The transfer tax on resale properties in Catalonia and the Valencian Community has gone up from 8pc to 10pc this month – a move that will drive down asking prices, reduce sales, or increase undeclared payments in cash, or all three at once.
In just another mystifying move by the the Spanish administration – in this case the autonomous regional governments of Catalonia and Valencia – the tax on buying a resale property, known in Spain as the Impuesto sobre Transmisiones Patrimoniales, or ITP for short has gone up to 10pc this month.
This tax increase was announced several months ago in Catalonia, with delayed effect to the 1st of August. But in the Valencian Region it has just been announced, taking everyone by surprise, and will be effective as soon as it is published in the Valencian region’s official gazette.
At 10pc, the ITP on buying a resale property in Catalonia & Valencia is now the same rate as VAT on new homes, which the national Government in Madrid increased from 4pc to 10pc at the beginning of the year.
The Catalan Government hopes to raise an extra €50 million this year with the increased tax. The Valencian Government hopes to raise an extra €30 million this year, and €75 million next year.
In reality tax revenues could easily go down as a result of the higher ITP; the higher tax might discourage buyers completely, or encourage them to resort to under-the-table cash payments that are bad for the economy. Undeclared cash payments had been dying out in recent years, but higher taxes might bring them back into fashion.
To compensate for higher taxes, vendors will have to reduce their asking prices by a corresponding amount in order to make sales (or accept bigger cash payments). The way things are in Spain today, local buyers simply cannot afford to pay an extra 2pc in tax. So most of all, this is bad news for vendors, especially the banks.
Catalonia & the Valencian Region, like the rest of Spain, are going through a serious economic crisis, at the root of which lies a real estate crash, and they need higher transaction charges now like a hole in the head. Higher taxes are bad news for the housing market and the economy.
In a real estate crash of this magnitude, transaction costs of 10pc or more are a big part of the problem. What Spain needs now is lower taxes on property, to stimulate the market and encourage foreign investors. That would help reduce the housing glut, increase tax revenues through volume, shrink the black economy, and create wealth and employment.
By raising the ITP in Catalonia & Valencia from 8pc to 10pc, local politicians are doing their bit to delay a recovery in the housing market and the wider economy.
And here’s me thinking our UK government were the experts at self flagellation.
I think Spain holds the lash with the most barbs. This article appeared in my in-box just after I had withdrawn an offer on a property in Javea (Valencia region) for the very reason that the tax had gone up by 2 percent. With a government like this, does one really want to go and live in Spain?
First (?) casualty of the new tax increase.
Marilyn, if you like it enough to make an offer, why not knock off the 2% + a bit more for the possibility of a deferred ‘black money’ ITP surcharge and explain to the vendor that their government is responsible for making you revise your offer?
This, after the ‘Buy Now – Pay Extra ITP Later’ [and we won’t say how much or when – because we know you’re all cheating on these ridiculously low prices] and the ‘Pay Tax on Your Off-Grid Lekky’.
The effect of this tax, let alone these latest increases, and the power of the taxman to simply decide what he should have received regardless of the sale price has persuaded us to take or quarter million euro and spend it in Bulgaria where we can buy a farm, renovate it and furnish it in lavish style for less than the cost of a tired Spanish resale. This is not a forecast simply a sttement of a decision we have made.
Add to that less bureaucratic interference, lower taxes and a lower overall cost of living and you have a recipe for Spanish bankruptcy.
They think by robbing people with these taxes is there way out of trouble.
Having retired recently we WERE looking to buy a property in the Valencia area…. However 10% of £200,000 is now too much to pay for us . So we will ask our intended seller to reduce the price or we will pull out of the deal. Why do ( well off ) politicians not understand that this increase will actually REDUCE the amout of tax collected. !! First Cyprus then France and now Spain seem to believe that “rich” foreigners will dig them out of a hole ??
I bought a house for 200+k back in the UK and it cost me 1800 pounds for everything. I´m thinking to buy a flat in Barcelona for 120k and I´ll have to pay 15k between taxes and fees. I mean come on! Get real Spain or you are definitely going to crash and burn….
I don’t know how you managed to pay just £1,800 all in, bearing in mind that the stamp duty alone would have been 1% of the price, i.e. at least £2,000. not to mention lawyer’s fees, search fees, Land Registry fees etc.
In the wake of the sale I have just learnt that I have to pay 5% in tax on the plus valia or value increase… I made a 50000 euro loss, but have to pay a 500 euro tax on the increase in value?!? No way. I am happily out of there!
I love Spain, but no longer wish to be a property owner there. I now think, as Edislaw, says, that Bulgaria may be the place to be!
I’ve been searching online to find the official news release but I can’t find it. Could anyone send me a link or official details where I can find a date when the increase to 10% for ITP will take place in Valencia. Thanks!
You say the tax on pruchases is in Catalonia: of 10% but with exceptions for first time buyers? Well I suppose I am a first time buyer as i am not resident and it is indeed my first ever pruchse in spain. Can you direct me to some information regarding this?
Young adults, residents only. It won’t help you.