Spain has placed itself at the highest level of property taxation within developed countries. It has reached the level of Italy, the country that usually obtains a higher tax burden on housing within the OECD, Organization for Economic Cooperation and Development (OECD). According to the International Fiscal Competitiveness Index 2021, Spain has fallen three places in the ranking of property taxes after the reforms carried out in the last year regarding this matter.
This has been defended by the American experts of the Think Tank that after comparing the number of taxes on real estate and the tax base, they came to such a conclusion. In short, they investigate whether there are any other types of taxes that states may apply to property. The case of Spain is one of the few within the study where numerous taxes are applied that affect housing such as taxes on financial transactions or on transfers of property, Inheritance and Gift Taxes, capital rights or taxes on corporate assets. As Daniel Bunn, Vice President of Global Projects at the Tax Foundation, points out: “Although it is an important element when measuring the neutrality and competitiveness of a country’s tax code, property taxes represent on average less than 5% of total tax revenues in European OECD countries.”
Spain is the country with the highest number of taxes that affect housing in the entire OECD. Among them the Tax on the Increase in Value of Land of Urban Nature, the municipal capital gain, Income Tax to Non-Residents by lease, Inheritance and Gift Tax, Income Tax imputed to the owner for second homes, Annual Property Tax (IBI) and wealth tax.
This causes Spain to be weak competitively speaking within the real estate sector compared to other developed countries. The Tax Foundation report notes that: “Spain has multiple property taxes that distort with separate liens on real estate transfers, net worth, inheritances and financial transactions.”
With bonuses and exemption policies, the Autonomous Communities have reduced the tax burden
The fiscal pressure of the country has been combated thanks to the policies of the regional haciendas. Unlike at the national level, some communities do carry out tax exemptions or reductions.
Madrid is the autonomous community that offers the most tax aid to housing. The Wealth Tax is 100% subsidized. In short, with respect to the Inheritance Tax, donations between relatives or between de facto couples or spouses, the taxpayer must only pay 1% of the corresponding fee.
On the other hand, people under 30 years of age can enjoy a 30% reduction in Income Tax in the amounts directed to rent, a deduction of a maximum of 1,000 euros per year.
These fiscal policies that have been carried out by the autonomous communities soften what could be a greater fiscal pressure. Following the report of the Tax Foundation, “Spain has a territorial tax system that exempts from taxes both foreign dividends and income from capital gains.”
Spain is the only one in the EU that imposes a Wealth Tax and the one that most affects wealth
While Spain is the country that taxes housing the most, at the other end we find Estonia. Estonia, among the OECD countries, has the most efficient property tax system. Along with Australia and New Zealand, Estonia is one of the few that remove from the tax base the value of structures on land or buildings. Their real estate tax only applies to the value of the land. Apart from this, no other property tax is registered in the International Tax Competitiveness Index.
As for property taxes, Italy is the worst country with the highest number of taxes. Apart from the large collections that are obtained from property taxes, in Italy financial transactions, inheritances, the issuance of shares, transfers of real estate are taxed and in addition, there is a tax on properties abroad and on wealth on financial assets.
If there were no bonuses or exemptions in the Spanish autonomous communities, Spain would take the place of Italy. It is the EU country that imposes the most taxes on wealth and the only one with a Wealth Tax. In short, the Inheritance and Gift Tax, despite existing in several countries, the rates reach percentages as high as 81.6%.
Degree of dependence
The Tax Foundation has set out in its report the degree of dependence of OECD countries on tax revenues and their different sources. In 27 European OECD countries, only 4.5% of tax revenues came from property taxes in 2019.
Among the countries with the highest dependence on property taxes, we find the United Kingdom with 12.4% of tax revenues, followed by Luxembourg with 9.7% and France with 8.9%. The country with the lowest dependency is Estonia with 0.6%.