100% Property Tax on Spanish Real Estate for Non EU Residents and Why Now is the Time to Invest in Portugal
Spain’s recent proposal to impose a 100% tax on property purchases by non-EU residents has sent shockwaves through the international real estate community.
Prime Minister Pedro Sánchez announced this bold measure as part of a broader effort to address Spain’s housing crisis, aiming to deter speculative investments that inflate property prices and leave homes vacant.
While the proposal is still in its early stages and faces political hurdles, its potential impact on foreign property buyers—particularly from non-EU countries like the UK—cannot be understated.
For those considering property investments in southern Europe, this development highlights the stark differences between Spain’s and Portugal’s property tax regimes, making the Algarve an increasingly attractive alternative.
Spain’s Proposed 100% Property Tax: What It Means for Non-EU Buyers
Under the proposed law, non-EU residents purchasing property in Spain could face a tax equivalent to 100% of the property’s value. This would effectively double the cost of real estate acquisitions for foreign buyers, making Spain one of the least hospitable markets for international investors.
The measure aims to curb speculative practices that Sánchez claims exacerbate housing shortages and affordability issues for Spanish residents. In 2023 alone, non-EU buyers accounted for 27,000 property purchases in Spain, many of which were reportedly used for profit rather than residence.
Currently, Spain’s property taxes vary by region, with transfer taxes ranging from 6% to 10%. If implemented, the new tax would dramatically increase these rates for non-EU buyers.
For example, a British buyer purchasing a home in Andalucía would see their transfer tax rise from 7% to an astonishing 14%. While the proposal is far from becoming law and faces significant resistance in parliament, its mere announcement has already prompted many investors to reconsider their options.
Comparing Spanish and Portuguese Property Tax Structures
The differences between Spain’s and Portugal’s property tax systems are stark, particularly when it comes to foreign investment:
Tax Feature | Spain | Portugal |
|---|---|---|
Transfer Tax | 6-10%; proposed increase to 100% for non-EU buyers | IMT ranges from 0-7.5%, depending on property value |
Annual Property Tax | IBI rates average 0.4-1.1%, regionally controlled | IMI ranges from 0.3-0.45%, set by municipalities |
Wealth Tax | Progressive rates up to 3.75% on net worth over €700,000 | No wealth tax; AIMI applies only to high-value properties |
Inheritance Tax | Progressive rates from 7.65% to 34% | No inheritance tax for close family; others pay 10% stamp duty |
Spain’s wealth tax and proposed punitive measures against non-EU buyers contrast sharply with Portugal’s moderate and stable tax regime. Portugal actively encourages foreign investment through favourable policies like its Municipal Property Tax (IMI) and exemptions for families with dependents.
Benefits of Investing in the Algarve vs Spain
The Algarve stands out as a prime destination for property investment due to its welcoming tax environment, stunning landscapes, and robust real estate market. Here are some key advantages:
Tax Stability
Portugal offers a predictable and investor-friendly tax system. The IMT (property transfer tax) ranges from 0-7.5%, depending on the property’s value, while annual IMI rates are capped at 0.45%. Unlike Spain, Portugal does not impose a wealth tax, making it particularly appealing to high-net-worth individuals.
No Inheritance Tax
Portugal exempts close relatives—spouses, children, parents—from inheritance taxes entirely. For other beneficiaries, only a flat stamp duty of 10% applies. By contrast, Spain levies progressive inheritance taxes that can reach up to 34%, depending on estate value and beneficiary relationships.
Golden Visa Program
Portugal’s Golden Visa program no longer provides residency rights through real estate investments.
The program now encourages investment in areas like:
Investment Funds: Investing in qualifying Portuguese investment or venture capital funds (minimum €500,000).
Cultural Heritage: Donations to projects preserving Portugal’s cultural heritage (minimum €250,000).
Job Creation: Establishing a business that creates at least 10 full-time jobs.
Scientific or Technological Research: A capital transfer of €500,000 or more into public or private research institutions
Rental Yields
The Algarve offers strong rental yields of approximately 5-6%, particularly in coastal towns like Portimão and Albufeira. These returns are bolstered by year-round tourism and demand for short-term rentals.
Quality of Life
The Algarve boasts over 300 days of sunshine annually, pristine beaches, world-class golf courses, and vibrant local culture—all contributing to an unmatched lifestyle. Unlike Spain’s Costa del Sol, which faces congestion and speculative development concerns, the Algarve maintains a balance between modern conveniences and unspoiled landscapes.
Why Now is the Time to Invest in Portugal
Spain’s proposed tax changes have highlighted Portugal as a more favourable destination for foreign investors seeking stability and financial security. The Algarve offers not only lower upfront costs but also long-term advantages through its transparent tax system and residency programs like the Golden Visa.
Moreover, Portugal continues to prioritise sustainable development within its real estate market. Municipalities frequently adjust IMI rates to make property ownership more affordable while incentivizing eco-friendly construction practices.
In Summary
Spain’s proposed 100% property tax on non-EU buyers is a wake-up call for international investors evaluating southern Europe’s real estate markets. While Spain grapples with housing affordability issues through restrictive measures targeting foreign buyers, Portugal remains committed to fostering an inclusive and stable investment environment.
For those considering their next move in European real estate, the Algarve shines as a beacon of opportunity—offering favourable taxes, strong rental yields, pathways to EU residency or citizenship through programs like the Golden Visa, and an unparalleled quality of life.
As someone who has spent decades immersed in Algarve real estate, I can confidently say that this region offers not just financial returns but also a lifestyle that truly enriches lives. If you’re weighing your options between Spain and Portugal, now is the perfect time to explore what makes investing in the Algarve so special!
Leave a Reply