Property hunters are confronted by tax traps and potential bargains across Europe because of stark differences in transaction levies, which make parts of Spain and Belgium the most expensive places to purchase a house in tax terms while buyers in some Swiss regions pay nothing.
An analysis by the Financial Times showed that the property transfer tax bill for the buyer of a €300,000 home in the EU would rise to €30,000 or more in Valencia, Catalonia and Belgium.
But in Zurich, which has some of the world’s most expensive houses, property buyers pay no transfer tax at all under a 2005 cantonal law introduced to encourage more property deals.
Across the region, this tax roulette is a sign of the massive difference that government policy makes to the cost of the biggest financial transaction most people make in their lives.
The UK stretches the extremes further. Under progressive transfer taxes in England and Northern Ireland, known as stamp duty, anyone who already owns a property has to pay an extra 5 per cent on top of standard rates, taking the top marginal rate to 17 per cent for portions of a house priced above £1.5mn.
The UK’s deputy prime minister Angela Rayner resigned this month after admitting she failed to pay the so-called stamp duty “surcharge” on a second property.
At the other end of the scale, no tax is due in England and Northern Ireland from first-time buyers of properties up to £300,000. The Labour government is discussing stamp duty reform and potential alternatives, such as a mansion tax, amid criticism that the current system discourages mobility.
Home Economics
This is the first in a series exploring the economics of buying a home across the globe, looking at how taxes and fees on purchases vary dramatically depending where you buy.
Part one: Europe’s housebuyers face tax roulette from Valencia to Zurich
Part two: What’s behind Singapore’s world-high property transaction costs?
Part three: The South Korean senior citizen estate agents that are among the world’s cheapest
As many parts of Europe are gripped by a housing affordability crisis, other tax breaks are being introduced to help the young or first-time buyers in several regions with heavy tax burdens.
In Spain, Prime Minister Pedro Sánchez says tackling the housing crisis is a top priority, but transfer tax rates are not in the hands of the central government but the country’s 17 regions.
The highest rates in Spain are flat levies of 10 per cent in Catalonia and Valencia, which include large stretches of Mediterranean coast buoyed by demand from holidaymakers and second home owners.
Alícia Romero, the top economic official in the Catalan government, said there was no sign of the tax slowing the regional property market, whose anchor is Barcelona.
But the leftwing administration has acted to help some of those struggling to buy. This year it extended a reduced rate of 5 per cent, which had been available to people up to the age of 32, to people up to 35. It made the same rate accessible to women who have been victims of gender violence.
For bigger-ticket buyers, Catalonia has increased marginal rates for prices above €600,000, which now rise to a levy of 13 per cent for the portion of a purchase above €1.5mn. “The more you have or the more you earn, the more you pay,” Romero said.
Marc Pritchard, sales and marketing director at property developer Taylor Wimpey in Spain, said that while most foreign buyers did their homework, the taxes in Valencia and Catalonia still caused sticker shock for some.
“We do have the odd client who says ‘OK, that’s a lot of money, I didn’t expect that’. Then they adapt. They say ‘Well instead of €400,000. I’m just going to go for €350,000 or even less than that.’”
Javier Macías, chief executive of Latitud, a Spanish property fund, said high tax rates were not a deterrent to investment but forced investors to modify their financial formulas to maintain profit margins.
“Operators typically adjust purchase prices, demand higher returns through rental income or capital appreciation, or focus their activity on off-market transactions where they can negotiate better terms,” he said.
Property buyers must also reckon with separate taxes levied for owning a property on a recurring basis each year, which vary considerably by country.
For purchases, Valencia’s conservative government is also offering discounts to the young and some families, but is not charging the rich any more.
Ruth Merino, Valencia’s top economic official, said the property transfer tax generated €1.5bn last year, accounting for 60 per cent of all revenue from taxes devolved to the region. “Therefore, any change to its rate — whether an increase or a decrease — directly affects the administration’s available cash flow.”
Richard Donnell, executive director at UK property portal Zoopla, said the nature of transfer taxes was shaped by their overriding policy purpose. “Is it about raising cash or is it about helping a functioning housing market? I think in the UK that our taxes around property are just about raising money and a bit clunky.”
Property transfer taxes in France are not unusually high, although the French assembly recently voted to allow local departments to raise the amount they levy by 0.5 percentage points to up to 5 per cent, as the government seeks to plug a gaping budget deficit. Buyers also pay lower charges to the local commune, or borough.
What hits French buyers hard are the fees they pay to real estate agents. It is common for buyers to be helped in their property search by an agent, who charges up to 8 per cent of the value of any purchase. Agent fees paid by buyers are often about 3 per cent in Germany and Italy, and are mostly absent in the UK and Spain.
Gill, who recently bought a €607,500 apartment in Paris as her first home, had to pay a total of about €50,000 in tax and notary fees.
“I’m not shocked there are fees because it’s France and that’s just how it works,” she said. But she made a big saving by negotiating directly with the apartment’s former owners, thus avoiding an agent’s fee that could have dissuaded her from buying entirely, she said.
Belgium’s standard property purchase tax, known as a registration fee, is a steep 12 per cent, a level that has come under the spotlight as politicians seek to make it easier for first-time buyers to get on the property ladder.
Regional governments have used their powers to reduce the burden, with Flanders in the north cutting its registration fee to 2 per cent for those buying their sole residence in 2022. In 2023, the Brussels region introduced a system where the first €200,000 of a property’s value is exempted from registration fees.
“The government is trying to stimulate affordable living for a first and primary residence”, said Bart Van Opstal, a Belgian notary.
Additional reporting by Mercedes Ruehl in Zurich and Carmen Muela in Madrid. Data visualisation by William Crofton
