Taxes to Pay in a Real Estate Transaction: Complete Guide for Buyers and Sellers

Buying or selling a property involves a series of taxes that both the buyer and the seller must assume.

It is essential to be aware of them to avoid unforeseen issues and to properly plan the transaction in order to prevent unexpected surprises.

In this article, we will classify and explain the main taxes that apply to each party in a real estate transaction.

Before we begin, we’d like to highlight that in some cases, negotiations may lead one party to assume certain expenses of the other. However, this is not common, as in most cases, the expenses are divided as described in the following article:

Taxes Payable by the Seller

In a real estate sale, the seller must assume the following taxes when selling their property.

1. Municipal Capital Gains Tax

• Officially called Tax on the Increase in Value of Urban Land (IIVTNU).
• There are two calculation methods: one based on the cadastral value of the land and the time the property has been owned, and another based on the difference in price between purchase and sale. The taxpayer can choose the method that benefits them most, usually the one resulting in a lower amount.
• This tax is set by the corresponding municipality and can vary depending on the property's location due to local regulations, which may apply different coefficients.
• Here you can access a municipal capital gains tax calculator

2. Personal Income Tax (IRPF)

• The sale of a property generates a capital gain that must be declared in the annual income tax return for the year the sale took place, which is settled the following year.
• Taxation applies to the difference between the selling price and the acquisition price, considering certain expenses and improvements made.
• The tax on the sale is integrated into the savings tax base. These are the tax rates in Spain (2024):
  • 19% for the first €6,000 of profit.
  • 21% between €6,000 and €50,000.
  • 23% between €50,000 and €200,000.
  • 27% for amounts over €200,000.
• There are some exemptions that reduce or eliminate this tax:
  • If the seller reinvests the gain in purchasing a new primary residence, they may be exempt.
  • Sellers over 65 years old are exempt if they are selling their primary residence.

3. VAT (if applicable in certain cases)

• If the seller is a company or professional selling a new home, they must apply VAT (10%) instead of the Transfer Tax. If selling a commercial property, such as a warehouse or office, the VAT rate is 21%, and the reverse charge mechanism may apply.

Being aware of these taxes and their amounts is crucial for setting a price that accounts for them, avoiding unexpected costs after the sale is completed.

In this article, we also explore the costs sellers must cover in a real estate transaction.

Taxes Payable by the Buyer

The buyer is responsible for several taxes, depending on the type of property and whether the purchase is financed with a mortgage.

1. Taxes on Property Acquisition

These taxes vary depending on whether the property is new or second-hand:

• Second-hand property:

  • Transfer Tax (ITP):
    • This is the primary tax on the purchase of used properties.
    • The percentage varies by autonomous community (between 6% and 11% of the property's value). In the Valencian Community, this tax is set at 10%.

• New property:

  • Value Added Tax (VAT):
    • For new homes, the buyer must pay 10% VAT on the purchase price.
    • For officially protected housing, this percentage may be reduced to 4%.
  • Stamp Duty (IAJD):
    • Paid for the formalization of the public deed of the property.
    • The rate varies between 0.5% and 1.5%, depending on the autonomous community.

2. Taxes Related to the Mortgage (if financed)

If the purchase is financed with a mortgage loan, additional costs may apply:

• Stamp Duty (IAJD) for the mortgage:
  • Since the mortgage law reform in 2019, this tax is paid by the bank.
• Property appraisal costs:
  • Not a tax per se, but an obligatory expense for the bank to evaluate the property before granting the mortgage. However, some banks offer free appraisals if the mortgage is taken through them.

Conclusion

Both buyers and sellers must consider the taxes involved in a real estate transaction to avoid unforeseen issues and plan their investment properly.

In summary, the tax obligations are as follows:

• The buyer must pay the Transfer Tax (ITP) for second-hand properties or VAT + Stamp Duty (IAJD) for new properties.
• The seller must cover the municipal capital gains tax and the income tax on any profit gained.

Before closing, we’d like to emphasize that tax compliance is crucial, and having proper knowledge or professional advice is key to avoiding penalties.

Having professional guidance is essential for compliance and optimizing tax obligations while avoiding unexpected costs in the transaction.

Whether you are looking to sell your property in Cullera and surrounding areas or searching for a new home, feel free to consult with us to achieve your goal in the most optimal way.