euros, (ii) the property is to be the buyer’s main residence and (iii) it is the buyer’s first home.
- Increased rate of 2%. Applied when the real or declared value (provided that the latter is higher than the real value) of the property is equal to or higher than 1,000,000 euros.
In this context, it is worth noting that, depending on the Autonomous Region in which the acquired property is located and its value, there will be occasions in which the VAT and the Stamp Duty taxation may be higher than the Transfer Tax taxation (as would be the case in Madrid) and there will be other occasions in which the VAT and the Stamp Duty taxation may be lower than the Transfer Tax taxation (as is usually the case in the Balearic Islands).
