Walter Finch
A SWEEPING package of property tax hikes targeting overseas investors and holiday rental operators is set to be fast-tracked through the Spanish parliament this month.
The Socialist party (PSOE) has unveiled plans to slap hefty new taxes on foreign property buyers whilst hiking VAT on tourist flats from 10% to 21% – more than doubling the current rate.
The measures, announced by Housing Minister Isabel Rodriguez, are designed to tackle Spain’s housing crisis by making it harder for non-residents to snap up properties and turning tourist flats back into long-term rentals for locals.
Non-EU citizens and foreign residents will be hit with a brand new state tax when purchasing property anywhere in Spain, except the Basque Country and Navarre.
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The tax will apply to all property purchases by individuals and companies not resident within the European Union, meaning British buyers post-Brexit could be affected depending on their residency status.
However, the proposals exclude business owners and professionals carrying out activities in Spain, unless their work is exempt from VAT.
The government says the new levy won’t be passed to regional authorities to ‘avoid double taxation’, though exact rates have not yet been revealed.
Holiday rental operators face the biggest immediate impact, with VAT on tourist accommodation set to rocket from 10% to 21%.
The government argues this brings tourist flats in line with other commercial activities, as they generate significant income rather than providing traditional housing.
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Rodriguez stressed the move aims to combat ‘speculation’ in the property market and has again called on Madrid City Council to ban the 15,000 illegal tourist flats operating in the capital.
The VAT hike forms part of a broader crackdown on short-term rentals across Spain, with many regions already introducing restrictions on new licences.
The much-hated Real Estate Investment Trusts (REITs) – investment funds that own rental properties – will see their tax rate jump from 15% to 25%.
However, those allocating over 60% of their housing stock to affordable rentals can claim a 50% reduction, whilst those dedicating more than 60% to affordable housing and reinvesting profits within three years will be exempt entirely.
‘Affordable rental’ is defined as properties with annual rental income below €26,400 or where rent doesn’t exceed 30% of the tenant’s household income.
Property owners leaving homes vacant will face higher taxes under the new proposals, with current rates of 1.1% to 2% set to increase through additional tax brackets.
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Local councils are also being encouraged to impose surcharges on empty properties through council tax (IBI) to force more homes onto the rental market.
In a rare piece of good news for property owners, tax relief for energy-efficient renovation works will be extended until 2025 and broadened in scope.
Landlords renting below official reference prices in non-stressed areas could also benefit from income tax relief of up to 100% on rental income.
The PSOE plans to push the legislation through during the first half of June, using the ‘first available opportunity’ in parliament’s schedule.
Rodriguez emphasised this was ‘not the time for half-measures’, adding: “Sometimes prohibition is necessary. We need to act decisively.”
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However, the party will need to secure majority support in the lower house, where they may face opposition from conservative parties and regional groups.
The measures fulfil promises made by Prime Minister Pedro Sanchez earlier this year as part of a 12-point plan to tackle Spain’s housing affordability crisis.
With property prices soaring across popular expat destinations, the government is under pressure to act before local residents are priced out entirely.
Further evidence of the contradictory measures being proposed.
Why would any property owner, Spanish or foreign, turn any property from short term to long term rentals where, as stated in another article in this edition, landlords face restrictive policies on increasing rates?
I am beginning to suspect that the PSOE have been reading the Lady book, Fairy Tale Economics written by Billy Bunter.
If you want to tackle a housing crisis, you need,,,,wait for it….. More Houses,
You can either build yourself or have private investors build.
You can’t get private investors to build if they lose protection, can’t offset investment costs such as non-resident investors. Punitive purchase costs, horrendous bureaucracy and wealth stripping taxes.
I am not a rocket scientist, and I don’t think one has to be to understand this.
Slapping new taxes and hiking vat does the exact opposite of what they are trying to achieve.
19 pct of all jobs in the Malaga province comes from tourism. These jobs support other industries as the people in the tourist industry have to spend money.
Why would anyone want to cut back on tourism. Yes, more property becomes available, but unemployment goes through the roof.
I suggest they change books and perhaps read Adam Smith the Wealth of Nations.
The problem is lack of housing, the government is not building, so if you want investors to build, make it attractive to them to be an investor otherwise they will invest elsewhere.
Really this is not rocket science