Expenses and taxes for second homes: everything you need to know

Have you bought or are you going to buy a second home? Second homes occupy a large part of the Spanish property market. Whether you have bought a second home or you are thinking of buying one, it is very important to know the expenses and taxes for second homes that you will have to pay when you buy one.

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In Spain, the vast majority of people buy a second home as an alternative to their main home in order to disconnect and enjoy holiday periods, another main reason is as an investment, for example, for holiday rentals.

In any of the above cases, it is very likely that during the purchase process you will have some doubts about the costs and taxes for a second home. Below, we will tell you about all the taxes that you have to pay, the general expenses that must be taken into account, the deductible expenses and how much you have to pay to the tax authorities for a second home.

What is considered a second home?

A second home is a property that a person acquires as a temporary residence when he or she already owns another property. One of the most relevant factors regarding the difference between first and second homes is the financing of the purchase, since the percentage of financing by the institutions in the case of first homes is higher than in the case of second homes.

What are the second home taxes to be paid?

The taxes payable on a second home are as follows:

Transfer Tax (Impuesto sobre Transmisiones Patrimoniales, ITP). In the case of a second hand property you will have to pay the Transfer Tax (ITP) which varies between 6% and 10% of the cadastral value of a property depending on the region.
Value Added Tax (VAT). In the case of a newly built property, you will have to pay Value Added Tax (VAT) of 10%.
Real Estate Tax (IBI). This is a tax that is paid annually for a property, the value of which varies depending on the municipality.
Personal Income Tax (IRPF). You must pay IRPF tax on income if you rent the property, as well as if it is empty.
Stamp Duty (Impuesto de Actos Jurídicos Documentados). You must pay between 1 and 1.5% tax, depending on each autonomous community, on the value of the deed.

In addition to all these taxes, you should also bear in mind that when buying a property you should consider other expenses such as notary fees, registry fees, agency fees and possible commissions in the case of applying for any type of economic financing.

What are the costs of buying a second home?

When buying a second home you must take into account certain fixed costs that you will have to pay, such as insurance and taxes for a second home, as well as other variable costs that will vary depending on the location, the characteristics of the home, etc. In general, the costs of a second home are as follows:

Taxes: in addition to the taxes that must be paid for the purchase of the property, such as ITP or VAT, other taxes must also be purchased, such as the Real Estate Tax (IBI), which must be paid annually and whose value varies depending on the municipality.
Community fees: if the property is located within a building, estate or residential estate, community fees must be paid when necessary.
Maintenance and repairs: within the variable costs, you should take into account the costs of regular maintenance of both the dwelling and the building or community, such as cleaning, repairs, as well as other possible improvements.
Utilities: monthly expenses associated with the supply of electricity, water, gas and other basic services, plus consumption costs during the use of the second dwelling.
Insurance: it is essential to have insurance for your second home to cover possible damages and unforeseen events.
Notary fees: these are the fees for the registration of the property.

What expenses are deductible when buying a second home?

If you have bought a second home, you should know that there are certain expenses that can be deductible. One of the main expenses is the mortgage interest. This interest can be deducted from your personal income tax (IRPF) depending on certain conditions, such as that the property is used as your main residence. In addition to the interest, other expenses related to the mortgage may also be deductible, such as bank commissions, notary fees and land registry fees.

How much tax do I have to pay to the tax authorities for a second home?

The main tax you will have to pay for the purchase of a second home is the Impuesto sobre Bienes Inmuebles (IBI). This tax is paid annually for a property and its value varies depending on the municipality where it is located and the type of property. In general, the IBI is usually higher for a second home than for a permanent home.

Depending on how you use your second home, the tax rate will vary. If it is used for personal use, holidays or on an occasional basis, the second home is taxed at 2% of the cadastral value or 1.10% if the value was revised in the last 10 years.

If your second home is rented out, the owner of the second home must declare the income in his or her tax return. Depending on the value of the income, the rate will be between 19% and 45%. It is therefore important to be aware of the second home tax to be paid.

Can the second home be the main residence?

In Spain, the Spanish Tax Agency considers a building to be the taxpayer’s main residence for a continuous period of at least three years, i.e. the owner must have lived in the property for at least 3 years.

However, if you want to convert your second home into your main residence, you must be registered in the place where your second home is located and it must be your tax domicile. It is essential to comply with the requirements established by law to change your second home into your main residence in order to avoid any type of sanction from the Tax Agency.