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In a surprise move the Spanish government has announced that the rate of sales tax or stamp duty payable on new properties in Spain will be reduced from 8% to 4% until the end of 2011. The measure is an effort to reduce the number of excess properties that remain unsold as a result of the economic crisis.
The measure is not applicable to the Canary Islands which has it’s own sales tax known as the IGIC. The regional government in the Canary Islands has announced that it will match the central governments move only insofar as reducing the current 5% rate to 2.75% for first time purchasers of principal personal residences where the value of the property does not exceed €150,000.
The move by the government in the Canary Islands reflects concern that the measure will not have the desired effect of getting more people buying property in Spain. Many believe that as with other temporary tax reduction measures it will tend to only bring forward demand with a consequent reduction in sales after the return to normal rates.
It has also been noted that as the measure relates to IVA and not ITP which is levied by regional governments that the move will promote the sale of new properties as against second-hand properties so that the benefits obtained by the central exchequer will be mirrored by the losses to the autonomous communities.
Of course another big winner will be the banks, who will now pay the lower rate when repossessing the properties from construction companies unable to repay loans. When these properties are sold on, they would effectively become second-hand and attract ITP tax at the higher rate although there are exceptions.
One example is Caixa Cataluña, the huge savings bank based in Barcelona which currently holds 8,000 new and second-hand properties. It has even gone as far as to match the government’s reduction of sales tax on new properties with a similar reduction on second-hand properties it holds in an effort to promote sales. Only time will tell.