When it comes to selling or buying a house, if you are the seller you should know that it is not enough to receive the amount of the transaction. And as a buyer, it is also not enough to just hand over the agreed amount. This is because the purchase and sales agreement includes a series of different expenses for the transaction to be executed. So if you are thinking about buying real property in Spain, here’s what you should know.
Property transfer tax: The taxes for buying a house
Before buying a house, you should consider that, in addition to paying the notary and the issuing of the corresponding deeds, certain taxes must also be paid. This is what the purchase of a property also entails:
- VAT or Value Added Tax: this is only payable when the property is new.
- ITP (Real Property Transfer Tax) or Impuesto de Transmisiones Patrimoniales: it is paid when buying a non-new property.
So, the next question you may want to ask yourself is: when do I pay the real property transfer tax? To put it simply, the ITP is only payable when the property being purchased is second-hand. And one more thing, it also levied only when the transaction is between individuals. What happens then with newly built properties? Well, in that case, VAT is applied instead.
What is the transfer tax of a property?
This type of tax is levied on the transfer of property for valuable consideration, as well as on corporate transactions. As its name says, through the purchase and sale of a second-hand property, a natural person exchanges part of his or her assets to another natural person in exchange for money or another equivalent value. This is why it is called Transfer Tax, because there is a transfer of wealth to another person.
The purpose of the property transfer for valuable consideration, better known as TPO, is to regulate property transactions of a private civil nature, which means when they are carried out between natural persons (and not between legal entities).
Who has to pay the ITP in Spain (real property transfer tax)?
Now that you know more about what ITP is, you are probably wondering who has to pay it: the buyer or the seller? The ITP must be paid by the purchaser of the property, that is to say the buyer or beneficiary of the commercial transaction.
For the real property transfer tax to be payable, the property acquired must be in Spanish territory; but if the property is abroad and the buyer is a legal resident in Spain, then the transfer tax must also be paid.
On the other hand, if you are wondering why you have to pay ITP and not the seller, you should know that the commercial transaction has to be taxed in the IRPF (Personal Income Tax) tax return. If there is a difference between the sale price and the purchase price of the transferred property, then the IRPF is paid on the profits obtained.
When is the ITP tax paid when buying a property?
In general terms, as the buyer, the real property transfer tax must be paid at the moment of the purchase and sale before a notary. If you hire all the services of the notary, he will give you an estimate of his fees, the price of issuing the deeds, and the taxes to be paid associated with the sale. It is the notary who is responsible for making the relevant settlements; otherwise, you can always submit a self-assessment online.
How do I pay the real property transfer tax?
You can pay through the notary or, alternatively, by filling in forms 600, 620, or 630. To do so, you must go to the Delegation of the State Tax Administration Agency of the community where the purchased property is located. You have a period of 30 working days from the signing of the purchase contract to make the corresponding ITP settlement.
How to calculate the property transfer tax?
The Autonomous Community takes into account the real value of the property to make a property transfer tax calculation. This is not the same as the value for which the property has been sold. This real value is the taxable base of the ITP and only those charges that reduce the real value of the property can be deducted.
How much does the Transfer Tax cost?
Although the State is in charge of regulating and establishing the applicable framework for the payment of the Transfer Tax, it is up to each Autonomous Community to determine the percentage of the property transfer costs to be applied.
The value of the ITP tax depends on the property to be taxed, but there are minimums imposed by the State. The Autonomous Communities usually apply increases on the minimum rates imposed by the Central Administration.
ITP applies to both movable and immovable property, which means that, for example, second-hand cars also have to pay ITP. However, in the case of real estate, it is the State who determines that the minimum rate of the transfer tax to be charged is 6% of the value of the property. From this percentage, the Autonomous Community where the property is located can determine how much more tax has to be charged.
What happens if I don’t pay the transfer tax?
It is important to remember that the Tax Authorities can demand immediate payment and the corresponding interest. Although this does not affect possession of the property, it does affect ownership. For example, if you want to change who the owner of the house is, sell it or rent it soon after, you will need to have paid the ITP tax in order to make these changes.
So, if you are planning to buy real estate in Spain, you will want to consider the various taxes that have to be paid when planning out your budget. Here we have discussed the ITP, a Spanish property tax payable only by natural persons acquiring property in addition to the purchase price itself. This is why understanding the Real Property Transfer Tax is very useful when considering buying a formerly used house, as it is an important part of the whole buying process.
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