Home » Spanish think tank warns of excessive property taxation: housing cost inflated by heavy fiscal burden

Spanish think tank warns of excessive property taxation: housing cost inflated by heavy fiscal burden

A new report from Spain’s leading business think tank claims that sky-high housing taxes are crippling affordability, curbing investment, and fuelling the country’s chronic housing shortage.

Housing taxation in Spain hits 52 billion euros annually

Housing in Spain doesn’t come cheap – and neither do the taxes. According to a report released this week by the Instituto de Estudios Económicos (IEE), Spain collects approximately €52.2 billion per year in taxes linked to property, equivalent to 3.5% of the country’s GDP. That’s a staggering burden compared to other developed nations. In fact, only Canada applies a higher marginal tax rate on housing, while the UK comes in close behind.

The study, titled La fiscalidad de la vivienda en España. Una propuesta de mejora (Housing taxation in Spain: A proposal for reform), accuses the Spanish system of taxing property ownership, use, and transfer far more heavily than other OECD countries. The report was presented by Gregorio Izquierdo, head of research at the IEE, and backed by the organisation’s president, Íñigo Fernández de Mesa – former Secretary of State for the Economy and current vice president of business lobby CEOE.

Up to five times more tax than EU peers

The IEE claims the effective tax rate on long-held owner-occupied homes in Spain reaches 30.3% – more than three times the OECD average (9.7%) and nearly five times the EU average (6.5%). These figures reflect the entire tax load on a property held for 20 years, including imputed rent, capital gains upon sale, and other levies, all measured against net returns.

Unsurprisingly, this heavy tax load isn’t just a burden for consumers – it’s also a buzzkill for investors. The IEE argues that excessive taxation is inflating housing costs, discouraging supply, and deterring investment across the board, particularly in rental housing.

Breaking down the tax bill

The most lucrative tax for public coffers is the Impuesto sobre Bienes Inmuebles (IBI – Property Tax), which makes up around 30% of all housing-related revenue. The next biggest chunk comes from VAT (levied on new-build homes and renovations), followed by personal income tax (IRPF), particularly on capital gains and imputed rent.

But it doesn’t stop there. The IEE’s 200-page report catalogues a long list of other taxes that nibble – or, in some cases, gouge – housing at all stages:

  • The Impuesto sobre Transmisiones Patrimoniales (transfer tax), as high as 13% in Catalonia and the Balearics
  • Inheritance and gift tax on property transfers (although often symbolic between close relatives)
  • The wealth tax and its posh cousin, the solidarity tax on large fortunes, levied on high-value portfolios (real estate included)

All in all, the fiscal burden can represent up to 25% of the final cost of a home in some regions.

Rental housing also under pressure

Investors hoping to dodge the headache by focusing on the rental market will find little relief. According to the IEE, Spain’s effective tax rate on rental income sits at 44% – compared to 31% in the EU and 32% across the OECD. This gap, the report warns, makes Spain less attractive to institutional investors at a time when the rental market is boiling over with demand and flats are in short supply.

Public spending on housing? Just 0.5% of GDP

To add insult to injury (or irony to austerity), the IEE notes that while fiscal authorities collect 3.5% of GDP in housing taxes, public spending on housing policy doesn’t even reach 0.5%. That discrepancy has not gone unnoticed.

“Spain’s tax system excessively penalises the acquisition, ownership, and transfer of housing,” said IEE president Fernández de Mesa. “This is an structural obstacle for the real estate market and a barrier to household wellbeing.”

Recommendations for reform

The report proposes a series of tax reforms designed to ease the burden and encourage a healthier housing market. Key suggestions include:

  • Abolishing inheritance tax on primary residences
  • Cutting property tax (IBI) rates
  • Applying a 4% super-reduced VAT rate to residential renovations
  • Offering capital gains exemptions if the proceeds are reinvested in another home
  • Moving rental income from the general tax base to the savings tax base (with lower rates)
  • Increasing capital gains tax reliefs and deductions

Whether or not these proposals gain political traction remains to be seen.

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