The Spanish residential market is boosting. Certain areas such as the Costa del Sol are experiencing a real boom in terms of conveyancing and rentals alike. Then, why not invest in both?
When buying a property in the south of Spain (Andalucia), the buyer must pay ITP-AJD (equivalent to SDLT). How much tax you pay highly depends on the value on the purchase price, though this ranges from 8% to 10%. This means that, if buying a property in Marbella for EUR 750,000 an extra EUR 75,000 shall be ready for paying ITP-AJD upfront (i.e. you will eventually pay EUR 825,000 when purchasing and of of course your gain will be taxed again when selling).
However, during the financial crisis new regulations were brought in to tackle the residential market recession, among others a tax loophole reducing ITP-AJD to just 2%.
Loophole: 2% of the selling price (instead of 8%-10%)
Requirements: The buyer must be a property investment company and the property must be sold within 5 years
Plain, simple and a true attractive proposal. Time is key for real estate investors and the 5 years period seems the perfect timing for renting the property.
Let´s imagine that you intend to purchase the EUR 750,000 in Marbella East.
Price (deductible as a real estate professional): EUR 750,000
Taxes : EUR 15,000
Rental Income: EUR 120,000 (EUR 25,000 p/year)
Selling price after 5 years: EUR 900,000
Net after-tax-gain: EUR 230,000
For further information about the issues raised in this blog, please contact any member of our real estate team.