If you are a real estate company buying to refurbish or a major holder, this concerns you: the Property Transfer Tax (ITP) is increasing in Catalonia for certain purchase scenarios.
The measures will come into force on 27 June if the Parliament of Catalonia ratifies the decree, and real estate sector experts are already warning of the potential effects these changes may have.
This is how the ITP will increase in Catalonia
The new measures, which imply an increase in the ITP, are pending ratification by the Parliament of Catalonia and are as follows:
- – New ITP brackets in Catalonia are approved: purchases valued up to 600,000 euros will maintain the 10% rate. Purchases valued between 600,000 euros and 900,000 euros will be taxed at 11%, those between 900,000 euros and 1,500,000 euros at 12%, and those over 1,500,000 euros will be taxed at 13%.
- – Major holders who previously paid 10% will see their tax rate increase to 20%. A major holder is considered to be any individual or legal entity with more than 10 residential properties, or with a built-up residential area exceeding 1,500 m², or any individual or legal entity with at least 5 properties in areas declared as stressed residential markets.
- – If entire buildings are sold, whether or not they are horizontally divided, a 20% rate also applies.
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– The 20% rate does not apply in several cases:
- o When the buyer is a non-profit entity.
- o When the property is intended for a social purpose.
- o When the buyer is a natural person, the property contains a maximum of 5 dwellings, and these are intended to be the main residence of the buyer and their direct family members for at least 3 years.
- – The 70% discount on the tax rate, which benefited real estate companies that bought properties to refurbish and sell within a period of less than 3 years, will be eliminated.
The change in AJD: the increase in the rate in case of waiver of VAT exemption
This tax also covers another taxable event: documented legal acts (AJD), and the new regulation establishes a new rate for property transfers in the event of a waiver of the VAT exemption, which will increase from 2.5% to 3.5%.
The purchase and sale of real estate may be subject to VAT or ITP. In general, transactions involving second-hand properties are exempt from VAT and are subject to ITP. If the purchase is made in a professional or business capacity, there is a major difference, because VAT can be deducted, whereas ITP cannot. In order to waive the VAT exemption and apply VAT, several conditions must be met:
- – The seller must be liable for VAT.
- – The buyer must have the right to fully or partially deduct VAT.
- – The seller must formally inform the buyer that they are waiving the VAT exemption before or at the time of delivery of the asset.
- – The buyer must formally inform the seller that they are liable for VAT and entitled to deduct it.
In practice, these last two declarations are usually included in the deed of sale before a notary, along with the invoice for the transaction. By waiving the exemption, what is known as the reverse charge mechanism takes place. This means that instead of the seller being responsible for collecting and settling the VAT with the Tax Agency, the buyer will do so. In such cases, as we have seen, a 3.5% AJD applies.
When do the changes come into force?
All the changes we’ve seen come into effect 3 months after the regulation is published in the official bulletin, therefore on 27 June, except for the removal of the 70% ITP reduction for real estate companies, which is already in effect.
What effects might the ITP increase have in Catalonia?
All these measures imply a strategic rethink for investors, as tax costs increase, but so does the need to invest in properties with potential for value appreciation in the market and features that buyers are demanding, such as sustainability.
In general, real estate sector players such as advisors or lawyers understand that the ITP increase in Catalonia may have the following effects:
The purchase and sale of real estate may be subject to VAT or ITP. In general, transactions involving second-hand properties are exempt from VAT and are subject to ITP. If the purchase is made in a professional or business capacity, there is a major difference, because VAT can be deducted, whereas ITP cannot. In order to waive the VAT exemption and apply VAT, several conditions must be met:
- – The seller must be liable for VAT.
- – The buyer must have the right to fully or partially deduct VAT.
- – The seller must formally inform the buyer that they are waiving the VAT exemption before or at the time of delivery of the asset.
- – The buyer must formally inform the seller that they are liable for VAT and entitled to deduct it.
In practice, these last two declarations are usually included in the deed of sale before a notary, along with the invoice for the transaction. By waiving the exemption, what is known as the reverse charge mechanism takes place. This means that instead of the seller being responsible for collecting and settling the VAT with the Tax Agency, the buyer will do so. In such cases, as we have seen, a 3.5% AJD applies.
When do the changes come into force?
All the changes we’ve seen come into effect 3 months after the regulation is published in the official bulletin, therefore on 27 June, except for the removal of the 70% ITP reduction for real estate companies, which is already in effect.
What effects might the ITP increase have in Catalonia?
All these measures imply a strategic rethink for investors, as tax costs increase, but so does the need to invest in properties with potential for value appreciation in the market and features that buyers are demanding, such as sustainability.
In general, real estate sector players such as advisors or lawyers understand that the ITP increase in Catalonia may have the following effects:
- – The discouragement of real estate investment due to increased taxes, especially in the case of luxury housing. Currently, there is a progressive increase in investment by foreigners, for example, rising from 6.11% of property purchases in 2022 to 8.52% in 2024. This trend could shift due to the new fiscal measures.
- – The reduction in investment in second-hand homes exceeding 600,000 euros. According to data from idealista.com, in the city of Barcelona almost 40% of homes for sale exceed 600,000 euros, and in the province there are around 10,000 homes above that threshold. For example, according to data from Barcelona City Council, in neighbourhoods such as Sarrià-Sant Gervasi the average price of a home is 750,600 euros and 1,000,000 euros for new builds. In Eixample, prices reach 788,700 euros.
- – The decrease in residential building purchases for subsequent renovation and sale or rental. This will lead to a drop in available supply, both for sale and rent, which will impact the strong existing demand.
On the other hand, it is also expected that there will be an increase in transactions of second-hand homes affected by these changes before the measures come into force, to benefit from lower ITP rates.
Other measures affecting the Catalan real estate market
Alongside the measures mentioned earlier, other initiatives have also been implemented to promote home ownership among young people. In fact, the age to apply the reduced 5% rate for home purchases has been raised from 32 to 35 years. This rate also applies to victims of gender-based violence.
Additionally, the tourist tax has been increased, so that in Barcelona the amount will range between 2 and 7 euros per person per night, and in the rest of Catalonia between 1.2 and 6 euros per person per night. These figures are significant because it is estimated that around 25% of the revenue collected will be invested in housing policies.
In short, these are changes that will impact the Catalan real estate market, and we must wait to see what kind of changes they will bring and how they will affect property purchases by individuals and investors.
If you need an expert real estate advisor, contact us and we’ll help you with your property transaction.
