Starting on January 1st, 2013, the VAT for new Spanish homes will rise from 10% from the current 4%.
This is one of the new measures that the Government has adopted in order to increase revenue. Many basic products will have their VAT raised, as was begun in September 2012, but the Government has decided to keep the 4% VAT for Spanish properties this year, as scheduled.
The VAT is applied to brand new properties coming from the developer. Second hand properties are charged with a different tax called the Impuesto de Transmisiones Inmobiliarias (ITP), which means a tax on properties that are transferred from one owner to another. ITP varies depending on the region but it is always below 7%.
Madrid and the other regions do not consider the purchasing price when rating tax. The regions say that the tax basis is the so called real value. Let us suppose that Madrid says the real value is €120,000 (of course, Madrid could say the value is €160,000 which would increase the tax revenues). In order to know the valuation, an expert will check the tables with the exact location of the real estate property. Those tables determine the so- called real value.
The most expensive tax on property is the I.T.P., or tax for a property transaction (also known as the tax for the transfer of the title deed), which is for second-hand assets. Depending on the region, it will be charged at 7%-8% of the property cost, however every region has a minimum price table when applying the I.T.P. Therefore, if you buy a property for €100,000 and pay €7,000 to cover the I.T.P. in the sale-exchange, you may get charged an extra €1,400 if the property has a minimum value of €120,000, according to the Tax Office estimation. How much will the Tax Office estimations be? In most of cases, it will depend on the location and specifications. Never forget to ask your lawyer for advice about this point, to avoid the shock when the tax inspector comes knocking at your door, a few months after the transaction is completed!
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