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Tax guide for buyers and sellers of homes in Torrevieja
The Costa Blanca, and especially Torrevieja, continues to be one of the preferred destinations for foreign buyers who wish to acquire a home in Spain. French, Belgians, French-speaking Swiss and British citizens represent a significant part of the local real estate market.
However, before buying or selling a property, it is essential to know the tax obligations and expenses associated with the operation. Taxation can vary significantly depending on whether the owner is a resident or non-resident in Spain, as well as the type of property and the purpose of the operation.
In this first part we analyse the main taxes and expenses that affect foreign buyers and sellers in the Spanish real estate market.
Differences between tax resident and non-resident in Spain
Who is considered a tax resident?
A person is considered a tax resident in Spain when they stay more than 183 days a year in Spanish territory or when they have the main nucleus of their economic activities or vital interests here.
This distinction is especially relevant because it directly affects the way in which income and gains obtained in Spain are taxed.
Residents and non-residents: main tax differences
Residents are taxed in Spain on their worldwide income through Personal Income Tax (IRPF).
On the other hand, non-residents are only taxed on income obtained in Spanish territory through the Non-Resident Income Tax (IRNR).
For French or Belgian citizens who have a second home in Torrevieja, as well as for many British citizens after Brexit, this difference is essential when calculating the tax cost of a real estate transaction.
Taxes when buying a property in Spain
Buying a second-hand property: Property Transfer Tax (ITP)
When a used or second-hand home is acquired, the buyer must pay the Property Transfer Tax (ITP).
In the Valencian Community, where Torrevieja is located, the general rate applicable is currently 9% of the acquisition value of the property.
For example:
- Property acquired for 200,000 euros.
- Approximate ITP: 18,000 euros.
This tax must normally be paid within 30 working days of the signing of the public deed.
Purchase of a new home: VAT and Stamp Duty
When the property is new and is purchased directly from the developer, ITP is not paid.
In this case, the buyer must assume:
VAT
The purchase of new housing is subject to VAT.
Currently, the general rate applicable to residential homes is 10%.
Stamp Duty (AJD)
In addition to VAT, the buyer must pay the Stamp Duty tax.
The percentage may vary according to current regional regulations.
Therefore, before signing any purchase contract, it is advisable to seek specialised legal advice to correctly calculate the total cost of the transaction.
Notary, registration and management fees
Notary fees
The public deed of sale must be formalized before a notary.
Notary fees depend mainly on the declared value of the property and the complexity of the operation.
Although they usually represent a relatively small percentage of the purchase price, they should be included in the overall budget.
Registration fees
Once the deed has been granted, the property must be registered in the corresponding Land Registry.
Registration offers legal certainty to the buyer and is an essential step in ensuring the protection of their rights.
Management expenses
When there is mortgage financing or you want to delegate the administrative process, it is common to hire an agency to manage taxes, settlements and registrations.
Although not always mandatory, these expenses should also be taken into account.
Taxes when selling a property in Spain
Capital gain and taxation
When an owner sells a home for a higher price than the one at which it was purchased, a capital gain can be generated.
This gain is subject to taxation.
To calculate it, several factors are taken into account:
- Purchase price.
- Sale price.
- Acquisition costs.
- Investments and improvements made.
- Expenses associated with the sale.
The final taxation will depend on the seller’s personal situation and their status as a resident or non-resident.
Personal income tax for residents who sell a home
Taxation of capital gains
Tax residents in Spain must declare the capital gain obtained on the sale within their personal income tax return.
Taxation is carried out by means of a progressive scale applicable to the savings base.
Exemption for reinvestment in a main residence
One of the most important aspects for residents is the possibility of benefiting from the rollover exemption.
If the amount obtained from the sale of the main residence is reinvested in the acquisition of a new main residence within the legally established periods, the capital gain may be totally or partially exempt.
What happens if you sell and do not buy another home?
When there is no reinvestment in a new main residence, the capital gain obtained will normally be taxed in full in accordance with the rules of Personal Income Tax.
It is therefore essential to plan the operation well in advance and study the possible tax advantages available.
Taxation of non-residents when selling a home
Non-Resident Income Tax (IRNR)
Non-resident owners who sell a property located in Spain must also pay tax on the gain obtained.
This obligation affects both citizens of European Union countries and third-country nationals, including British citizens.
Mandatory withholding of 3%
A very important particularity is the withholding of 3% of the sale price.
The buyer is obliged to withhold this percentage and pay it to the Spanish Tax Agency.
This amount acts as an advance payment of the tax that corresponds to the non-resident seller.
It can then be regularised by means of the corresponding tax return.
This aspect usually generates numerous doubts among foreign buyers and sellers, so it is advisable to have specialized advice before formalizing the transfer.
The municipal capital gains tax on the sale of real estate
What is municipal capital gains?
The municipal capital gains tax, officially called the Tax on the Increase in the Value of Urban Land (IIVTNU), is levied on the increase in value experienced by urban land during the period of ownership of the property.
Who must pay it?
In general, in transfers of sale and purchase the person obliged to pay is the seller.
However, there are certain particularities when non-resident sellers are involved or when the parties agree on certain contractual clauses.
Importance of calculating it before selling
The amount of the capital gains tax can vary considerably depending on:
- The location of the property.
- The years of possession.
- The cadastral value of the land.
- The applicable municipal regulations.
For this reason, it is advisable to obtain a prior estimate before closing any real estate transaction.
The importance of tax planning in Torrevieja
Buying or selling a home involves much more than signing a deed. Taxes such as ITP, VAT, AJD, IRPF, IRNR or municipal capital gains tax can have a significant economic impact on the final result of the operation.
For foreign buyers and sellers, especially French, Belgians and British, understanding these tax obligations is essential to avoid unexpected mistakes, penalties or costs.
In the second part of this guide we will analyse other equally relevant aspects, such as the taxation of holiday homes, property tax (IBI), community fees, the change of ownership of water and electricity supplies, the periodic tax obligations of non-residents and the particularities arising from Brexit for British owners in Spain.
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