Tax implications IN SALE & PURCHASE TRANSACTIONS

When buying a home, it is very important to have clarity about all the tax implications that it entails. In this regard, we provide a brief summary of the taxes that must be taken into consideration.

¿What taxes are paid?

THE BUYER

1) In the case of a second-hand home:

• Impuesto sobre Transmisiones Patrimoniales (ITP) or Property Transfer Tax (ITP): This is a tax that is under the jurisdiction of the autonomous communities, and therefore the percentage to be paid will depend on the autonomous legislation. As its name indicates, it is the tax that must be paid for the onerous transfer of the property.

  
  

• Impuesto de Actos Jurídicos Documentados (IAJD) or Tax on legal documents as a fixed rate and NOT as a variable rate: this is a tax that is under the jurisdiction of the autonomous communities. This tax is levied on acts formalized in public deeds.

We must take into account that taxes will be paid on the value of the property declared by the interested parties (in the public deed) or the reference value of the property stipulated by the public administration of the autonomous community. The highest of the two values ​​will be applied.

2) In the case of a new construction home:

• Impuesto sobre el Valor Añadido (IVA) or Value Added Tax (VAT): this tax is levied on the delivery of goods and services provided by companies and professionals. In the case of buying a new-build home, this tax is applied due to the status of the seller, who is a company or professional. The generic rate is 10%, which will be 4% in the case of social housing. However, there are communities with other arrangements, such as the Canary Islands, where it is called IGIC and, generally, with a percentage of 5% or 3%, depending on the type of property purchased or the characteristics of the purchaser.

  
  

  • Impuesto de Actos Jurídicos Documentados (IAJD) or Tax on legal documents: as previously mentioned, this tax is levied on acts formalized in public deeds. However, in this case the buyer will be obliged to pay both the fixed rate and the variable rate. The variable rate depends on each autonomous community and must range between 0.5 and 1.5%.

The VAT will already be included in the purchase price and the IAJD will be paid on the value declared in the notarial documents.

Are there any annual tax implications? Yes

The owner of a property in Spain must pay several local taxes annually, such as the IBI (Property Tax) and garbage collection tax. The amount to be paid will depend on the municipalities where the property is located and will be calculated on the cadastral value of the property. The percentage of the tax varies between 0.4% and 1.1%. As for garbage collection, we are talking about amounts that do not usually exceed 350 euros per year. Likewise, before carrying out a sale, the IBI and garbage tax from the previous year are always requested to know exactly what amounts are involved.

The profits obtained from renting the property must also be taken into account. When you are a tax resident in Spain, you simply have to take this into account for the declaration of Personal Income Tax. In the case of non-tax residents, it must be declared through the Non-Resident Income Tax (IRNR). In this case, 19% (European Union, Iceland, Norway and, since 11-07-2021, Liechtenstein) or 24% (other countries) is paid on the profits obtained. Something more controversial is that when the property is not rented, the non-tax resident must also pay IRNR on an annual basis, having to pay:

• If you are a tax resident in the European Union, Iceland, Norway and, since 11-07-2021, Liechtenstein: 19% on 1.1% (if the cadastral value is updated) or 2% of the cadastral value of the home.

• If you are a tax resident in other countries: 24% on the 1.1% (if the cadastral value is updated) or 2% of the cadastral value of the home.

THE SELLER

• El Impuesto de Plusvalía de Terrenos Urbanos (IPTU) or The Urban Land Capital Gains Tax (IPTU): this is a tax that is under the jurisdiction of the municipalities, and, therefore, the percentage to be paid will depend on each municipality. This tax taxes the increase in value of urban land at the time it is transferred. Therefore, it will only apply to properties that are located on urban land and NOT to those of a rural nature. Here it must be taken into account that by default the administration applies the objective method, but allows the use of another method (the real method) which is of particular interest when no or little real profit has been obtained from the sale of the property.

  
  

• El impuestos sobre las ganancias que la operación produzca (IRPF - IS - IRNR) or Tax on the profits generated by the operation: in this case, the profits obtained from the sale of the property will be taxed. Natural persons who are tax residents in Spain through Income Tax, companies through Corporate Tax and persons who are not tax residents in Spain through Non-Resident Income Tax.