On 22 May 2025, the Spanish Government submitted a Bill to Congress proposing a 100% state transfer tax on certain real estate acquisitions by non-EU residents. Aimed at curbing speculative investment and promoting affordable housing, the measure has sparked legal and political debate. If enacted, it could significantly affect foreign investors and Spain’s real estate market.
Background: Spain’s Housing Market Under Pressure
In recent months, the housing market has become a focal point in Spain’s political and fiscal agenda – both regionally and nationally. Skyrocketing purchase and rental costs have prompted calls for reform, with the Government committed to increasing the availability of affordable housing for Spanish residents and limiting speculative practices.
Several tax measures have already been introduced, while others – such as the proposed 100% transfer tax – remain under parliamentary review.
What Is the Proposed New Tax?
- The draft legislation introduces a state tax on real estate acquisitions by non-EU individuals or legal entities. It excludes the Basque Country and Navarre and applies only to second-hand properties not subject to VAT.
- The taxable base is the property’s reference value, as defined in the Cadastral regulations. If the declared purchase price or agreed consideration is higher, that value will apply.
- In practice, this means that a non-EU resident purchasing a second-hand property valued at €1 million could face a €1 million transfer tax, in addition to notary and registration costs in Spain.
- Regional transfer tax (Impuesto sobre Transmisiones Patrimoniales, or ITP) already applies to second-hand properties. Rates range from 6% to 13%, depending on the Spanish Autonomous Region (e.g. up to 6% in Madrid, 11% in Cataluña, 13% in the Balearics). Any ITP already paid by the taxpayer regionally would be deducted from the new state tax.
- New builds are excluded, as they are subject to VAT at 10%.
The Bill also proposes:
- Increasing VAT on holiday rental income from 10% to 21%.
- Reducing tax benefits for Spanish Real Estate Investment Trusts (REITs), such as SOCIMIs.
- Introducing tax incentives for renting properties at affordable prices.
Will The Bill Be Approved?
The Bill is still in its early stages. It has been submitted to Congress but has not yet been accepted for discussion. If accepted, a special commission will be appointed, and political parties will have the opportunity to propose amendments. The process is expected to take time, particularly given the Government’s fragile position following a major corruption scandal.
If Congress approves the Bill, it will move to the Senate. Given the Senate’s conservative majority, rejection is possible. In that case, the proposal would return to Congress for a final decision.
Political consensus appears unlikely in the short term, especially following recent corruption scandals affecting the Socialist Government.
Legal And Constitutional Challenges
The proposed tax is likely to face legal scrutiny, particularly under European Union law. It may breach Article 63 of the Treaty on the Functioning of the European Union (TFEU), which prohibits restrictions on the free movement of capital between EU Member States and third countries.
Relevant precedents include:
- 2014: The Court of Justice of the EU ruled against Spain for the discriminatory treatment of non-residents regarding to Inheritance and Gift tax. Spain amended the law in 2015 for EU residents and was further compelled to apply equal treatment to non-EU residents (i.e. third countries) after a 2018 Supreme Court ruling.
- Wealth Tax: Revisions allowed non-EU residents to benefit from regional allowances.
- 2022: The newly approved Solidarity Tax initially excluded non-residents from the €700,000 exemption. This was later corrected retroactively.
- Ongoing: Several Spanish lawyers and non-resident taxpayers have already submitted claims to the European Commission denouncing that the current taxation of Spanish rental income for non-EU/EEA residents is also discriminatory.
Given this context, a 100% transfer tax targeting only non-EU residents is vulnerable to annulment or modification. It may be deemed confiscatory or unconstitutional under Spanish law.
Notably, legal professionals who previously challenged Spain’s Form 720 penalty regime are preparing to contest this proposal at the European level if it progresses.
Potential Impact on Foreign Investors
If enacted, the tax could deter HNWIs from countries such as the USA, UK, UAE, Switzerland, Norway, and Latin America. Many investors purchase Spanish property as part of pre-immigration planning before relocating permanently and becoming Spanish residents. The proposed tax could disrupt their timings and plans.
Spain Remains an Attractive Destination
Despite the uncertainty, Spain continues to offer strong appeal for globally mobile wealthy families.
With appropriate legal and tax advice, pre-immigration planning, and tailored insurance-based wealth solutions, Spain remains a top-tier destination for HNWIs. It offers a high quality of life, favourable climate, strong education and healthcare systems, and a supportive business environment.
While the proposed 100% transfer tax is still under parliamentary review, it has already raised concerns among legal experts, investors and EU institutions. If enacted, it could reshape the landscape for non-EU investors in Spanish real estate. However, legal and political hurdles may delay or dilute its implementation.