Transfer Tax for Rentals explained

People who rent their homes in Spain are to be required to pay a tax they probably knew nothing about retrospectively. We explain the situation.

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Many people in Spain rent properties, despite the national culture of a need to own your home, rather like in the UK. This may be by choice, or it may be down to financial difficulties or other circumstances - such as student accommodation. Many expats prefer to rent for a while before they decide to buy a home in Spain.
 
There is a tax here called ITP, which has always been applied when someone purchases a property in Spain. Most people, including the Spanish, did not realise that this tax was also applicable when you rent an apartment or house that is your main residence. Now the tax authorities in several regions, which are strapped for cash, have decided to implement this tax - and retrospectively.
 
Most people, including the Spanish, did not realise that this tax was also applicable when you rent an apartment or house that is your main residence.
 

What is ITP?

ITP (Impuesto de Transmisiones Patrimoniales) has always been applied when you buy a property in Spain. This also applies to rental contracts, but until now has not been enforced. It is essentially similar to stamp duty in Britain, and payable when a property is transferred from one person to another.
 
The problem is that this has been a “hidden” tax for rental properties, rarely applied. As a result, the majority of people are unaware that they need to pay it within 30 days of signing a rental agreement. 
 

Tax and interest

Madrid, Catalonia and Andalusia, amongst other regions, have decided to reclaim this tax, retrospectively on any rental contract signed during the last four years.  The actual amount payable isn’t enormous, is payable once only, and is based on around 5% of the annual rental amount.
 
However, since 99.9% of tenants haven’t paid the tax because they were unaware that it was due, the Tax Authority could apply interest for the time the contract has been valid, within 30 days of signing – which could be four years’ worth! 
 
The implementation of this tax is just a way to increase the amount in regional coffers, which have taken a big hit since 2007 and the economic crisis - which affected Spain particularly badly. 
 

Letters of demand begin to arrive

Ironically, those who have declared their rent to Hacienda (the Tax authority) will be the first to receive the letter demanding payment of the ITP tax, plus the default interest. The average tax on a property rented for 600€ a month is 85€ but when you add on interest, this will inevitably be much more.
 
There has been much anger in Spain about the ITP tax demands, but tax experts here say there is no choice but to pay up as the tax is legal (despite being unused and “hidden”). There are some exclusions, however – including young people, under 40, who are on low incomes.
 

Filling the coffers

The implementation of this tax is just a way to increase the amount in regional coffers, which have taken a big hit since 2007 and the economic crisis - which affected Spain particularly badly. It should also be noted that with a new political demographic in many regional councils since elections in 2015, it is possible that this could be the first of other measures to balance the autonomous regions’ books.
 
Ignorance of the law does not exclude appliance - so tenants have no choice but to pay. Most experts believe that the “fine” for not paying will not be applied. Only time will tell as the letters begin to arrive.
 

Further reading for Buying In Spain

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Hidden Costs

The price of the property as listed is never the price that you will end up paying. 

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Legal Matters

Buying a property in Spain has very different legal requirements to the UK.

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Currency Zone

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