ITP in Madrid: everything you need to know about it

Thinking about buying a home? If you want to avoid hassles with the capital you need to save and all the paperwork, it's best not to forget about taxes. Home purchases are subject to VAT or Property Transfer Tax (ITP) , depending on whether it's a new or used home.

In what cases does the Property Transfer Tax (ITP) apply when purchasing a home in Madrid?

The Property Transfer Tax (ITP) is primarily applied when purchasing a second-hand home in Madrid . That is, when it's not a new home subject to VAT.

Property transfer tax (ITP) is also payable on the purchase of other real estate, such as garages, storage rooms, or commercial premises , as long as they are not attached to a new home. This tax also comes into play when transferring real estate rights , such as usufruct, bare ownership , or the right of use and habitation.

In transactions between individuals, the ITP replaces VAT, so it's key to keep it in mind when planning your purchase budget.

Property transfers subject to tax

• Second-hand homes: general rate of 6%.
• Independent garages or storage rooms: 6% or 8% if they exceed 30,000 euros.
• Premises or offices: 7%.
• Real estate rights: 7%.

Remember that the ITP is always paid by the buyer and is calculated based on the highest value between the price, appraisal, and reference cadastral value.

Common cases: primary residence, second-hand housing, and more

The most common application of the Property Transfer Tax (ITP) in Madrid is the purchase of a second-hand primary residence. If certain requirements are met, such as the property being valued at €250,000 or less and being used as a primary residence, the buyer can benefit from a 10% tax discount, provided no additional discount is requested.

In each case, the applicable tax rate and possible discounts may vary, so it's important to carefully review the requirements established by the Community of Madrid.

Property Transfer Tax rates in Madrid: general and reduced

The Property Transfer Tax (ITP) in Madrid varies depending on the type of property, its value, and the buyer's personal characteristics . It's important to know that this tax applies primarily to second-hand homes, while new homes are subject to VAT, but not ITP.

For example, the purchase of a second-hand home is usually taxed at a general rate of 6%, although there are cases with reduced rates depending on the buyer's profile or the nature of the property.

On the other hand, the VAT on the purchase of a new home is 10% and the Stamp Duty (AJD) is 0.75%, but not the Property Transfer Tax (ITP).

Applicable rates depending on the type of property or buyer

The Property Transfer Tax (ITP) in Madrid varies depending on the type of property and, in some cases, the personal characteristics of the buyer. These are the most commonly applied tax rates:

6% : general rate for the purchase of second-hand homes.

7% : in transfers of real rights over real estate, such as usufruct or bare ownership.

8% : Applied to the portion of the property's value that exceeds €400,000 for residential properties or €30,000 for garages and storage rooms.

3.5% : Reduced rate for buyers under 35 years of age or with a disability equal to or greater than 33%, provided they purchase their primary residence for a maximum amount of €130,000.

1% : applicable to certain corporate transactions or notarial acts related to real estate.

0.5% : for preventive notes of embargo.

It is important to review each specific case to find out what tax rate applies.

Tax calculation: reference value and taxable base

The ITP is calculated by applying the corresponding rate to the taxable base, which is the highest value between the purchase price, the appraisal, or the cadastral reference value.

Some examples in the case of a 280,000 euro home:

• At 6% : 280,000 x 6% = 16,800 euros.

• With a reduced rate of 5% : 280,000 x 5% = 14,000 euros.

The rate may be adjusted according to applicable tax reductions. If the reference value is higher than the declared value, the tax will be calculated based on that value. The Community of Madrid offers a portal to check the updated value.

ITP bonuses in Madrid: young people, large families, and more

Since 2019, the Community of Madrid has offered several reductions in the Property Transfer Tax (ITP) to facilitate the purchase of a primary residence and benefit certain groups. Let's look at each of them.

Primary residence and persons under 35 years of age

If the property is worth less than €250,000 and will be used as a primary residence , you can benefit from a 10% tax discount. Additionally, in these cases, you have the option of splitting the property tax payment into three annual installments.

In rural areas with fewer than 2,500 inhabitants, the Community of Madrid provides a 100% reduction in the Property Transfer Tax (ITP) for young people under 35 who establish their permanent residence there. This measure aims to combat the depopulation of small municipalities.

Large families and people with disabilities

Large families can benefit from a reduced rate of 4% if they purchase a primary residence. This benefit is conditional on the previous primary residence having been sold within two years prior to or following the acquisition of the new one, unless the purchase involves an adjacent property to be added to the current residence.

Tax benefits are also available for people with a disability of 33% or more, provided the property is used as their primary residence. In this case, a reduced rate of 3.5% may apply.

Real estate companies and other special cases

When a real estate company acquires a home to incorporate it into its current assets with the aim of selling it within a maximum of three years, a reduced rate of 2% may be applied. This requires justification for the resale purpose and compliance with the deadlines required by regional regulations.

How to file and pay the Property Transfer Tax (ITP) in Madrid: Form 600 and deadlines

To comply with the payment of the Property Transfer Tax (ITP) in Madrid when purchasing a home, it's important to follow a series of steps to ensure proper processing and avoid penalties:

• Determine the tax amount : Calculate the ITP by applying the corresponding tax rate to the taxable base, which is usually the highest value between the purchase price, the appraisal value or the cadastral reference value.

• Complete Form 600 : Fill out Form 600, the official form for self-assessing property transfer taxes in Madrid. You can do this online through the Community of Madrid's website or in person at authorized offices.

• Submit the necessary documentation : Along with Form 600, you must provide documentation that justifies the transaction, such as the public deed of sale and the buyer's ID or NIE. This is key to accrediting the calculation and payment of the tax.

• Make the tax payment : This can be done online, by transfer or direct debit, or in person at authorized banking institutions and offices of the Community of Madrid.

• Keep proof of payment : It is vital to keep the receipt or proof of payment of the tax, as it will be necessary to register the property in the Property Registry and for any subsequent procedures.

Presentation of model 600 step by step

Form 600 consists of several sections that must be completed carefully:

• Identification of the taxpayer and the transferor : The buyer (taxpayer) and the seller (transferor) must be indicated, along with their complete personal or tax details: name, ID or CIF, address, and telephone number.

• Document Type : Indicate whether the transaction is formalized by notarial deed, judicial, administrative, or private document. If it is notarial, include the name of the notary, the year, and the protocol number.

• Description of the property or right transferred : The nature of the property (urban or rural), its use (housing, garage, etc.), cadastral reference, declared value and any other identifying information must be indicated.

• Self-assessment of the tax : The tax base is calculated, any applicable tax credits are applied, the corresponding tax rate is entered, and the final amount is obtained. This also indicates whether the transaction is exempt or subject to tax.

• Presentation details : Includes the presenter's signature, the place and date of presentation, and the payment method.

The form can be downloaded from the Community of Madrid website and, if you have an electronic certificate, submitted online.

Available payment terms and methods

The deadline to pay the property transfer tax is 30 business days from the date the deed is signed. You can do so either online , through the Community of Madrid's tax portal, or in person , at participating banks.

Meeting the deadline is essential to avoid penalties and late payment interest .

If you're in the process of purchasing a property and want to avoid unexpected tax issues, be sure to get all the information before signing. Yes, paying the Property Transfer Tax isn't optional, but at least you can do so with foresight and, in some cases, with a discount. At UCI, in addition to helping you finance your property, we explain all the tax costs of the transaction. If you need guidance on managing the Property Transfer Tax, we're here with you every step of the way.