Are you a new buyer looking to invest in your first house on the island of Ibiza? Understanding the complex Spanish tax system is important as it comes with hidden clauses and laws that might impact the overall value of your purchase and the amount of tax you pay.
The most recent development in the local system is the Property Transfer Tax that has been leaving buyers and sellers confused about the tax amount they’re supposed to pay. In this guide we get to the bottom of this new tax rule and ensure you’re fully equipped with the knowledge and tools to sail through the law complexity when making your new investment.
First and foremost, what is the Property Transfer Tax?
Known as Impuesto de Transmisiones Patrimoniales (ITP), the Property Transfer Tax is an indirect tax a homebuyer pays when purchasing a resale property in Spain. To put it simply, it’s the equivalent of stamp duty in UK, although considerably higher. In Ibiza the sliding scale ranges between 8 to 11%.
What are the latest changes in the tax law?
Until the beginning of January 2022, the taxable value was calculated based on the actual price paid for the property. However, the brand new changes in the tax system introduced a new way of calculating the ITP – Reference Value or Valor De Referencia Del Inmueble that is based on the ‘recent transactions in the municipality where the property is located’*. As a result, homebuyers have no clear overview of how high their ITP will be as it’s no longer based on the value of the property being transferred.
According to this source, many buyers have been presented with inflated tax bills based on the new Reference Value, in some cases double the property’s actual value. Another tricky part is that the Reference Value is updated yearly based on the area’s sale values. Therefore, the ITP continues to fluctuate.
How to check the current Reference Value?
You can check the latest reference value on the Cadastre Electronic website, available only in Spanish. Thus for absolute clarity, we highly recommend getting in touch with one of our advisors to help you assess the property and plan your purchase or sale accordingly.
It’s also important to keep in mind that the new Reference Value is different from the Cadastral Value which still remains and takes in consideration the location, age, quality of the property and any renovations that have been previously done. The new Reference Value is likely to be higher than the Cadastral Value.
Final Thoughts on The Property Transfer Tax
The current and future homeowners must plan their budget accordingly, taking the newly introduced changes into account. We’re true believers that the complex Spanish tax system should not stand in the way of making Ibiza your home. With good support from the right team and a clear understanding of the intricate details of the local laws, you will be able to make intelligent decisions with your next investment.
Additional sources:
Changes to property transfer tax – New reference value in Spain
The festive spirit has hit the island of Ibiza!
You may think that our 300+ days of sunshine a year means …
You may have already seen this on our social media, but we are so happy to welcome Lucia, our new …
For non-residents in Spain, navigating Capital Gains Tax (CGT) when selling a property can be a complex process, however, we’re …
Selling property in Ibiza could feel a little overwhelming – if you didn’t have this guide!
There are two things that …
