The National Construction Confederation (CNC) has called for a reduction of such taxes as IBI (property tax) and IVA (VAT), and has also proposed introducing a series of tax deductions on the purchase and sale of housing in order to make it more affordable. Currently, around 14 taxes and fees applied to this sector account for about 25% of the final price of housing, and in some cases can reach 30%.
CNC proposals to reduce the tax burden on the purchase and renovation of housing
In particular, the CNC calls for the introduction of a super-reduced IVA rate of 4%, a reduction of the property transfer tax (ITP) or the tax on documented legal acts (AJD), as well as clarification of the tax base of the local tax on construction, installations and works (ICIO). It is also proposed to temporarily apply the super-reduced VAT rate (4%) to housing renovation in order to stimulate supply in this area and to improve the efficiency of Spain’s increasingly ageing housing stock, where more than seven out of ten buildings have insufficient energy performance.
In addition, employers in the construction sector are asking for an extension of inheritance tax relief on primary residences so that some heirs are not forced to sell the property in order to pay it. According to the CNC, Spain leads Europe in the maximum rate of this tax.
On the other hand, the National Construction Confederation proposes adjusting capital income from real estate for inflation and avoiding its double taxation. To this end, taxes paid to other authorities should be directly deducted from the amount, and only the real capital gain should be taxed – that is, fully correcting the effect of inflation.
Another proposal is to reduce inconsistencies between tax bases – especially those that contrast IBI (property tax) with ITP (property transfer tax), AJD (tax on documented legal acts) and inheritance and gift tax. As for the property tax, employers believe that it is necessary to agree on lowering rates and allow municipalities to adjust them in line with local needs, applying progressive benefits for investments in structural improvements and energy efficiency.
In addition, the CNC believes that it is necessary to clarify the tax base of the local tax on construction, installations and works (ICIO) and reduce its impact on investment by stimulating urban regeneration through partial rebates for renovation projects. This would help avoid duplication with municipal fees and an unjustified increase in costs.
A number of tax proposals put forward by the CNC are aimed at reducing the final price of housing and stimulating the market, where the lack of supply is causing an unprecedented housing crisis in Spain. At the same time, the tax burden in a purchase and sale transaction is not only excessive but also extremely bureaucratic.
Multiple taxes on real estate transactions and construction
In the case of the sale of a plot of land:
- The owner must pay IRPF on the income obtained from the difference between the purchase and sale price.
- They must also pay the municipality the tax on the increase in value of urban land (IVTNU).
- In turn, the developer is required to pay the regional administration the property transfer tax and the tax on documented legal acts in the form of the tax on transfers for consideration (TPO).
- In addition, the buyer of the land pays the property tax (IBI).
At the same time, in order to obtain a municipal licence to start construction, the implementation project, the results of topographical and geotechnical studies, etc. are submitted to the municipality.
All this is reflected in the construction project, and ICIO must be paid. In addition, fees are charged for the issuance of a licence, an urban planning certificate, a first-occupancy certificate, fencing, access, sewerage, etc., for which the town hall is the beneficiary. Before completion of the works, a declaration of new construction and the creation of horizontal property is requested for subsequent registration in the land registry.
Tax incentives to develop the rental housing market
Employers are calling for new tax incentives for renting in order to reduce the tax burden on landlords who offer more affordable prices, in addition to the existing personal income tax deductions. Furthermore, the CNC recommends that rental income should be treated as savings income rather than included in the general taxable base, as is currently the case, which would lead to lower taxes for those who receive higher rental income.
Currently, rental income is added to other income – such as salary – and is taxed at rates ranging from 19% to 47%, with the latter rate applying to amounts over 300,000 euros. The proposal is that it should instead be added to savings income, which is taxed at rates from 19% to 30%.
