Raft of new property taxes to hit foreign buyers and tourist flat landlords to ease Spain’s housing crisis

A SWEEPING package of property tax hikes targeting overseas investors and holiday rental operators is set to be fast-tracked through the Spanish parliament this month.

The Socialist party (PSOE) has unveiled plans to slap hefty new taxes on foreign property buyers whilst hiking VAT on tourist flats from 10% to 21% – more than doubling the current rate.

The measures, announced by Housing Minister Isabel Rodriguez, are designed to tackle Spain’s housing crisis by making it harder for non-residents to snap up properties and turning tourist flats back into long-term rentals for locals.

Non-EU citizens and foreign residents will be hit with a brand new state tax when purchasing property anywhere in Spain, except the Basque Country and Navarre.

Isabel Rodriguez, Spanish minister of Housing and Urban Agenda. CORDON PRESS

The tax will apply to all property purchases by individuals and companies not resident within the European Union, meaning British buyers post-Brexit could be affected depending on their residency status.

However, the proposals exclude business owners and professionals carrying out activities in Spain, unless their work is exempt from VAT.

The government says the new levy won’t be passed to regional authorities to ‘avoid double taxation’, though exact rates have not yet been revealed.

Holiday rental operators face the biggest immediate impact, with VAT on tourist accommodation set to rocket from 10% to 21%.

The government argues this brings tourist flats in line with other commercial activities, as they generate significant income rather than providing traditional housing.

Rodriguez stressed the move aims to combat ‘speculation’ in the property market and has again called on Madrid City Council to ban the 15,000 illegal tourist flats operating in the capital.

The VAT hike forms part of a broader crackdown on short-term rentals across Spain, with many regions already introducing restrictions on new licences.

The much-hated Real Estate Investment Trusts (REITs) – investment funds that own rental properties – will see their tax rate jump from 15% to 25%.

However, those allocating over 60% of their housing stock to affordable rentals can claim a 50% reduction, whilst those dedicating more than 60% to affordable housing and reinvesting profits within three years will be exempt entirely.

‘Affordable rental’ is defined as properties with annual rental income below €26,400 or where rent doesn’t exceed 30% of the tenant’s household income.

Property owners leaving homes vacant will face higher taxes under the new proposals, with current rates of 1.1% to 2% set to increase through additional tax brackets.

Local councils are also being encouraged to impose surcharges on empty properties through council tax (IBI) to force more homes onto the rental market.

In a rare piece of good news for property owners, tax relief for energy-efficient renovation works will be extended until 2025 and broadened in scope.

Landlords renting below official reference prices in non-stressed areas could also benefit from income tax relief of up to 100% on rental income.

The PSOE plans to push the legislation through during the first half of June, using the ‘first available opportunity’ in parliament’s schedule.

Rodriguez emphasised this was ‘not the time for half-measures’, adding: “Sometimes prohibition is necessary. We need to act decisively.”

However, the party will need to secure majority support in the lower house, where they may face opposition from conservative parties and regional groups.

The measures fulfil promises made by Prime Minister Pedro Sanchez earlier this year as part of a 12-point plan to tackle Spain’s housing affordability crisis.

With property prices soaring across popular expat destinations, the government is under pressure to act before local residents are priced out entirely.

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