As if the language barrier weren’t daunting enough, there’s another hurdle you need to be aware of when it comes to buying property in Spain: understanding the many acronyms that are used in the Spanish property sector! Luckily, this is an incredibly easy barrier to breach, because we have broken down and explained the most common acronyms, you’ll need to know to buy a property in Spain. These acronyms will help you work out many things, including what your contract means and how much tax you’ll pay:
IVA (Impuesto sobre el Valor Añadido)
IVA is a value added tax, which is the equivalent of VAT in the UK. You will pay VAT on the purchase of any new built property in Spain. The figure for this is 10% in all of Spain’s regions, with the exception of the Canary Islands, which sets its own VAT rates, and where you will pay just 6.5% for a new build property.
ITP (Impuesto sobre Transmisiones Patrimoniales)
ITP is also an acronym for a tax you will be expected to pay when you purchase a property in Spain: this is a tax paid when you transfer the ownership of a second hand property from one homeowner to another. Unlike IVA, we can’t share a set figure for the amount of ITP you might pay, because this varies across the country. The region with the lowest ITP rate is 4%, whilst the current highest region is 10%.
AJD (Actos Jurídicos Documentados)
AJD is yet another tax, and one that is often paid in conjunction with the ITP tax detailed above. You will pay your AJD (sometimes also referred to as an IAJD) to secure the administrative processes that are involved in securing a mortgage in Spain. You should expect to pay between 0.5 and 2% of your total mortgage payment in AJD tax, depending on the region where you live. Some regions offer a reduction on this figure to encourage homeowners to invest in the region, so this is something worth researching. The good news is that, since 2018, it is the banks that pay the bill for the IAJD, and not the homeowners who is applying for the mortgage.
IRNR (Impuesto sobre la Renta de no Residentes)
If you own a property in Spain that you make a profit from (by renting it out, for example) but don’t live in Spain then IRNR is a tax that you need to know about! This is a non-resident income tax, and the amount you pay will depend on your country of residence: if you’re from the EU then you will pay 19 percent and if you’re from outside the EU then you will pay 24 percent.
IRPF (Impuesto sobre la renta de las personas físicas)
IRPF is a very long way of saying ‘income tax’. If you sell a property in Spain and make a profit on your sale then this profit is considered to be an income, and you will be taxed on this figure, as a form of capital gains tax. The amount of IRPF you will be expected to pay will depend on how much profit you made: For a profit of up to 6,000 euros you will pay 19% in tax, for a profit between 6,000 and 50,000 euros, you will pay 21% in tax, and 23% for a profit of over 50,000 euros.
IIVTNU (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana)
Perhaps the longest acronym on the list, IIVTNU is also known as plusvalia. This is a tax that you are charged when you sell your property, with the amount depending on how much the value of your land has increased during the time you’ve owned it. Plusvalia has been a controversial tax, and it was deemed illegal in October 2021. However, the Hacienda (the Spanish tax authority) are currently working on a way to reintroduce a version of the tax and ensure town hall coffers don’t run empty.
TIN (Tipo de Interés Nominal)
TIN translates to mean nominal interest rate, and it’s important to know what the TIN is when you apply for a mortgage in Spain. This will be used to calculate the interest on your loan, so it’s important to understand what this rate is when you apply for your mortgage.
VPO (Vivienda de Protección Oficial)
VPO is an acronym that refers to properties which are sold at a lower than market rate to families and individuals on a low-income. That means that if you’re scrolling the property listings and see a property that is marked VPO then you won’t be able to make an offer on it unless you fulfill the criteria of being a low income family. These vary from region to region, but if you feel this might apply to you then it is well worth researching.
TAE (Tasa Anual Equivalente)
TAE is best translated to mean annual percentage rate (known by the acronym of APR in the UK). This is another way of working out what interest you will pay on your mortgage, as it takes into account commissions, and other expenses, in the way that TIN doesn’t. When trying to work out whether a bank is offering you a good deal, knowing the TAE is the best figure to use.
Are you thinking of living and working in Spain? Whether you’re hoping to buy or rent a property in Spain, our local property experts are perfectly placed to decode the process for you, and help you find the home of your dreams. Get in touch today to find out more about how we can help you.