The Spanish government’s recent announcement of a potential additional tax on property purchases by non-resident, non-EU buyers has sparked significant reactions in key markets such as the UK and the USA. Spain, a longstanding favourite destination for foreign property investments, now faces uncertainty regarding how this measure might affect its real estate market. However, as of now, no official legislative text has been published, leaving many questions unanswered.
What Does the Proposal Involve?
The government claims the proposed tax aims to curb real estate speculation and improve housing access for local residents. However, no details have been provided about the tax rate, the types of properties it would affect, or whether there would be any exemptions.
It’s important to understand that property purchases in Spain are currently subject to the Transfer Tax (ITP), which is managed by regional governments, not the central government. Therefore, to introduce an additional tax on non-resident buyers, the central government would need to create an entirely new national tax—an unlikely scenario in my opinion.
Another possibility is an increase in the Non-Resident Income Tax, which applies to property ownership by foreigners, whether the property is rented or used privately. However, this tax is generally not significant enough to dissuade buyers, even if it were to be increased.
Legislative and Legal Challenges
Even if the proposal progresses, it faces significant legislative hurdles. The current government, led by the Socialist Party, relies on fragile parliamentary support, while the Senate is controlled by the opposition Popular Party, making approval uncertain. Moreover, the proposal could be challenged in court. The European Court of Justice (ECJ) has previously ruled against Spain for discriminatory practices, such as its 2009 ruling on inheritance taxes for non-EU residents. A similar outcome could occur if the proposed tax is deemed to violate equality principles.
The Role of Foreign Buyers
According to recent data, foreign buyers account for 13.75% of property purchases in Spain, with 14.6% of those buyers coming from non-EU countries. British nationals represent a significant portion of these buyers. However, it’s worth noting that many Britons purchasing property in Spain aim to establish legal residence through visas such as the non-lucrative visa. Non-residents buying property without the intention of living in Spain represent a much smaller fraction of the market.
This raises questions about the proposal’s ability to meaningfully impact property prices. Most non-resident purchases are concentrated in luxury or tourist areas that do not compete with the local housing market, suggesting the measure might have limited effect on improving housing affordability.
Will It Really Lower Property Prices?
The argument that foreign buyers are driving up property prices lacks substantial evidence. The share of purchases by non-residents is relatively small, and their activity is unlikely to influence prices at a national level. The focus on non-resident buyers may also overlook the broader, more systemic issues affecting housing affordability in Spain.
While the announcement has generated significant attention, the proposal faces numerous political and legal challenges. Its actual impact on the property market, even if implemented, would likely be minimal. British buyers, a key group of non-residents, are predominantly looking to establish permanent residence in Spain, further reducing the scope of the tax’s influence.
For now, the proposal remains speculative and far from becoming law. Those considering property purchases in Spain should keep an eye on developments but can proceed with confidence for the time being. Should this proposal move forward, it will face a long and uncertain path to approval and could still be challenged in court.
