Spain's controversial 100 percent property tax on foreign buyers

Recent developments in Spain have sparked concern among potential foreign property buyers as the government advances plans to impose a staggering 100 percent tax on certain overseas home purchases. This proposal, aimed at addressing the nation’s escalating housing crisis, raises critical questions about who will be affected.

In late May, Spain's ruling Socialist party confirmed its intention to introduce this bold measure, initially proposed by Prime Minister Pedro Sánchez in January. While many initially viewed this as mere political rhetoric, it has since gained traction, with the PSOE officially registering the proposal in the Spanish Congress, pending parliamentary approval.

Initially, the specifics of the proposed tax were unclear due to the absence of legal guidelines. However, the details are now accessible, clarifying that the 100 percent tax will be applied to the taxable base of the property—essentially the property's value—and not as a doubling of the existing property tax on second homes, a common misconception.

The proposal has also raised questions regarding its implications for various categories of foreign buyers. Is the tax limited to non-EU foreigners residing outside Spain? What about third-country nationals living in other EU states? The ruling Socialists have clarified this point in their proposal: “The State Complementary Tax on the Transfer of Real Estate to Non-Residents of the European Union is created.” This indirect tax will apply to the transfer of real estate within Spain, affecting individuals and entities not residing in the EU.

EU residency is the pivotal factor rather than citizenship. For instance, a British national residing in Germany would be exempt from the tax, while a German national living in the UK would be liable. Furthermore, even Spanish nationals who do not reside in the EU will face this levy if they wish to purchase a home in their country.

American and British nationals living in Spain or elsewhere in the EU will not be subject to the tax. However, those residing in the US or the UK will encounter the full brunt of the 100 percent tax when attempting to acquire a second home in Spain.