Spanish Regional Tax System
The recent changes made by the Spanish government to the property sales tax make it a good time to review the taxes in Spain that relate to property transfers. While quite straightforward, the matter is complicated by the difference in treatment of the sale of a new versus a second-hand property, as well as the different tax rates applicable in the different autonomous communities of Spain.
Spain is divided into 17 separate regions or autonomous communities and each one has a limited responsibility to set the rates of certain taxes. This means that the specific tax rate payable in a particular region will depend upon the tax rate that has been set by the regional parliament.
Also of relevance regarding property sales tax is the type of purchaser, with various autonomous communities offering targeted groups of purchasers (such as the disabled or large families) a discount from the standard rate.
These variations aside, the main categories of tax relating to property are as follows:
Equivalent to VAT in the UK and Ireland this tax is payable on the sale of new properties (as opposed to second-hand) and is set by the central government. In a move to assist cutting the backlog of new properties that is currently weighing down on the market, the government has announced a halving of the rate from 8% to 4% until the end of 2011.
An exception to this is the Canary Islands which levies IGIC instead of IVA. The standard rate there is 5% though this has been lowered to 2.75% for those who are purchasing the first home, where the property is valued at less than €150,000.
The sale of a new property also attracts AJD (impuesto de actos juridicos documentados) and is set by the regional government. It varies therefore according to the autonomous community in which the property is located and can lie anywhere between 0.5% and 1%.
AJD is also payable on the creation of a mortgage so it will also need to be dealt with by the purchasers of second-hand properties where a mortgage is required. The AJD rate on mortgages is normally 1% of the value of the mortgage.
Impuesto de Transmisiones Patrimoniales is the equivalent to IVA but is payable on the purchase of a second-hand properties and the rate is set by the regional governments. It is up to each one to decide the rate but most have opted to set it at the same level as IVA and so typically it ranges between 6% and 8%.
This is a yearly tax that is equivalent to the rates or council tax in the UK. The amount due depends on what is known as the ‘catastral’ value of the property. This is a notional value attributed to every property by the local government. This value is then multiplied by a coefficient which varies according to the region in which the property is located. For urban property this oscillates between 0.4% and 1.1% though can be more depending on whether the property is located in the municipal capital or if more services than normal are provided.
This is the equivalent of capital gains tax and is payable on the increase of the value of the property during ownership. Should the proceeds be used for the purchase of another primary residence then the tax may be avoided.
The tax rate is 30% of the following value:
Value of the property x Number of years held x (between 2.8% and 3.7% depending on number of years the property owned).
The ownership of a property in a shared structure, for example an apartment gives rise to a Community charge that is used towards the upkeep of the shared elements of a property. Anywhere that has shared components, such as a lift or a swimming pool will require a community charge to be paid and the amount payable is dependent upon the size and value of the property as compared to the rest of the properties.