On the 13th January 2025 Pedro Sanchez, the Spanish Prime minister gave a speech in which he proposed a series of reforms to help tackle the Spanish Housing Crisis.
In total he made 12 proposals however two of these proposals are of particular relevance to foreigners buying property in Spain. They are of such significance that I decided to add this chapter to explain them; at this stage the proposals are so vague that it would be futile to edit this entire book before the government clarifies their plans in detail. I ask that you keep the information in this chapter in mind while reading the rest of this book.
I will update the digital resources with any major updates and notify you by email. In this chapter I am going to outline the problems that Sanchez is seeking to address with his proposals, I will explain exactly what the proposals are (or at least exactly what is known about them so far) and I will explain if and how they would affect you if they were to become law.
Problems that need addressing in SpainThe domestic property market in Spain and across the EU as a whole is approaching a crisis point, throughout the European Union average house prices have risen by 48% in a decade, whereas wages have risen at about half that rate. As a result it is becoming very difficult for young people, and even well paid professionals, to buy a home. The rising cost of housing has also led to a driving up of rental costs. The cost of renting a property in hotspots like Madrid and Barcelona makes housing inaccessible to many people, even if they are earning a relatively good income.
The lack of affordable rental property has been exacerbated by the proliferance of short term holiday lets through platforms like AirBNB, as landlords court the higher revenues that can be generated from holiday makers and remove their properties from the long term rental market.
The government has made sweeping changes in recent years to try to tackle the proliferance of short term holiday lets. There is an entire chapter of this book dedicated to this subject so I won’t go into too much detail here, however, tourist licences are required in order to rent a property as a holiday let and these licences are dependent upon strict standards. While these measures should be an effective way of allowing local governments to manage short term rentals within their housing stock at a local level, unfortunately they have not been respected.
Indeed when the city of Alicante announced that they would be placing a moratorium on new tourist licences in January they revealed that of the 4108 properties available for short term let in the city 3292 were operating without sufficient licensing. The government has now pledged to set up a taskforce to address these illegal holiday lets on a nationwide level with increased inspections and penalties.
If you are considering buying a property to rent out as a holiday let (or simply considering renting the property short term while you are not using it) you should pay special attention to the details in this book. The information regarding licences in the book remains up to date, the only change is that compliance with the regulations will be more strictly enforced. Where we may see major changes is in the way the holiday lets are taxed. Sanchez has proposed that tourist rentals be taxed as businesses, not private income - I will provide more information on this as it becomes available.
A 100% tax on Property Purchases
The most significant, headline grabbing proposal by far is to levy a 100% tax on property purchases made by non-resident, non-EU citizens.
Sanchez argues that by restricting the purchase of property by non-EU citizens, he can reduce speculative demand for property and relieve some of the pressure on the housing market. It is a drastic move that has led to a lot of headlines and certainly lit up my inbox, however the announcement was very sparse on detail. All we know at this point is that Sanchez has proposed that non-resident buyers who are not EU citizens will pay a tax of 100% of the purchase price. I will focus on this key proposal through the rest of this chapter.
Who would it affect?
The message here was quite clear. The new tax would be aimed at Non EU citizens who are not resident in Spain when they make the purchase.
If you are an EU citizen (i.e. you hold an EU passport) then regardless of your residency status you would not be subject to the tax.
If you are a non-EU citizen, but you are resident in Spain at the time of the purchase you will not pay the tax.
Essentially the tax will affect Non EU citizens who are buying a home for holiday use or to rent out.
How would it affect them?
The way in which the tax would be implemented is unclear. Currently transfer tax is payable on the purchase of a resale property whereas IVA (VAT) is payable on New build properties. I give a lot of detail on this in the budgeting sections of the book.
Sanchez has not made any indication on how the tax will be levied however, as transfer tax is set by the governments of the autonomous regions - many of which are opposed to the plans - it would seem likely that a specific tax would have to be levied nationwide and would be payable at the point of transfer. To clarify information that I have read elsewhere, the tax would be 100% of the purchase price, not a 100% increase in the currently applicable rate. Sanchez’s words were very clear.
Could I still retire and buy a house in Spain?
Assuming that the tax would be applicable to you, does this mean that your dream of purchasing a property in Spain is over?
You would still be able to buy a property in Spain as your residence and pay the same rate of tax on the purchase as any Spanish Citizen, however you would have to become a resident in Spain first. There is a lot of information on the process of acquiring a visa and residency within this book.
If the new tax passes parliament then you would need to fulfil the visa requirements and rent in Spain while you gain your residency and then purchase a property. This is a route that many buyers already take and will continue to be available even if the 100% tax is imposed.
Would I be able to buy a holiday home?
It is this kind of purchase that the tax is directed at. If you are an EU Citizen then nothing will change however if you are not an EU Citizen and would only be visiting for holidays (therefore a non-resident) then the tax would be applied.
Is it likely to become law, if so when?
While this was a clear statement of intent from the Prime Minister of Spain, and therefore needs to be taken seriously, there is a lot of speculation that the statement is more politically motivated than a realistic proposal.
At the point of writing, Sanchez's proposals are only proposals and there is a long route to them becoming law. For the proposal to become law it will have to be properly framed as a Bill and pass through Spain’s legislative process, requiring approval by the Council of Ministers, debate in the Congress of Deputies, and review by the Senate. A typical timeframe for this would indicate that the tax could not become law until late 2025 at the earliest, more likely 2026.
Pedro Sanchez leads a minority Government and there is staunch opposition to the proposals from opposition parties. In the days following the announcement Sanchez came under attack from his Catalan coalition partners Junts (on unrelated matters) with the threat of a no confidence vote. He has struggled repeatedly to get his bills passed through parliament, he is surrounded by corruption scandals and his position is vulnerable.
One particularly contentious aspect of these proposals is that they involve overriding a competence of the autonomous regions. Spain has 17 Autonomous regions, each with their own government and, as we will see later in this book, each region sets transfer tax in its own jurisdiction.
While the proposals are popular in regions like Madrid where the housing crisis is at its worst, they are unpopular in regions like Andalusia where residential tourism contributes significantly to the economy. The autonomous communities would not play a direct role in passing this tax into law, but they have a huge influence on decision making through party affiliations.
It is likely that Sanchez will have to battle a lot of opposition from a weak position. Speculation is rife that the announcements are politically motivated, intending to appease a populist view while distracting from his other, very real problems.
There is a very real possibility that the proposals will never become law.
What would the economic impact be?
At this point it is impossible to tell if the announcement alone has had any impact on house prices; it takes months for sales to go from contract to completion and then for the data to be analysed.
Some speculate that the announcement was solely intended to temper demand regardless of whether it will become law and I have seen several people in comments on my youtube channel say that they are pulling out of purchases (I have not verified the claims).
It is inevitable that, were the law to come into force, the demand for property from non-EU countries will drop, however the scale of this drop in demand would be minimal against the scale of the overall Spanish property market.
I don’t imagine it would have any noticeable impact on the cities (where the biggest problems need addressing).The most significant effect would of course hit the areas that are most popular with ex-pat buyers. Here the proportion of demand that would be lost would be more significant than the overall national average, however, even in these areas, the majority of purchases are made by EU citizens, residents or people seeking to become residents.
As we will see later, non-EU residents already pay more tax on income from holiday lets and are unable to offset any expenses; the attraction to buy a holiday home and rent it when not using it is already much lower for this group. The proportion of people from outside of the EU buying property purely for use as a holiday home is relatively small and the demand that would be lost if they stop buying will be very quickly replaced by the increasing demand for property coming from within the EU. Tax reforms in some other northern EU countries are pushing investors into buying property abroad.
House prices are therefore unlikely to fall in these areas, they may just rise at a slower rate.
What should I do?
If you are already in the process of purchasing a property then don’t panic. It will take far longer for the tax to become law than the normal timeframe to complete a resale purchase.
If you have bought a property off plan and the completion date is not until late 2025/2026 then I would suggest talking to your lawyer to establish if anything needs to be done to protect yourself from any possible tax rise. At the time of writing I have no concrete information for you but I will be looking for it and updating the digital resources appropriately.
If you are planning on buying a holiday home without being resident then you have two options.
1. Wait to see what will happen before committing.
By choosing this route you run the risk that the tax does become law and the cost of purchasing becomes prohibitive. On the other hand you will have more time to assess the repercussions of the government's proposal and its implementation. I have read suggestions that the tax would be avoidable, for example by purchasing in the name of a company or trust. These suggestions have no substance when the law itself has not been written, however, as the proposal progresses towards law, options will become clearer.
2. Buy now before the tax has time to be imposed.
House sales can be processed very quickly, with most completed in less than 2 months, and the tax would take a lot longer to come into effect. It seems more than likely that throughout 2025 the situation for buyers will remain unchanged. It would be prudent to consider the impact that the tax would have on the market and property values; however, as I described above, I am not personally concerned that the market will be significantly impacted by these proposals.
Of course if you are reading this soon after it was written (and not planning to buy off-plan) there is almost certainly time to wait for a little more clarification before deciding to buy, while still being able to complete before the tax comes into force. If you are considering purchasing off plan then make sure that the completion time of the property is short enough not to risk the tax coming into force before completion.
If you are planning on retiring to Spain then you will have to consider that, if the tax comes into force, you will need to obtain residency before you buy a property. In most areas the financial requirements of a non-lucrative visa provide more than enough income to afford the rent on a reasonable home. You will of course need to account for the rental costs in your budget.
Conclusion
Sanchez’s plans are certainly bold and worthy of the headlines they have received. The proposals must be taken seriously however there are very real question marks over their validity. What is right for the hotspots in Madrid and Barcelona is not necessarily right for regions that are dependent on residential tourism, with Spain's system of devolved power this will lead to contentious debate.
Over the next year we will see a lot of political wrangling and, if these proposals do make it into law I would expect to see some significant changes to the current (very vague) plan. A compromise may be one that can allow for specific targeting of hotspots where overseas investors are buying rental property purely for speculative purposes, while allowing areas that are dependent on international residential tourism (and that were developed with tourism at their heart) to continue to attract buyers from overseas.
Over the next few months we are sure to learn more, I will keep the most important updates on my website and notify you of any changes. In the meantime I hope that this limited information can help inform your decisions.