What is itp, transfer tax, and how does it work?

The Transfer Tax, despite having been considered in Spanish legislation for quite some time, has come to the fore in recent months, especially due to its impact on those who have rented a house. For many years, the autonomous communities in our country have not collected it, but now a campaign has begun to do so. Here we will try to explain everything related to it.

What is the ITP?

The ITP or Impuesto de Transmisiones Patrimoniales is a tax that affects all subjects who carry out operations in which the payment of a price is necessary to acquire certain rights over the assets of a legal or natural person. This is the main reason why it affects the rental of commercial premises and housing, among many other properties. These are usually acquired through the payment of a monthly or annual rent by the tenant.

This tax on rental housing has been in force since 1993. However, its payment has been practically residual. The fact is that most of the existing rental contracts are not subject to control by the tax authorities because either the tenants are unaware of the existence of this tax or the landlords do not declare them. All this leads to a systematic non-payment of the tax.

Who is liable to pay the property tax?

The natural or legal person who is obliged to pay this tax is the one who receives the property rights of another. Therefore, in the case of renting, it is always the tenant of the property who is obliged to pay it. It must be said, in this sense, that ignorance of the existence of this tax does not exempt it from having to be paid. For this reason, some autonomous communities have already started a campaign demanding the payment of the tax even with retroactive effect and with the relevant sum of interest for late payment.

What is the price of ITP for renting?

The Autonomous Communities are free to set the rate they wish, however, most of them apply a price scale that appears in the Law regulating the ITP. In the column on the left are the price scales for the rental contract and on the right the rate to be applied.

For example, to find out how much ITP is payable on a rental of 850€, we would proceed as follows:

1- We take as the taxable base the rent for a whole year (850 x 12 = 10.200€).

2- We multiply this taxable base by the number of years the rental contract lasts. For example, five years (10.200 x 5 years = 51.000€).

3- If we look at the table, as the amount is greater than 7,692.96 euros, we would apply the coefficient 0.024040 euros for every 6.01 euros or fraction thereof. Therefore, (51,000 euros x 0.024)/6.01 = 204 euros).

The amount to be paid in ITP for this rent would be 204€. If the contract were to be extended every year, an additional €40.80 would have to be paid for each extension.

When must this tax be paid for the rental?

The law requires that the payment of the transfer tax must be paid within 30 days after the form of the rental agreement has taken place. Generally, the payment is made according to the total duration of the agreement. However, in the case of contracts that are renewable from year to year, the payment must be made annually.

How do I pay the Transfer Tax?

The first thing to do, once the rental contract has been signed, is to download Form 600 and all its annexes from the Internet and fill it in. Subsequently, it is time to present it at the appropriate place together with a copy of the rental contract and the National Identity Document of the taxpayer, i.e. the tenant. In this regard, the place may vary depending on the Autonomous Community, although it is usually done at the corresponding housing or tax office.

Does Transfer Tax affect the sale and purchase of homes?

The answer is yes. In fact, as a tax on the sale and purchase of housing, it is paid much more frequently than in the rental sector. The State dictates the general framework for the application of the ITP, although as it is a tax ceded to the Autonomous Communities, they are the ones who manage it and can establish the increases they consider appropriate. In the case of Andalusia, for example, a general rate of between 8% and 10% and a reduced rate of 3.5% is applied to the transfer of properties whose real value does not exceed 130,000 € when they are intended for the purchaser's main residence and the purchaser is under 35 years of age, or 180,000 € when they are intended for the purchaser's main residence and the purchaser is considered to be a disabled person with a recognised degree of disability equal to or greater than 33%.

What else does the ITP affect?

The truth is that the ITP is not only a tax on the purchase and rental of a property, but also covers many other issues. In fact, in addition to onerous property transfers, which are those in which the purchaser obtains a real right of use and which can include a house, a car or a boat, the fact is that the tax is also levied on corporate transactions such as, for example, incorporations, mergers, spin-offs, capital increases, dissolution, etc. In all these cases, its value is usually 1%.

The Transfer Tax also affects documented legal acts. This means that all notarial documents in which the acquirer of the right or asset appears are subject to this tax. The same applies to bills of exchange, seizure preventive annotations, etc. Their value varies between 0.1% and 1.5% depending on the document to be taxed.

As you will have been able to see, the Transfer Tax has a wide scope of action. However, especially when it comes to property rental, it is quite unknown to tenants, which means that it is often not paid. However, if you have ever bought a house, you will certainly have to pay it.

If you have any further questions on this subject, please contact us.