Property Purchase Tax Reduced in Andalucía

If there’s one thing that pretty much everyone involved in the property market in Spain agrees on it’s that buying costs are high. Many would say property purchase tax is too high  and a deterrent to investors.

ITP on Resales

The major cost for buyers when they purchase a secondhand property in Spain is the ITP. This is the property purchase tax which is set by each autonomous region. It can be anything from a flat rate 6% in Madrid and a few other regions to a flat rate 10% in others.  On the other hand, several regions operate a sliding scale between 8% and 11.5%.  Once the other costs that are the buyer’s responsibility are added, such as notary and registry fees, legal fees, property purchase taxes and fees at the top of the range come close to a 15% total.

IVA and AJD on New Builds

In the case of new-build properties the major cost is IVA (VAT) fixed at 10% nationally (apart from the Canary Islands which don’t have IVA but IGIC at 7% on new property).  On top of that stamp duty (AJD) is set regionally so there are variations in the range 0.5% – 1.5%.

Regional Differences

As regards the regions that attract the majority of overseas buyers, the Canary Islands is the least expensive, property purchase tax at a flat rate 6.5%. In contrast the Balearics is the most expensive with a sliding scale between 8% and 11.5%.  However, as this tax is set regionally there is the potential for unilateral action to stimulate the market. This is what Madrid did in 2014 as the property market started to get going again after the 2008 crash. As a strategy to boost the market they lowered the ITP from 7% to 6% and have kept it there ever since.  In contrast, several regions increased it, going from the general standard of a flat 7% to 10% while others introduced a sliding scale. One of those was Andalucía.

Tax Hike 2012

In 2012, with a property market in ruins but just starting to show a few green shoots, thanks mainly to the overseas sector of the market, Andalucía decided to go from a flat rate 7% property purchase tax to a sliding scale with a top rate of 10%.  The banding started at 8% on properties up to €400,000,  9% on any amount between €400,001 and €700,000, the 10% rate kicking in above €700,000.  So, whereas previously a €2m property generated a property purchase tax of €140,000 the new scale turned that into €189,000, a 35% increase.  At the lower end of the market a €390,000 purchase  produced a 14% ITP increase, from €27,300 to €31,200.  Many of us thought that was not a very smart move to encourage buyers back into a market that was just getting off the floor.

Tax Reduction 2021

So it was a pleasant surprise when the Junta de Andalucía announced in April 2021 it was abandoning the sliding scale and reverting to a flat rate of 7% ITP, but only until December 31st. The intention was clearly stated. Give the property market a boost in the short term.  

Now It’s Permanent

Most people involved in the sector didn’t really think it would be a permanent reduction even though it is generally acknowledged that lower taxes often produces more revenue.  I was sceptical so when the Junta announced at the end of October that the flat rate 7% ITP is now permanent it was better than a pleasant surprise.  Everyone benefits although there’s no question the biggest advantage is to buyers at the higher price levels.  And there’s also no question that it is the top-end of the property market in Andalucía, particularly in Málaga province, that is driving the post-pandemic recovery.  Nevertheless, the lower end of the price range wasn't forgotten. Providing the purchase is for permanent residence with a price under €150,000, purchase tax is now levied at only 6%. This decision couldn’t have come at a better time, a real boost for the property market in Andalucía.

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