Second homes are a significant part of the Spanish real estate market. Many people buy a second home as an investment, to have somewhere to relax or as an alternative to their main residence.
Venturing into buying a second home can be an odyssey. Questions usually arise about associated taxes, whether the investment is worth it and deductible expenses, among other issues. That is why we're going to explain the expenses and taxes involved in buying a second home.
What taxes do I have to pay when buying a second home?
These are the taxes payable when you buy a second property in Spain:
Property Transfer Tax (ITP) on second homes: Property Transfer Tax (ITP) is payable when buying a second-hand property in Spain.
This property tax is paid to the autonomous communities, and the rate varies between 6% and 13% of the property’s value, depending on the region. Although almost all autonomous communities apply reduced rates when purchasing a main residence, these cannot be applied to a second home.
VAT on second homes: The purchase of a second home will be subject to VAT if it is a new-build property.
The rate applicable in this case is 10%. If the property is located in the Canary Islands, you will pay IGIC instead of VAT, at a rate of 6.5%.
- Stamp Duty on a second home: You will also have to pay Stamp Duty (AJD in Spanish), which ranges from 1 to 1.5%of the value stated in the deed.
In addition to these taxes, you must also consider other hidden expenses such as notary fees, registration fees, management fees and possible bank commissions when purchasing a second home.
How much tax do you pay when buying a second home?
The exact amount of tax you will have to pay when buying your second home will depend on several factors, the main ones being:
- Whether the property is a new-build or second-hand.
- The autonomous community where it is located (if subject to property transfer tax).
- The value of the property itself.
What is clear is that buying a second home is more expensive than buying a main residence in terms of tax.
If, in addition, you need a mortgage for a second home, bear in mind that your bank will, as a maximum and barring exceptions, lend you 70% of the property’s value. Furthermore, your risk profile may be scrutinised closely, and the interest rates may be higher.
What are the costs of buying a second home?
The cost of maintaining a second home in Spain can vary significantly depending on various factors, such as the property's location, size, state of repair, the services available in the area and your individual needs. Some of the most common costs for a second property include:
- Community fees: If the second home is located in a residential block or complex, you will probably have to pay community fees for the upkeep of the common areas, gardens, swimming pools or other services.
- Taxes: In addition to the taxes paid when purchasing the property – like ITP or VAT – owners must consider the Real Estate Tax (IBI), which is paid annually and varies according to their town or city.
- Maintenance and repairs: Set a budget aside for regular home maintenance, including repairs, cleaning, painting and possible improvements.
- Utilities: Water, electricity, gas supplies and other basic services must be taken into account.
- Insurance: Taking out insurance for your second home is essential to protect it against possible damage or unforeseen events.
What expenses are deductible when purchasing a second home?
When purchasing a second home in Spain, certain expenses may be tax-deductible.
- Mortgage interest and lending costs are among the main deductible expenses in Spain, as they can be deducted from the income tax base under certain circumstances.
- Expenses associated with formalising a mortgage loan, such as bank fees, can also be deductible.
- In addition, the notary and registration fees related to buying a second home are deductible from personal income tax.
On the other hand, taxes paid when buying the property, such as ITP or VAT, are not directly deductible, but they can be taken into account to calculate the acquisition value and possible capital gain in the future.
How is a second home taxed under personal income tax?
It is important to note that second homes, like any other type of property, are subject to tax in Spain, although the tax treatment will differ depending on whether you let out the property or use it for personal purposes:
- In Spain, if you let out your second home, you must declare your income as rental income from the property. However, you will be able to claim deductions for certain expenses, such as maintenance and service charges.
- As for how an unoccupied second home is taxed, you must declare it as a property not used for economic activities (imputed property income), and it will be taxed at 2% of its registered value.
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