Spain’s housing shortage will be eased with the introduction of new property taxation on foreign buyers and flat owners.

This month, the Spanish parliament is likely to speed up a massive package of tax hikes on foreign investors and holiday rentals operators.

The Socialist party (PSOE) has unveiled plans to slap hefty new taxes on foreign property buyers whilst hiking VAT on tourist flats from 10% to 21% – more than doubling the current rate.

The Housing Minister Isabel Rodriguez announced measures to combat Spain’s housing shortage by making it more difficult for non-residents and tourists to buy properties, as well as turning holiday flats into long-term rental for Spanish residents.

Non-EU residents and foreigners will have to pay a new state tax if they buy property in Spain, with the exception of Basque Country and Navarre.

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This tax could affect British buyers after Brexit, depending on where they reside.

The proposals do not apply to business owners or professionals who are based in Spain unless they have a VAT exemption for their work.

The government says the new levy won’t be passed to regional authorities to ‘avoid double taxation’, though exact rates have not yet been revealed.

The biggest impact will be felt by holiday rental operators, as the VAT on tourist accommodation is set to increase from 10% to 20%.

The government claims that this will bring tourist flats into line with other commercial activities as they generate substantial income instead of providing traditional housing.

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Rodriguez stressed the move aims to combat ‘speculation’ in the property market and has again called on Madrid City Council to ban the 15,000 illegal tourist flats operating in the capital.

The VAT increase is part of an overall crackdown in Spain on short-term rental, as many regions have already implemented restrictions on the issuance of new licences.

The much-hated Real Estate Investment Trusts (REITs) – investment funds that own rental properties – will see their tax rate jump from 15% to 25%.

The reduction is 50% for those who allocate more than 60% of their housing stock towards affordable rental housing. Those who reinvest profits and dedicate over 60% to affordable housing within three years are exempt.

‘Affordable rental’ is defined as properties with annual rental income below €26,400 or where rent doesn’t exceed 30% of the tenant’s household income.

According to the new proposals, property owners who abandon their homes will be subject to higher taxes. The current tax rates of 1,1% to 2% will increase by adding additional tax brackets.

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Local councils have also been encouraged to impose council tax surcharges (IBI) on vacant properties in order to push more homes to the rental market.

The tax benefits for energy efficient renovation works are being extended to 2025, and their scope is also being widened.

Renting below the official reference price in areas that are not stressed could result in a tax reduction of up to 100 percent on rental income.

The PSOE plans to push the legislation through during the first half of June, using the ‘first available opportunity’ in parliament’s schedule.

Rodriguez emphasised this was ‘not the time for half-measures’, adding: “Sometimes prohibition is necessary. We must take decisive action.”

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The party may have to face opposition in the lower house from regional and conservative groups.

The measures fulfill the promises that Prime Minister Pedro Sanchez made earlier this summer as part a 12-point strategy to combat Spain’s housing affordability crises.

The government is under pressure from property prices rising in popular expat locations to act now before local residents become priced out.