If you are thinking about taking part in a BOE (Spain's Official State Gazette) auction, it is essential that you know the taxes involved in acquiring property this way. At Subastic, we want to help you make informed decisions, so we have put together this detailed guide to taxation in property auctions.
What taxes are paid in a property auction?
Buying a property at a BOE auction involves paying certain taxes, which vary depending on the characteristics of the property and the transaction. The main taxes to bear in mind are:
- Value Added Tax (IVA)
- Property Transfer Tax (Impuesto de Transmisiones Patrimoniales, ITP)
- Municipal capital gains tax (plusvalía municipal)
Let's look at each of these taxes in detail and when they apply.
Value Added Tax (IVA)
IVA (Spanish VAT) applies to the purchase of new-build homes. However, it is worth stressing that most properties acquired at BOE auctions are second-hand, so they are not usually subject to this tax.
There are, however, exceptions:
- If the home is a new build and is bought directly from the developer, 10% IVA will apply.
- In the case of commercial premises or garage spaces exceeding two units, IVA will be 21%.
It is crucial to bear in mind that in the Canary Islands IGIC is applied instead of IVA, with a general rate of 7%.
Property Transfer Tax (ITP)
ITP is the most common tax in BOE auctions, as it applies to the purchase of second-hand property. The tax rate varies according to the autonomous community where the property is located:
- Some communities such as Madrid, Navarre or the Canary Islands have lower rates (between 6% and 6.5%).
- Others such as Catalonia, the Valencian Community or Extremadura apply rates of up to 11%.
It is important to check the specific regulations of each community, as there may be reduced rates for buying a main residence or depending on the value of the property.
The Catastro reference value: a key concept
Since 2022, the concept of the "Catastro reference value" (Catastro being Spain's land registry for tax purposes) has changed the way tax is paid in BOE auctions. This value determines the taxable base for ITP, which means that:
- The taxpayer pays according to the "market value" set by Catastro, not according to the actual purchase price.
- The reference value is generally higher than the price paid at auction, which results in a higher tax bill.
It is possible to submit evidence to correct the amount assessed, but initially the reference value will be applied automatically.
Who pays the plusvalía in a BOE auction?
The municipal capital gains tax, officially known as the Tax on the Increase in Value of Urban Land (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTNU), is payable by the seller. As a buyer at a BOE auction, you should not receive any claims for this tax from the local council.
Tips for calculating your investment in BOE auctions
To avoid unpleasant surprises, we recommend that you:
- Research the ITP rate applicable in the autonomous community where the property is located.
- Check the Catastro reference value before bidding.
- Calculate the difference between the auction price and the reference value to estimate the tax impact.
- Factor in additional costs such as notary fees, registration and, if necessary, legal advice.
Remember: good tax planning can make the difference between a successful investment and an unexpected financial burden. Do your homework before you bid! Find the best BOE auctions on Subastic.