Changes to property tax on the Costa Brava

The tax reform introduces a more progressive system, where the ITP (Impuesto sobre Transmisiones Patrimoniales) increases as the value of the property increases.

On the other hand, certain groups of buyers, including young people up to 35 years old, will pay a lower than normal rate (5%) under certain conditions to facilitate access to the housing market for this group.

But what exactly is this ITP? We will first explain this below.

What is the ITP real estate tax?

The ITP is a transfer tax that the buyer pays when purchasing a second-hand property. This tax is not included in the sale price of a house and is normally paid to the notary during the title deed, who takes care of the payment of this tax to the Tax Authorities.

The ITP is determined and collected per community (Catalunya, Valencia, Andalucia, etc.).

At the moment, the ITP in Catalunya is 10% for houses up to 1 million euros and 11% above.

How is the new property tax in Catalonia calculated?

With the new system, the ITP is no longer calculated as a single percentage, but is applied according to a progressive scale. This means that buyers of a more expensive home will have a proportionally higher tax burden.

The system works in a similar way to income tax: up to a certain amount, a fixed tax bracket is established, and then an additional percentage is applied only to the amount above that threshold.

The new approved rates for second-hand homes are:

Up to €600,000  10%

From €600,001 to €900,000  11%

From €900,001 to €1,500,000  12%

From €1,500,001  13%

Some examples

Example 1:

Sales price of the property : 550,000 Euro

As is the case now, the ITP will be 10%, which is 55,000 Euro.

Example 2:

House sales price: 950,000 Euro

The tax is:

10% on the first 600,000 Euro = 60,000

11% on 300,000 Euro                 = 33,000

12% on 50,000 Euro                 = 6,000

The total is therefore 99,000 Euro, which results in a percentage of 10.4% on the sales price of the house.

The tax increase in this example implies an increase of the total price of 0.38% (1,045,000 previously and becomes 1,049,000 Euro).

Conclusion

Of course, in our opinion, every tax increase is regrettable, but this increase is not in proportion to the expected price increase of houses for sale on the Costa Brava during the coming years (see blog on this subject); for buyers who invest now, the purchase of real estate will generate an interesting financial return in addition to the great pleasure of owning a house on the very attractive Costa Brava.

If you have any questions regarding buying or selling a house on the Costa Brava, please contact your real estate agency Porfinca without any obligation.