Why having an empty home in Spain could soon cost you more

In order to help solve the housing crisis, Spain's Socialist-led government recently presented a draft bill in Congress with several eye-catching tax proposals.

One of these fiscal measures was aimed at encouraging the release of empty properties into the rental market by progressively increasing the amount of taxes owners are charged.

There is no updated official registry of vacant properties in Spain, but according to the National Statistics Institute (INE) census in 2021, there are 3.8 million of them, which is 14 percent of the total.

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According to the INE, a home is considered empty when "It is not the habitual residence of any person nor is it used seasonally, periodically, or sporadically by anyone." Therefore, it is considered "uninhabited”.

The current legislation defines empty properties as those that have been vacant for longer than two years.

The government has confirmed that it does not include second homes that are used for holidays once or twice a year, for example.

Spain's main stats body estimates the number of empty homes by looking at which ones do not meet minimum electricity consumption.

The idea of the new measure is to make those with empty homes pay more. To do this the government will modify personal income tax or IRPF. Currently, homeowners are charged 1.1 percent of the cadastral value or 2 percent if this value hasn't been updated in more than a decade.

If the new bill passes, those with vacant homes with a total cadastral value of up to €100,000 will continue to add 1.1 percent to their tax return, but beyond that, the percentage will increase to 1.5 percent up to half a million euros; to 2 percent for homes worth up to €1 million; and up to 3 percent for those with empty homes valued above €1 million.

Here's an example of how this would work in reality. The average price of a property in Spain is around €165,000. So, under the current rules, a homeowner who keeps it empty will have to add €1,815 to the amount used to calculate their personal income tax. With the government's new proposal, this would rise to €2,475.

If it’s a very wealthy person with three homes with the same cadastral value - €495,000 in total - the tax would go from €5,445 to almost double that amount - €9,900.

With this new measure, the government hopes it will put thousands of vacant homes back on either the rental market or up for sale.

A total 26.1 percent of homes in towns with fewer than 1,000 inhabitants in the region of Madrid are considered to be empty, and in Catalonia it's 24.8 percent.

READ ALSO: Why landlords in Spain leave their flats empty rather than rent long-term

The general pattern is that the percentage of empty homes decreases as the population grows.

In Madrid, only 5.6 percent of properties in municipalities of more than 100,000 inhabitants are uninhabited, while in Catalonia, 8.4 percent of towns with more than 48,000 are uninhabited, according to Ministry data.

In big cities like Madrid, Barcelona, ​​and Málaga less than 10 percent of properties are empty.

Not everyone thinks the Spanish government's fiscal punishment will work though. Jaime Palomera, co-founder of the Urban Research Institute and the Sindicat de Llogateres (Landlords ' Union) explained to newspaper El Diario that “the monetary impact in terms of costs is too small to incentivise owners”.

He also explains that the cadastral value is usually much lower than the tax and appraisal values. This means that a property costing €600,000 home can easily have a cadastral value of €200,000. This could be an issue because owners will be paying much less tax for what the property is actually worth.

Víctor Palomo, a lawyer from the Spanish Housing Authority (CAES) also believes this measure is not enough. "For it to be effective, the surcharge has to be striking”.

Spain's maligned Housing Law, introduced two years ago, already included the possibility for city councils to add up to 150 percent of the property tax for empty homes.

Some municipalities in the Basque Country and Catalonia already implemented this, but so far experts claim there no evidence that this has put very many of them back on the rental market.

It's important to remember that far this is a draft law, which means it will still have to pass through Congress and receive a majority vote, not so straightforward for the ruling Socialists given their weakened parliamentary position.

Other measures being considered are taxing property investment companies more, increasing VAT on holiday apartments and charging non-EU non-resident home buyers a 100 percent tax hike.