Home buyers in Spain face 'highest tax burden in all of Europe'

SPAIN has been named the European country with the highest tax burden on home purchases, with new data suggesting the nation’s fiscal policy is worsening an already strained housing market.

According to a report by the Institute of Economic Studies (IEE), Spanish buyers pay an effective tax rate of 30.3% when purchasing a home – almost five times the European average of 6.5% and second only to Canada across the OECD.

The think tank warns that this heavy tax load is widening the gap between supply and demand and making it increasingly difficult for Spaniards to access affordable housing.

“It is surprising that a basic necessity is so severely penalised from a fiscal perspective,” said IEE President Iñigo Fernandez de Mesa.

The organisation estimates that up to a quarter of a home’s final cost can be attributed to taxes.

The IEE, which works in collaboration with the General Council of Economists and Spain’s largest business association CEOE, also points out that housing-related taxes in Spain generate around €52.2 billion annually – the equivalent of 3.5% of GDP.

The Property Tax (IBI) alone accounts for nearly 30% of that total, followed by VAT and income tax.

Buyers face a general rate of 11% on the Property Transfer Tax (ITP), among the highest in Europe, and a capital gains tax of up to 30% when they sell – nearly double the EU average of 16.4%.

Spain is also one of the few countries, alongside Norway and Switzerland, to apply a net wealth tax on property ownership.

Regional differences are stark, with the Balearic Islands charging up to 13% ITP on new-build properties, compared to just 6% in regions like Madrid, Navarre and Ceuta.

The report hails Madrid as having the ‘greatest fiscal competitiveness,’ arguing that its lower rates encourage market activity.

The think tank argues that such a punishing tax framework is counterproductive at a time when Spain urgently needs to boost its housing stock.

It estimates that 2.2 million new homes will be required by 2040, demanding an investment of around €380 billion.

“This cannot be done by the public sector alone. It must be done through public-private collaboration,” Fernandez de Mesa stressed.

He warned that high taxes are deterring the investors needed to meet this demand.

“Spain is by no means an attractive country for international investors, who could play an important role. We would need to rely much more on the private sector.”

The IEE is now calling for a comprehensive tax reform to encourage investment and increase supply.

Among its proposals: reducing transaction and property taxes, abolishing inheritance tax on primary homes, lowering income taxes on landlords, and applying a super-reduced 4% VAT rate on housing renovations.

The organisation also advocates for greater transparency through an information portal to help citizens understand various tax breaks.

Without meaningful changes, the IEE warns, Spain risks deepening its housing crisis – with affordability slipping further out of reach for future generations.