The process of purchasing a home not only involves finding the perfect place to call home but also understanding the taxes and expenses associated with this transaction. In Spain, these taxes usually represent between 10% and 12% of the total property value, but there are cases where certain individuals are exempt from paying them.
Last year, an impressive number of 586,913 buying and selling operations were signed in Spain, consolidating 2023 as one of the best years since the 2007 real estate boom. However, both the seller and the buyer must be aware of the taxes and expenses involved in this transaction.
Taxes When Buying a Home: What You Need to Know
- Newly Built Home: In this case, the Value Added Tax (VAT) and the Stamp Duty Tax (IAJD) must be paid. VAT represents 10% of the value in the peninsula and the Balearic Islands, and 6.5% in the Canary Islands. On the other hand, IAJD varies between 0.5% and 1.5%, depending on the autonomous community.
- Second-hand Home: Here, the Transfer Tax (ITP) and the Stamp Duty Tax (IAJD) are paid. ITP ranges between 6% and 10%, and IAJD between 0.5% and 1.5%.
In addition to these taxes, those who apply for a mortgage loan should consider additional commissions. The costs of the Property Registry, notary, and Stamp Duty Tax fall on the bank. To cover these taxes and expenses, it is recommended to have saved between 10% and 20% of the home’s price.
Tax Exemptions When Selling a Home: When Do You Not Pay Taxes?
- Absence of Economic Benefit: If the seller does not make a profit or even incurs losses from the sale, they are not obligated to pay taxes since they have not increased their assets.
- Reinvestment in Primary Residence: If the money obtained from the sale is reinvested in the purchase of a new home that becomes the primary residence within two years, even if there was a profit from the sale, no taxes are paid.
- Aged 65 and Over: Those who sell their primary residence and are over 65 are exempt from paying taxes, as long as they do not reinvest the money in another property. However, if they opt for a lifetime annuity with a bank or insurer, they will have to pay taxes for the sale of a second residence.
- Deed in Lieu of Foreclosure: If the property is handed over in lieu of foreclosure due to the inability to meet the mortgage and there are no other assets sufficient to cover the debt, no taxes need to be paid in this case.
It is important to consider these tax exemptions when buying or selling a home, as they can represent significant savings in the process. If you need more information on these topics, do not hesitate to contact us at Living Sitges. We are here to guide you every step of the way to your new home.
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