On July 13th 2012 the Spanish Government approved the IVA (VAT) increases in Spain that were to take effect on the 1st September 2012. These new IVA rates have now been applied to the dismay of many who argue that with the removal of the extra money, the Spanish economy is being further repressed and not stimulated as it needs.
Briefly, the IVA changes were
- The Standard Rate increased from 18% to 21%
- The reduced Rate increased from 8% to 10%
- The super reduced rate remains at 4%
The application of the rates affects the total price of thousands of items and it’s often the change from one band to another that is the most serious i.e. hairdressing from 4% to 21%. However, it is understood that the rate for the purchase of homes never previously occupied will remain at 4% until the end of this year.
Removal of Tax Relief
A second Government measure implemented, much to the dismay of Spanish residents, was the removal of tax relief for buying a home. This will not affect foreign buyers except by reducing the money available to competing residents.
INCREASE IN TRANSFER TAX FOR RESALE HOMES
This tax is controlled by the autonomous communities and for Andalucía and most areas now it is 8%
CAPITAL GAINS TAX
This is a complex tax to calculate, but the main benefit still remaining applies to any residential property bought between 31 May and the end of this year, whenever the property is sold in the future, the tax will be reduced by 50%.
So what are the effects of these tax changes for a potential purchaser?
At present buying a new home will still cost less in tax than the purchase of a second-hand one. However, if a major capital gain is anticipated then it could be that the 50% saving will compensate for the difference between the transfer tax and the reduced IVA. However, both the buyer and seller must be aware that the tax authorities set their own minimum value on a property on which they will demand tax even if you bought/sold for less.
So, how will this affect house prices in Spain?
Currently Spain’s stock of unsold property is still very high and increasing as more possessions take place. With only three months to take advantage of the current reduced rate of IVA or the future capital gains tax saving on resale homes and tax relief, it is doubtful levels of housing stock will drop significantly. The temporary IVA situation will principally help developers and banks who have unsold stock that has not been previously occupied.
There is likely to be interest in concluding deals prior to 31 December, but those may have gone ahead anyway. It will improve the banks’ book for the end of the year though. The money that’s left with the seller is likely to change little except if it brings about a concentration of competition on popular properties that would always have sold in any case. For the bulk of the property surplus of mediocre or worse properties there is likely to be a continued drop. It may even become worse as buyers anticipate having less money next year and thus put off purchasing property at all.
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