Spain’s housing market has shown healthy growth in recent years, and more and more foreigners are choosing to buy real estate here as a result. Home sales are up in practically every province, with particularly strong growth in the most popular tourist and holiday regions. Looking at the relatively low cost of living, reasonable housing prices and the fantastic weather, many foreigners are wondering: does it make sense to buy a summer house in Spain?
There are many factors to consider here. First of all, the type of summer house you are dreaming of will significantly impact the price; coastal homes close to major cities are usually much more expensive than inland homes in more rural areas. Then, of course, there is the matter of taxes and whether or not you will be able to recoup some of the costs of this new property by renting it out during the rest of the year.
Taxes when buying a house in Spain
Most of the costs associated with a real estate transaction in Spain are borne by the buyer, and that includes taxes. Taxes when buying a house in Spain depend on whether the property is new construction or an existing home. In the first situation, you will pay 10% VAT (known as IVA in Spanish), while in the latter situation, you will be subject to a property transfer tax of 6-10%.
Those are the only taxes that are directly involved in the transaction, but they are not the only taxes that you need to consider before deciding if it makes sense to buy a summer house in Spain. Another question to ask yourself is whether you are in it for the long-term or short-term. This is because you will be liable for capital gains tax of 19% on any profit you make if you sell the house, so if your plans are to only hold onto the property for a few years, it might make more sense to rent a vacation home from a tax perspective.
To rent or not to rent?
If you do decide to buy a second home in Spain, you will need to choose whether or not to rent it out while you are not using it. You should know that, regardless of your decision, you will be responsible for paying income tax on the property, in addition to local property/council taxes (Impuestos sobre Bienes Inmobilarias or IBI).
Why would you need to pay income tax on a summer house that you aren’t earning rental income from? This is a peculiarity of the Spanish tax system that considers real estate that is not your primary residence to be an asset which you could use for income, and so you are taxed on the “imputed income”. Imputed income is calculated from the cadastral value of the property, which, fortunately, is usually quite a bit less than the list price. This figure can be found on your IBI council tax receipt.
So, does it make sense to buy a summer house in Spain?
As with most things, the only correct answer is, “it depends”. It depends on what you are looking to get out of your holiday home, whether you want to consider it an investment, what your budget is, how much tax exposure you are willing to bear, and other factors. For certain people, this could be a very good moment to buy a second home in Spain, given the real estate market conditions and trends over the past few years. For personalized advice on buying property in Spain, consult a lawyer or tax professional with experience in the country’s real estate market.