Real estate taxation in the Balearic Islands plays a central role in the island economy, shaped by tourism pressure, land scarcity, and the strong presence of foreign investors. The purchase and transfer of real estate generates tax obligations that affect both residents and non-residents, with three main taxes involved: the Property Transfer Tax (ITP), the Municipal Capital Gains Tax (IIVTNU), and the taxation of capital gains under the Personal Income Tax (IRPF) or the Non-Resident Income Tax (IRNR).

1. Property Transfer Tax (ITP)

The ITP applies to the purchase of second-hand homes. As a devolved tax, in the Balearic Islands progressive rates from 8% to 13% apply, depending on the property value. The goal is to raise more revenue from luxury transactions, common in areas like Ibiza or Palma.
For residents, this tax makes access to housing even more difficult, given the already high prices. For non-residents, the ITP is usually accepted as part of the investment and does not significantly discourage purchases.

2. Municipal Capital Gains Tax (IIVTNU)

This tax applies to the increase in the value of urban land at the time of transfer. It is managed by local councils and represents a key source of local revenue.
In the Balearic Islands, where land has appreciated significantly, this tax is substantial but controversial. The Constitutional Court has restricted its application when no real increase in value exists, requiring a reform in its calculation.
For residents, especially in inheritances or family sales, it can be an unexpected burden. For non-residents, it adds complexity, as it must be paid in each municipality in addition to state-level obligations.

3. Capital Gains in IRPF and IRNR

At the national level, the sale of real estate generates a capital gain taxed in the savings base of the IRPF, between 19% and 28%.
Non-residents are taxed under the IRNR: 19% for EU citizens and 24% for those from third countries. In addition, the buyer must withhold 3% of the price as an advance payment, ensuring that the State collects even if the non-resident seller does not file a return.
While residents can offset losses in their annual declaration, non-residents face a more rigid system with fewer tax benefits.

4. Economic and Social Consequences

The combination of these taxes has a strong impact on the Balearic housing market:

• For residents: it is an additional obstacle to accessing housing, especially with very high prices.

• For non-residents: although it makes purchases more expensive, it rarely deters them, as it is considered part of the investment cost.

• For institutions: it represents an essential source of revenue for both the regional government and local councils, making tax reductions difficult.

However, this system reinforces inequalities: locals face higher barriers, while foreign investors, with greater purchasing power, continue to drive a market already under pressure.

Conclusion

Real estate taxation in the Balearic Islands reflects the tension between the need for public revenue and the right to housing. The ITP, municipal capital gains tax, and capital gains taxation affect residents and non-residents differently, accentuating inequalities. The main legislative challenge is to design a system that secures sufficient revenue without worsening residential exclusion among the local population.