What is ITP and when do you pay it?

When owning a property, there are certain obligations that you need to take into account. Some taxes are paid on a regular basis, whereas others are only paid as a one-off. The latter applies to ITP, and its purpose is to tax the transfer of property between individuals, among other transactions.

What is ITP?

Impuesto sobre Transmisiones Patrimoniales (ITP) is an indirect tax on the transfer of property for value, or in other words, the purchase of any types of goods or rights that form part of the assets of individuals or legal entities. Transfers are for value when goods change hands in exchange for money or another equivalent value.

However, this tax does not apply to transfers carried out by businesses as part of their professional duties. For example, a second-hand vehicle purchase between individuals would be subject to ITP, but if this same purchase was made through a used-car company, then VAT would be applied instead.

One of the most common transactions levied by this tax is the sale of vehicles and homes. When it comes to homes, ITP leads to a significant increase in the related costs.

Now that you know what ITP is, we will explain how it works. 

When do you need to pay Impuesto de Transmisiones Patrimoniales?

The person responsible for paying ITP is the party who is purchasing the asset or right. ITP is payable on the day when the taxable act or contract is formalised. From this point on, they will have a period of 30 working days to submit the corresponding self-assessment. 

How to pay ITP

ITP is a tax that goes to the Autonomous Communities, so it needs to be paid at one of the territorial branches of the Tax Office for the corresponding community. 

Although each autonomous community may have its own requirements for submitting information to pay the tax, in general you will need to fill in self-assessment form 600, and form 620 for the purchase of used vehicles.

What happens if I don’t pay the Impuesto de Transmisiones Patrimoniales?

If the corresponding ITP self-assessment form is not submitted, the tax authorities may initiate an inspection. If this inspection determines that the tax should have been paid, not only will you have to pay the tax itself, but you will also have to pay interest for late payment and a penalty on the tax due.

Furthermore, as long as the tax is not paid, the property registry will not accept the change of ownership for the asset and none of the documents recording the purchase will be accepted by any public body. 

How much is ITP?

The amount due for ITP is calculated by applying a percentage to the taxable base for the tax in question. Since it is a tax that goes to the Autonomous Communities, they are each responsible for determining the percentage to be applied, within a range that varies from 6% to 11%, and whether this percentage is based on the total amount or whether it increases in progressive steps.

The lowest percentage (6%) is applied in the communities of Madrid and Navarra, whereas Galicia applies the highest percentage (10%). In Andalusia, Asturias and Aragón, it can range from 8% to 10%, and in Catalonia and Extremadura it can go up as high as 11%.

Which value should you declare?

Not only do you need to know what ITP is, but the most important thing to know is how it is calculated.

Until recently, the assessment or self-assessment document for the tax used the actual cash value as the taxable base. However, when the Law on Measures to Prevent and Fight Against Tax Fraud was approved in Spain in July 2021, this changed the calculation method for the taxable base. As such, the actual cash value and the value for tax purposes are no longer the same. 

To calculate the value to declare, you take the market value for the asset, meaning the value of the asset according to the law of supply and demand, i.e. the most likely value of the asset.

If it relates to the purchase of a home, you will use the Market Reference Value as a basis, which is calculated by the General Directorate for the Cadastre and is different to the cadastral value.

As such, the most significant change introduced by the so-called Anti-Tax Fraud Law is related to the value of the asset. Before, it was the price paid for the home that would be declared, with the tax authorities for the autonomous community having the opportunity to review it if they deemed it too low. For this, they would use tables based on theoretical data, which would often not correspond to reality.

From now on, a reference value calculated by the Cadastre will be applied, on the basis of sales made before a notary. It will be calculated annually and may be viewed at the Cadastre’s Electronic Headquarters.

As we have seen, understanding Impuesto de Transmisiones Patrimoniales is a great help when it comes to planning important transactions, such as buying a home. If you are planning on buying a home yourself, make sure you check our promotions. We offer a wide range of different options.