The 3 Taxes to Consider When Buying Real Estate in Spain
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Attention this post was updated on the occasion of the New Mortgage Law, you can see in this article
The taxes to pay in Spain in 2020 when buying a home.
As we have seen in “The 4 steps to buy a property in Spain”, the first thing we have to do to acquire a property is to start searching the market. A good recommendation for this is to set a budget, to which we must add a percentage that we will have to pay in the form of taxes and expenses when buying the property. Below we will detail the payment of taxes.
The taxes on the acquisition of a property in Spain depend on the Autonomous Community where it is purchased. For example, in the case of Madrid, they are between 6% (purchase of second-hand housing in cash) and 12% (purchase of new housing with mortgage credit) of the total deeded amount.
Taxes are classified into the following:
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The most important tax of all: Property Transfer Tax (ITP) or Value Added Tax (VAT)
If we buy property for use as a new home from a promoter, we will have to pay VAT, which applies throughout the Spanish territory. The Canary Islands and the autonomous cities of Ceuta and Melilla are exceptions to this.
VAT for the purchase of new homes will generally be 10% and for homes under a special protection regime it will be 4%.
Let us remember that VAT is a type of indirect tax, so we must pay it to the economic agent between us and the Treasury, in most cases it will be to the developer company that manages the sale of the property.
In the event that we buy a second-hand property, it will not be taxed by VAT but through the Property Transfer Tax (ITP).
This tax has been transferred to the Autonomous Communities, so there is no fixed national value. For example, in Madrid it is 6% in general and 4% for large families.
ITP, unlike VAT, is a direct tax, so we must pay it ourselves at the Treasury Office that corresponds to the place where the property we have purchased is located. The payment of this tax must be made within a period of 30 business days from the day of execution of the public deed of sale.
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Documented Legal Acts Tax (IAJD)
If a new home is purchased, in addition to VAT, the Tax on Documented Legal Acts (IAJD) must be paid, which has also been transferred to the Autonomous Communities and ranges between 0.5% and 1.5% of the price of sale. In the case of Madrid, the IAJD is taxed as follows: exempt for officially protected housing; 0.2% for housing with public protection (VPP) with less than 90 square meters of useable space; 0.4% for VPP of greater size than 90 square meters of usable space and for free homes with a deeded amount of less than 120,000 euros; 0.5% for deeded amount between 120,000 euros and 180,000 euros; 0.75% for deeded amount greater than 180,000 euros.
In addition, the IAJD always applies when buying a home, new or second-hand, through a mortgage. In this case, the percentage is calculated on the total insured amount of the mortgage, which can be estimated as the capital plus 30-50%.
If we buy a new home with a mortgage, we will pay the IAJD twice, once for the purchase of the home, calculated on the deeded amount and another for the mortgage calculated on the total insured amount of the same (this changed in 2019 and now the IAJD for the mortgage is paid by the bank).
In summary, as an example in Madrid, in general, we will pay the following taxes (the percentages that appear are of the deeded amount)
Table 1.Taxes to pay for new or second-hand properties, purchase and mortgage. Madrid case (valid until 2019).
| Cash purchase |
With Mortgage | ||||
| IVA | ITP | IAJD | IAJD | IAJD adjusted | |
| New | 10,00% | does not apply | 0,40% – 0,75% | 0,40% – 0,75%* | 0,52% – 1,13%** |
| Second hand | does not apply | 6,00% | Not compatible | 0,40% – 0,75%* | 0,52% – 1,13%** |
* In the case of mortgages, the IAJD is calculated on the total insured amount, which is estimated to be 30-50% greater than the deeded amount.
** Own calculations making the adjustment to the total insured amount.
Table 2. Total taxes to be paid for new or second-hand properties, purchased in cash or with a mortgage. Madrid case (valid until 2019).
| Cash Purchase | With mortgage | |
| New | 10,40%-10,75% | 10,92%-11,88% |
| Second hand | 6,00% | 6,52% – 7,13% |
Where does this information come from?
RRoyal Legislative Decree 1/1993, of September 24, approving the Consolidated Text of the Law on Property Transfer Tax and Documented Legal Acts (“BOE” no. 251, of October 20, 1993 Last modified: 30 October 2015 Reference: BOE-A-1993-25359)..
Why do new homes pay VAT plus IAJD and second-hand homes only pay ITP?
The Tax Law on Property Transfers and Documented Legal Acts states that the same act must only pay one of these two taxes (the higher of them), that is, the ITP and the IAJD are incompatible for the same act. While VAT is governed by other regulations that are not incompatible with the IADJ.
We have intentionally left out of this article the other expenses that we must take into account when purchasing a property, such as notary, registry, agency and bank fees in case of making a mortgage. We do so because these expenses are not a fixed percentage like the taxes mentioned above, but are direct amounts that are applied according to the price range where our property is located. These topics are covered in depth in another article.
If you are a foreigner, you can also take a look at this article where we explain the steps to invest in Spain: “I am a foreigner: the 5 steps to buy a property in Spain”
I hope this information has been helpful to you and I invite you to use the comments to leave your opinion about this article. If you liked this publication and you don’t want to miss any other, make a subscription by e-mail, thank you very much!
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Do you want help buying a home in Spain? We are experts in the Madrid market and we can find the home you are looking for, but we can also advise you on tax matters throughout the national territory..
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