Author: María Gracia Moreno Vegas
One of the most taxed actions by the State and Local Treasury is the purchase and sale of real estate, not only as the purchase and sale of a good which is taxed by the Value Added Tax, but also as an increase of patrimony, coming into play the taxation that regulates this type of acts: Tax on the Patrimonial Transmissions, Tax on the Municipal Capital Gains, Tax on the Income of the Individuals, etc.
So, who is responsible for paying each tax and when should they be self-assessed?
1- Newly constructed real estate (first transfer)
Value Added Tax (VAT)
The buyer only pays it when a new property is delivered to him, that is to say, when the developer/builder delivers it to him for the first time.
The tax rate was 4% of the sale price (very reduced VAT only until December 31, 2012). After that, it was 8% as of January 1, 2013. And, currently, VAT is 10% except in cases of social housing.
In the Canary Islands, this tax is replaced by IGIC (Impuesto General Indirecto Canario) with a rate of 4.5%.
The VAT is NOT applied to the sale of a property between individuals.
For example, if a developer sells a newly built apartment in the year 2022, for a price of 450.000€, the buyer will have to pay about 45.000€ of VAT.
Tax on Documented Legal Acts (IAJD):
This tax is levied on the formalization of public documents (notarial, mercantile and administrative) in property transfers that are not exempt from VAT.
It is paid by the buyer of the property and the tax rate varies between 0.75% and 2% depending on the Autonomous Community.
Its calculation basis, in the case of mortgages, is the mortgage debt and, in the case of the first transfer of the purchase of a property, the price appearing in the public deed.
For example, in the case of an apartment whose mortgage amounts to 200.000€, the self-assessment of this tax will be between 1.500€ and 4.000€ depending on the Autonomous Community.
2- Second-hand real estate (second and successive transfers)
Transfer Tax (ITP):
This tax is levied on the sale and purchase of second or successive sales of second-hand properties (not new properties, which are subject to VAT).
It is paid by the buyer of the property and has a tax rate that varies between 6 and 8% depending on the Autonomous Community.
The tax is paid at the tax office of the respective Autonomous Community, the basis of calculation being the purchase price that appears in the public deed, as explained in our article on the subject.
Likewise, VAT and ITP are incompatible taxes, that is to say, in the cases in which one is applied, the other is not applicable and vice versa.
3- New and second-hand real estate
Onerous transfer of property: the tax rate is 1% and is paid when a mortgage loan is requested to finance the purchase of a new or second hand property.
Tax on the increase in the value of urban land (capital gains tax)
This is a municipal tax levied on the increase in the value of urban land from the time of purchase to the time of sale.
The surplus value is charged to the seller in sales and purchases (a recent ruling, dated last January 18 and under appeal number 3379/2014, of the Supreme Court has confirmed that the developer of new homes may NOT charge the surplus value to the buyer). When a property is transferred by inheritance or donation, the taxpayer is the one who acquires the property.
– The taxable base is obtained by multiplying the cadastral value of the property at the time of the transfer by the number of years that the seller has owned the property (maximum 20 years) and by a percentage to be determined by each municipality and which may not exceed the following limits: 3.7% for a period of 1 to 5 years; 3.5% for a period of up to 10 years; 3.2% for a period of up to 15 years; and 3% for a period of up to 20 years.
The result is subject to a tax rate applied by the municipalities, which cannot exceed 30%.
If the period of ownership is less than one year, no capital gain is realized.
If the period of ownership is more than 20 years, 3% is also applied.
For example, if we have a property with a cadastral value at the time of transfer of 140,000 euros, whose owner has been the owner for 15 years, with a percentage imposed by the municipality of 3.2%, it will have a taxable base of 67,200. Assuming that the maximum tax rate of 30% is applied, 20,160 euros must be paid as IIVTNU.
– The tax must be paid within 30 working days from the date of transfer of the property, except in the case of inheritances, in which the term is six months from the date of death (extendable to one year if requested in writing within the first six months). This can be explained in more detail in the article in which we cover the claim for capital gains after the new Supreme Court ruling.
Real Estate Tax (IBI)
This is a municipal tax levied on the value of rural and urban properties located in the respective municipalities and which, by law, must be paid by the owner of the property on January 1st.
IBI is paid annually and its tax rate ranges from 0.4% to 1.10% depending on the municipality, most of them applying the maximum rate.
These rates can be increased up to 0.07% in certain cases, for example, if the municipality is the capital of a province or autonomous community, or if it provides local public transport services.
In the case that a property is valued cadastrally in 200.000€, its liquidation of the IBI will oscillate between 800€ and 2600€ per year.
4- Purchase and sale of land
The type of land will significantly condition the form of taxation:
Solars, building plot, urban land, and land in the processo of being developed.
Non-developable terrain, rural plots, agrarian developments included.
If exemption is waived
Necessary requirements for the waiver of the exemption:
– That the buyer and seller are VAT taxable persons.
– That the buyer has the right to deduct the VAT borne installments.
– That the property is used for the activity with the right to deduct VAT.
If these requirements are fulfilled, there would exist Inversion of the Passive Subject, in accordance with art. 84 of the Law 37/1992, of December 28, of the Value Added Tax, in its rewritten text introduced by the Royal Decree-law 7/2021, of April 27.
In order to know with certainty the type of land to be transferred, it will be necessary to refer to the town planning regulations of the Autonomous Community in which it is located.
How is a sale and purchase taxed in the income tax return?
1. On the seller’s income tax.
The sale of a property is taxed as a capital gain.
If the property sold was the habitual residence, the taxpayer can, if all the conditions are fulfilled, request the exemption of the taxation of the capital gain for reinvestment in another habitual residence, as long as the purchase of the new property is made within a maximum period of two years.
If the money obtained from the sale of the primary residence is NOT reinvested in another property, it is subject to capital gains tax, which is usually the difference between the value of the sale or transfer and the purchase of the property. The tax rate is 19% up to 6,000 euros and 21% from 6,000.01 euros.
If the property sold is NOT the habitual residence, the capital gain is subject to taxation even if the amount obtained from the sale is reinvested in another property.
This is so according to art. 23 “Deductible expenses and reductions” of Law 35/2006, of November 28, 2006, on Personal Income Tax and partial modification of the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax, in its current revised text.
2. In the purchaser’s income tax
This refers especially to the possible tax deductions related to housing (income tax IRPF). It is important to know that after the purchase of a house, in your income tax return you will be able to deduct some of the investments and expenses related to this operation.
Specifically, those who bought a home last year can also deduct up to 15% of a maximum amount of 9,040 euros (which means a maximum deduction of 1,356 euros). The amounts that can be deducted are the amortized capital, the interest paid and the cost of financing (for example, the bonds that most companies have to subscribe together with the mortgage loan).
This is so according to art. 35 “Transmisiones patrimoniales a título oneroso” of the Law 35/2006, of November 28th, on Personal Income Tax and partial modification of the laws on Corporate Income Tax, Non-Residents Income Tax and Wealth Tax, in its revised text in force.
If you want to know more about the taxation of real estate you can consult the blog or contact us.