New Proposal of Property Taxes in Spain: How Would They Affect Non-EU Buyers?
In response to Spain’s escalating housing crisis, Prime Minister Pedro Sánchez has unveiled a series of measures aimed at improving housing affordability and accessibility. A central component of this initiative is a proposed tax increase of up to 100% on property purchases by non-resident, non-European Union (EU) citizens. This measure targets foreign buyers from countries such as the United Kingdom and the United States, who have been active in Spain’s real estate market. The proposed tax aims to deter such purchases, thereby increasing the availability of housing for Spanish residents.
Announced on January 13, 2025, during an economic forum in Madrid, Sánchez emphasized the urgency of addressing housing shortages and rising prices, particularly in major cities like Madrid and Barcelona. He noted that in 2023, non-EU non-residents purchased approximately 27,000 properties in Spain, often for investment or speculative purposes rather than personal residence. This proposal is part of a broader 12-point plan to tackle housing challenges in Spain. Other significant measures include:
- Increased Taxes on Short-Term Rentals: The government plans to raise taxes on holiday rentals, ensuring that owners of multiple short-term rental properties are taxed at rates comparable to hotels. This initiative seeks to address the proliferation of tourist accommodations, which have been linked to reduced housing availability for locals.
- Expansion of Public Housing: The plan includes transferring over 3,300 homes and two million square meters of residential land to a newly established public housing entity. This move is intended to significantly boost the supply of affordable rental properties, particularly benefiting young people and low-income families.
- Tax Incentives for Affordable Rentals: To encourage property owners to offer rentals at affordable rates, the government proposes a 100% income tax exemption for landlords who set rents according to the Reference Price Index. This measure aims to stabilize rental prices and provide relief to tenants facing escalating costs.
Examples of the Proposed Tax Increase
To illustrate the impact of the proposed tax increase, here are two examples of how the new policy would affect property purchases by non-EU citizens:
Example 1: Property Price of €300,000
- Current Tax Rate: Assuming a current purchase tax rate of 8%, the tax would be: €300,000 × 8% = €24,000
- Proposed Tax Rate: With the proposed 100% increase, the new tax rate would be 16%: €300,000 × 16% = €48,000
- Additional Cost: The additional tax paid would be €48,000 – €24,000 = €24,000. The total cost of the property would increase from €324,000 to €348,000, a 7.4% increase in total cost.
Example 2: Property Price of €500,000
- Current Tax Rate: Assuming a current purchase tax rate of 8%, the tax would be: €500,000 × 8% = €40,000
- Proposed Tax Rate: With the proposed 100% increase, the new tax rate would be 16%: €500,000 × 16% = €80,000
- Additional Cost: The additional tax paid would be €80,000 – €40,000 = €40,000. The total cost of the property would increase from €540,000 to €580,000, a 7.4% increase in total cost.
Reactions and Challenges
The proposed tax on foreign buyers has elicited mixed reactions. Critics argue that it may deter foreign investment and could have unintended consequences for the real estate market. Some opposition parties have labeled the measure as xenophobic and expressed intentions not to enforce it in regions under their control, such as Andalusia, Valencia, the Canary Islands, and the Balearic Islands. Real estate experts have also expressed skepticism about the measure’s effectiveness and potential negative impacts on the housing market.
The proposal will require parliamentary approval, where Sánchez’s minority government may face challenges in securing sufficient support. Nonetheless, the initiative underscores the administration’s commitment to addressing housing inequality and ensuring access to affordable housing for Spanish citizens.