When we’re looking to buy a property to turn into our new home, we need to keep in mind the taxes involved in the purchase. Typically, these taxes aren’t included in the prices listed in real estate listings and advertisements, so it’s very important to understand them so we can accurately calculate the total cost of the transaction. That’s why today at Culmia we want to talk to you about the Property Transfer Tax and Stamp Duty.
It covers a variety of transactions, two of which directly affect the sale and purchase of pre-owned homes. So stay with us so you don’t miss a thing and so you’ll know exactly what you’ll need to pay in your case!
What is the Tax on Property Transfers and Documented Legal Acts?
Also known by the acronym ITP, the Tax on Property Transfers and Documented Legal Acts is a tax levied on the sale of movable or immovable property. Therefore, in the case at hand, it must be paid to the tax authorities upon completion of real estate transactions, provided that the properties are pre-owned.
This serves to clarify an important point, because there are situations involving the sale of a home in which it is not necessary to pay the ITP. Specifically, when the transfer involves a new home and takes place between a company and an individual, since this transaction is already subject to VAT. This is the case with new-construction developments, in which case the buyer must pay:
- 10% of the amount stated in the deed (in most cases).
- 4% if it is a subsidized housing unit under a special program or a publicly funded housing project.
- 6.5% if the transaction takes place in the Canary Islands, because in this case VAT is replaced by the Canary Islands General Indirect Tax (IGIC).
What are the regulations governing the Property Transfer Tax?
The Tax on Property Transfers and Documented Legal Acts is primarily regulated at the national level by:
- Royal Legislative Decree 1/1993, which approves the Consolidated Text of the Law on Property Transfer Tax and Stamp Duty.
- Royal Decree 828/1995, dated May 29, approving the Regulations on the Tax on Property Transfers and Documented Legal Acts. This text was updated in 2018.
However, this regulation delegates tax authority to the autonomous communities, which are therefore responsible for its administration, assessment, collection, inspection, and administrative review.
Which three transactions are subject to the Property Transfer Tax?
The ITP is an indirect tax that applies to individuals and is levied on three different types of transactions.
Transfers of Property for Consideration (TPO)
This includes transfers for consideration and inter vivos transfers of all types of property and rights that form part of the assets of individuals or legal entities, as well as the creation of real rights, loans, sureties, leases, annuities, and administrative concessions. Furthermore, none of these transactions is subject to tax when the transfer is made by business owners or professionals in the course of their professional or business activities.
The TPO’s jurisdiction lies with the State if, according to the rules for attributing revenue, the revenue is not considered to have been generated within the territory of any Autonomous Community. Otherwise, transfers will be taxed at a rate ranging from 4% to 10% of the sale price, depending on the Autonomous Community and the deductions applicable in each case.
Specifically, these programs may offer discounts to encourage home ownership among specific groups, such as young people, people with disabilities, large families, or single-parent families, as well as the purchase of publicly subsidized housing (VPO), etc.
What is the ITP rate in each Autonomous Community?
As we indicated here, the Property Transfer Tax is distributed among the various autonomous communities as follows:
- 4%: Basque Country.
- 6%: Ceuta, Madrid, Melilla, Navarre.
- 6.5%: Canary Islands.
- 7%: Andalusia, La Rioja.
- 8%: Aragon, Asturias, Castile and León, Extremadura, Galicia, Murcia.
- 9%: Castilla-La Mancha.
- 10%: Cantabria, Catalonia, the Valencian Community.
In any case, as we have already noted, these taxes vary depending on the autonomous community and the buyer’s characteristics. For example, in regions such as Aragon, Asturias, the Balearic Islands, Castile and León, the Valencian Community, and Extremadura, the ITP rate will differ based on the cost of the property purchased, with the applicable rate increasing as the value rises.
Who is responsible for paying the TPO in the case of a home sale?
The person purchasing the property must pay this tax and file the self-assessment form (Form 600) with the regional tax office where the transferred property is located. To do so, they have 30 business days from the date the deed is signed.
The taxable base for the TPO is the purchase price of the home, unless that price is lower than the property’s Market Reference Value, which is published in the cadastre. This can happen if the buyer has obtained a significant discount on the price for various reasons, such as the condition of the home or its market situation.
Corporate Transactions
The Property Transfer Tax also covers transactions involving corporations, such as those related to their incorporation, capital increases or decreases, mergers, spin-offs, or dissolution, as well as any contributions made by their shareholders to cover corporate losses. In these cases, the tax rate is only 1%.
Stamp Tax
This tax applies to three types of documents that are executed within Spain or drawn up abroad and applied within Spanish territory:
- notarized documents,
- commercial documents, and
- administrative documents.
The Stamp Tax (IAJD) also varies by Autonomous Community, although the tax due typically ranges from 0.5% to 1.5% of the total value of the transaction. In any case, when it comes to the sale of residential properties, it is important to note that this tax applies to notarial deeds and that there are two different rates:
- On the one hand, there is the fixed fee, which is the same throughout the country and is levied on the stamped paper on which notarial documents must be drawn up. The fee is 0.3 euros per sheet and 0.15 euros per page.
- On the other hand, the variable rate. It applies only when the property listed in the deed can be registered in the Property, Commercial, or Industrial and Movable Property Registries. This is the portion of the IAJD that depends on the regulations of each autonomous community and which, therefore, results in a higher payment (ranging from the aforementioned 0.5% to 1.5%).
Tax on Property Transfers and Documented Legal Acts: Specific Features
When the buyer is required to pay the Property Transfer Tax (upon purchasing a pre-owned home), they are only required to pay the fixed portion of the Stamp Tax. This is because the variable rate on notarial documents is incompatible with transactions that are already subject to Property Transfer Tax. Hence, the latter applies specifically to the sale of new construction properties, which are subject to VAT.
Furthermore, it is also important to note that, following the latest amendment to the Law on Property Transfer Tax and Stamp Duty, with the exception of the Basque Country (if a home is purchased for non-primary use), when the IAJD tax is levied on the mortgage deed for the purchase of a pre-owned home, the fixed fee must be paid by the lending institution.
Deadline for Paying the IAJD
Stamp Duty must be paid within 30 business days after the transaction is completed. The buyer is responsible for this payment, except in the case already mentioned where the mortgage deed is subject to the tax. This means that the buyer must go to the Public Registry Office of the corresponding Autonomous Community, where they must present their National Identity Card (DNI) and copies or the originals of the public documents or agreed-upon contracts.
At CULMIA, we help you settle into your new home
That covers everything you need to know about the Property Transfer Tax and Stamp Duty. But if you need more information about the various procedures and steps involved in buying a home, feel free to download our “Guide to Moving into a New Home”here, completely free of charge. With it, you’ll have all the key information you need to enjoy your new home without the purchase becoming a headache!
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