Lawyer Raymundo Larraín briefs us on the landmark tax changes recently approved by Andalusia’s regional government, which have turned the tables, making it the region with the lowest taxation in all of Spain, along with liberal Madrid.
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By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of December 2021
To put it simply, now is the right time to buy (or sell) property in Andalusia, period.
Feel free to skip the rest of my article below.
As we’ve been hammering in previous articles, there has never been a better time to buy property in Andalusia than now. A series of factors have coalesced to the point it has created unique buying opportunities. I can only think of 1998 (which kickstarted the longest real estate bull market that Spain has known to date, lasting a full decade) as a comparable situation to the one we are now living.
2021 was poised to be one of the worst years in record in Spanish real estate sales. The virus’ financial aftermath proved devastating, nothing seemed to withstand in its relentless wake.
And that’s when – least expected of all – Andalusian politicians stepped in saving the day.
Andalusia’s regional government took the bull by its horns and approved in April of this year a taxpayer’s aggressive relief package to combat the adverse consequences brought about by Covid-19. These included, amongst many others, drastic tax cuts on buying property, both off-plan and resale. The two most notable tax changes, from a real estate perspective, were a 20% reduction in Stamp Duty (off-plan property) and the simplification of Property Transfer Tax into a single flat rate of 7% on buying resale property (which translates into massive savings ranging from 12.5% to over 30%, contingent on the sale price as this tax followed a sliding scale). In plain English, huge tax savings for property buyers.
But there was a catch. These lenient tax breaks from April 2021, conceived to combat the pernicious effects of Covid-19, were time-gated. Buyers only had until the 31st of December 2021 to take advantage of them.
That was until the Junta de Andalucia passed its new Law 5/2021 of 20th October. In effect, what this pivotal law did was to make these tax breaks permanent, indefinite. No longer are these tax breaks subject to an end-of-year deadline. On approving this law, the Junta have in fact extended the tax breaks into 2022, and beyond.
But the significance of this new regional law doesn’t only stop at Stamp Duty and Property Transfer Tax cuts. That’s just scratching the surface. It also extends to drastic cuts in Inheritance Tax (yes, again!), IRPF (personal income tax), Wealth tax, and a long etcetera.
Frankly, I would need to publish a couple of taxation articles every month only to keep abreast with all the taxes they keep tweaking, lowering or downright suppressing in a trend which remains unabated since 2019. Kudos to them.
I normally criticize Spanish politicians a lot in my articles, for which I make no apologies, but on this occasion, I take off my hat to what they are doing in Andalusia, because they are doing what’s right for the economy, and ultimately what’s best for the people.
Basically, it’s a win-win.
On the one hand, the Junta de Andalucia, and by extension all the inhabitants in this region, benefit from lowering taxes as this, paradoxically, increases the tax revenue. Hang on, you may be wondering, how on earth can they increase the revenue flow if they are cutting down taxes drastically left, right and centre? Well, the previous administration, which had been in power for almost 40 consecutive years, had extremely high taxes in place. On drastically lowering taxes – to more reasonable levels in line with fellow European countries – it has now levied an extra 600 million euros a year because of the increase in economic activity! Madrid too lowered its regional taxes, and as a result also raked in billions of euros in additional revenue proving – once more – that lowering taxes is the right path to attract foreign investments, foster job creation, and generate wealth for society at large. In Economic Theory, we know this as the Laffer Curve, after reputed US economist Arthur Laffer. This increase in additional tax revenue translates into the Junta offering better services to all its citizens and reducing public indebtment.
On the other hand, taxpayers and property buyers, likewise reap the rewards of a low-taxation environment. Taxpayers pay significantly less taxes having more purchasing power available to spend, propping up the economy. In a post-vaccination scenario, this is really being noticed as more and more people spend their extra money in amenities, boosting the overall economy. As for property buyers, well, that’s easy, you pay significantly less taxes on buying property in Andalusia! It ain’t rocket science.
One of the winners of this liberal fiscal policy is the real estate market, no doubt, but ultimately society as a whole, as this property bonanza translates into the creation of more jobs, which in turn creates wealth, and attracts even more foreign investments creating an upward spiral.
In effect, these generous tax breaks on buying property from April 2021 have created a property boom in Andalusia, as we wrote here: Andalusia: now is the right time to buy property – 8th October 2021.
Of particular interest are the tax cuts in resale property. The gist is that the higher the sales price, the more tax a buyer stands to save. With numbers:
In short, simply spectacular for high-end property. This has prompted a tidal wave of villa sales, the press reports 573 villas are selling a day in Spain!
Actually no, it is not. Last month I published a scathing article on this new law. On the bright side, as I pointed out in the article itself, this pernicious law will not be implemented in Andalusia because regional governments have devolved competencies on housing matters.
This means that while other regional governments in Spain will gladly embrace the hardships of a planned economy (increasing property taxes, fining landlords, dictating at what price you can, or cannot, rent out your property, extending tenant evictions) in Andalusia we will continue to enjoy economic and personal freedom, which translates into attracting even more foreign investments, spurring job creation and wealth.
Spain’s new housing bill will, unfortunately, fracture and polarize Spain furthermore, into two regional tiers: investment-friendly and those regions which are not. It’s an insidious side effect I cared to point out in the article’s conclusion, but it will not impact Andalusia one iota, nada.
If anything, Spain’s new Housing Act will only contribute to consolidate Andalusia’s status as a tier 1 tax region; an investment-friendly region which boasts an ultra-low taxation that attracts foreign investments and property buyers from the world over.
The point being, is that if you are thinking of buying property in Spain, and you like to pay little to no taxes, think Andalusia.
Can you really afford to miss out on a new property boom?
At Larrain Nesbitt Abogados we can assist you buying & selling property in Spain and deal with its taxation. Ask us.
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“Yo no voy a bajar impuestos, un socialista no baja impuestos (nunca). Esas recetas del neoliberalismo son ya historia. Está demostrado científicamente que la Curva de Laffer es una falacia.” – Luis Ángel Hierro Recio
Loosely translated as: “I’m not going to lower taxes; socialists don’t lower taxes (ever). These are neoliberalist ideas which are phased out. It is scientifically proven that the Laffer Curve is a fallacy.”
Luis Ángel Hierro Recio (1963). Ph.D. in Economics at the public University of Seville. Teacher of Economic Theory at Seville’s public University. Director of LL.M. in Urban Planning. Board member of the public University Pablo Olavide. Ex-congressman for Andalusia. He bid for the leadership of his political party in Andalusia and attained 5.51% of the ballots.
Mr. Hierro has never worked a day in his life in the private sector, devoting all his professional career to the public sector, paid for with our taxes.
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Article originally published in Spanish Property Insight: Tax breaks on buying property in Andalusia extended indefinitely! – 8th December 2021
Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.
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