Spanish Government measures for the property market in 2012

The newly elected Partido Popular (Conservative) party has introduced a raft of measures relating to the under-performing property market. These measures are directed both at stimulating certain sectors of the market and generating extra tax revenue.

• The most beneficial measure to those looking for bargains or reduced taxes in this price sensitive market, is the continuation of the ‘super’ reduced VAT (iva) at 4% on all brand new property. ( This tax break was introduced by the previous socialist government in August of 2011 for a four month period.)
• Mortgage tax relief has been reinstated and backdated. This measure, scrapped by the Socialists in favour of boosting the rental market, will be warmly received by first time buyers and recent owners of residential property.
  
  It will provide a clear incentive to Spanish nationals and permanent residents to buy property instead of renting and as such, should have a positive effect in a somewhat stagnant market. The PP party has also discontinued housing benefit for young people renting *.
• Property Rates taxes (IBI) will be increased for those properties which are in the top half of the local average rateable values. This means that if the ‘Catastral’ value of the property is above the average for the area, that property will incur an increase of somewhere between 4% and 10% (This will depend on how recently Catastral values have been ascribed in that local area).

This last measure is not as alarming as it may initially sound to any prospective foreign buyer as Rates/IBI have always been relatively low in comparison to many other European countries and will remain so even after this potential increase.

The regional government of Andalucía has announced its own changes to certain property taxes, raising both Transfer Tax (ITP) and Stamp Duty (AJD).

Transfer tax (ITP) will now operate on a sliding scale according to the value of the property being purchased:

• 8% for property up to 400,000€.
• 9% for property up to 700,000€.
• 10% for property over 700,000€.

(Up to the first 400,000€ - 8% IVA is paid, then from 400,000 to 700,000€ - 9% is paid, and so on....)

(See below for further details – examples).

• Stamp Duty (AJD) is now charged at 1.2%, up from 1%. This tax is only applicable on the purchase of brand new property.

This 4% VAT (iva) tax break was introduced by the previous socialist government in August of 2011 for a four month period in an effort to boost the number of properties sold by property developers, large and small.

The number of unsold brand new ‘stock’ in the whole of Spain is thought to be around 700,000, so this is an area which requires special attention and stimulus on behalf of the the PP government.

According to the Malaga association of builders and promoters, the figure for unsold stock in Andalucia at the end of 2011 was 79,000 properties. However, this is thought to halve in 2012, down to 35,000 and then further to 14,000 in 2013.

The nature of the ‘dual’ market in the Malaga region (National and Foreign purchasers) continues to help the province weather the storm better than most non coastal areas.

Maintaining the ‘super’ reduced IVA rate at 4% gives a clear bias to shifting new property stock. This in turn, obliges private resale vendors to reduce their prices further still, if they wish to remain competitive. If we look at two examples of the related property taxes on New and Resale property we can see the difference.

A property purchased for 150,000€:

• New property/ First inscription pays 4% IVA.: 6,000€
• Also pays Stamp Duty. (AJD)of 1.2% : 1,800€
• Total: 7,800€

Resale property pays a sliding scale from 8-10%:

• 150,000€ at 8% : 12,000€
• Total : 12,000€

A Property purchased for 850,000€:

• New property/ First inscription pays 4% IVA.: 34,000€
• Also pays Stamp Duty. (AJD)of 1.2% : 10,200€
• Total: 44,200€

Resale property pays a sliding scale from 8 -10%:

• 400,000€ at 8% : 32,000€
• 300,000€ at 9% : 27,000€
• 150,000€ at 10% : 15,000€
• Total : 74,000€

To check costs and taxes when purchasing Spanish property please click here.

Prospective buyers, keen to find value for money along with the benefits of purchasing Brand new should be informed however, that most Bank Repossessions will not fall into this ‘super’ reduced VAT category. This is because the properties have been officially repossessed by the banks from failing developers. As such, the banks themselves are the official first owners of the properties – despite no one actually living in them - and when sold Transfer Tax ‘ITP’ not VAT applies.

* The discontinuation of the Renta Basica de Emanicpacion (RBE), a form of ‘Housing Benefit’ for young people. No new applications will be accepted and existing benefits will run out in 2 years.

08.01.2012