Tuesday, 5 June 2012

Understanding the new Purchase Tax on Spanish properties

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SPAIN As we know all too well, Spain is under enormous financial pressure (we won't go into the whys and wherefores here). In particular, the regional and local authorities are in deep debt, with new revelations as to exactly how much appearing regularly. Regional authorities (such as the Junta de Andalucía) set their own purchase tax, but the central government handles VAT (or IVA in Spanish). The central government, however, has announced that there are 'no plans' to increase VAT next year ('no plans' does not mean 'will not'). But all new properties in Spain are subject to only 4% VAT, as a way to promote sales of the vast  number of unsold properties (some 14,000, with about 10,000 in Málaga lone, according to one source) on the banks' books. Resales, however, are subject to what is called a Purchase Tax as well, and this was increased on a sliding scale basis (see below) as from January 1, 2012. As we said, each region sets its own Purchase Tax, and there are 17 autonomous regions. In the case of Andalucía,>>>
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it was a flat 7% until 2010; after that, it was 7% on the first €400,000, and 8% on the balance. As from January 1, a new tier was announced, as well as other changes:
  1. 8% on the first €400,000
  2. 9% on anything between €400,000 and €700,000
  3. 10% on anything above €700,000
Therefore, a property bought for, say, €185,000 has a tax liability of €14,800; buy one for €435,000 and it is subject to €34,800 in Purchase Tax. Any further up the scale and the Ouch factor increases proportionately.

How much should be budgeted for purchase costs when buying a property?

The standard reply to the above question has, for years, been 10% of the purchase price. This covered taxes, legal fees, estate agent fees, and sometimes there was a little left over. Nowadays, though, there would be very little to spare and tough dealing on legal and agent fees will be needed, provided Notary and Registry fees don't go over 0.5%. At the top end of the market, however, buyers will probably need to add something between 0.5% and 1% to their figures.

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