New tax incentives for property purchase in Spain


A few weeks ago the Spanish Government introduced another important tax incentive for property purchasers in a bid to kick start the moribund property market and help the banks get rid of their stock of repossessed properties. It is worth comparing Spain’s property tax incentives to the massive French tax increases on foreign property owners. If there was ever a time to buy in Spain, this is it.

The Spanish banks have been ordered by Government to reduce the values of the properties they have acquired from bankrupt developers and defaulting owners. As the banks have now taken the losses into their balance sheets, the prices demanded by the banks for Spain’s massive unsold stock of property are finally getting realistic.

Virtually nothing about this has appeared in the press because this good news has been swamped by the unfolding drama of Spain’s failing banks and endless new legislation of one type or another.

But this change in tax law merits serious attention as it now makes buying an investment property, a holiday home or just somewhere to live, even more attractive. This article examines the Spanish tax system that will apply to buyers who have decided that the time is now right to buy highly discounted property that is on the market.

Quite simply, the change in tax law signifies that any properties purchased between 12 May 2012 and 31 December 2012 will qualify for a 50% capital gains tax exemption, regardless of when sold. 

This tax incentive applies to individuals or companies, whether resident or non-resident in Spain. In other words EVERYONE who buys in the next six months will benefit.

Here is a summary of the effective tax rates that will apply, having applied the new exemption:

Sale in 2012 or 2013Sale in 2014 onwards
Spanish company15%15%
Small Spanish company (1)12.5%12.5%
Resident individual13.5% (2)9.5%
Non-resident individual or company10.5%9.5%

(1) A small company is defined as a trading company that has profits of less than 300,000€ in a calendar year

(2) As an emergency measure a tax surcharge for 2012 and 2013 applies. For these years 27% is the maximum tax rate when capital gains exceed 18,000€. The first 6,000€ is taxed 10.5% (normally 21%) and the next 18,000€ taxed at 12.5% (normally 25%). In 2014 the tax rate will revert to a flat 19%.

The only condition for the 50% exemption is that property must be classified as ‘inmuebles urbanos’. This definition includes new or used apartments, villas, building land, offices, commercial units, parking spaces etc, whether located in or out of town.

For those that have a healthy distrust for the tendency of governments to reverse legislation, Spanish constitutional law makes it impossible for this tax incentive to be reversed retrospectively.

It is worth mentioning a few other items of good tax news relating to Spanish property:

  • The home purchase income tax credit for high income individuals has been restored for 2011 and 2012. Previously this was restricted to individuals with incomes of less than 24,107€. This tax credit is worth 15% of the first 9,040€ paid on the acquisition of a home (including purchase costs, mortgage interest and capital repaid, taxes and other purchase costs paid)
  • IVA (VAT) payable on purchase of new properties is at the super reduced rate of 4% (normally 8%) until 31 December 2012.

So, now is the time to drive a hard bargain with a bank and buy up some of that unsold stock. They are desperate to sell and some will even provide 100% finance for the holiday home purchases!

Spence Clarke specialises in the provision of Spanish tax, accounts, law and labour services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.