Acquiring a home in Spain entails a whole series of expenses beyond the sale price. It is worth considering them because these expenses may represent around 10 – 12% above the property price. Specifically, the highest of these costs are taxes.
What are the taxes involved in buying a property?
These taxes depend on whether the property is second-hand or brand-new.
Taxes applicable on a new home
In this case, we must face two taxes:
• Value-added tax (VAT): it is 10% of the home value, although it is reduced to 4% if it is officially protected. In the case of the Canary Islands, this tax would be the General Canary Tax (IGIC), which is 6.5%.
• Tax on documented legal acts (IAJD): this tax depends on the autonomous communities and varies from one to another. It can go from 0.5% to 1.5%. For instance, the tax is lower in the Basque Country and the Community of Madrid, while on the opposite side are Catalonia and the Balearic Islands, among others. Some communities, on the other hand, apply reductions to groups such as young or disabled people.
There are two essential distinctions between both taxes, apart from the amount:
• To whom we must pay: in the case of VAT, we pay the tax to the seller, who will then pay it to the Treasury. Meanwhile, the IAJD must get paid to the tax administrations of each autonomous community.
• The calculation: VAT is calculated based on the sales price. On the other hand, the IAJD is according to the reference value that the Cadastre assigns to the property; if there are differences with the sale price, the highest value is applied for the calculation.
Taxes that apply when buying and selling a second-hand home
In this case, there is only one tax: the Property Transfer Tax (ITP). As with the IAJD, it is a tax set by each autonomous community and can vary significantly. For example, in the Basque Country, it is 4%. Meanwhile, in the Community of Madrid, it rises to 6%, and in Catalonia or the Valencian Community it reaches 10%.
Like the IAJD, it is a direct tax and takes the reference value for its calculation. There are also exemptions for young people, the disabled, large families or if it is a habitual residence.
Other taxes to buy a house
In the case of formalizing a mortgage for buying a home, it is also necessary to pay the Documented Legal Acts Tax. In this case, the IAJD applies to the mortgage loan. Since 2018, the bank that grants the mortgage must pay the tax.
If you want to buy a property in Spain, don't forget to consider these taxes and add those that correspond to the property sale price. That way, you'll be able to calculate the total investment.
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