Madrid vs Valencia for Foreign Property Owners: Taxes, Costs and Rental Restrictions Compared

Madrid vs Valencia for Foreign Property Owners: Taxes, Costs and Rental Restrictions Compared

If you're weighing where to plant your flag in Spain, Madrid and Valencia sit at opposite ends of the same spectrum: one is a landlocked capital with a fast market and business-friendly tax stance, the other a Mediterranean city with lower prices, stricter short-let rules, and a growing expat scene. This guide walks you through the real ownership costs, the tax differences between the two autonomous communities, and how each region handles rental restrictions — so you can make an informed decision before you sign anything.

A quick note before figures: Spain's regional taxes and tourist-rental rules change frequently, and the two communities (Comunidad de Madrid and Comunitat Valenciana) set many of their own rates and rules. Always confirm current figures with the Agencia Tributaria (national tax), the regional tax office (Hacienda autonómica), your town hall (Ayuntamiento) for local rates, and — for anything binding — an independent Spanish abogado who does not work for the seller or developer.

The Big Picture: Two Very Different Markets

Madrid is Spain's economic engine. Prices per square meter in central districts are among the highest in the country, liquidity is strong, and the regional government has consistently pursued lower personal taxes. If you're a buyer looking for capital appreciation, corporate rental demand, or a base near international business, Madrid tends to fit.

Valencia offers roughly half the entry price in comparable central neighborhoods, a coastline, and one of Europe's most talked-about lifestyle propositions for remote workers and retirees. But the Comunitat Valenciana has been tightening the screws on short-term tourist lets, and its regional taxes on wealth and inheritance are less generous than Madrid's.

Purchase Taxes: Where the Regions Diverge

The single biggest tax you'll pay at closing on a resale property is the Impuesto sobre Transmisiones Patrimoniales (ITP), and it is set regionally.

• Madrid: ITP on resale homes is generally 6% of the purchase price — one of the lowest rates in Spain. Reductions may apply for young buyers or primary residences under certain thresholds.
• Valencia: The general ITP rate for resale property in the Comunitat Valenciana is 10%, with reduced rates in specific cases (large families, protected housing, buyers under 35 buying a primary residence below a value cap).

On a €400,000 resale, that difference alone is roughly €16,000 in favor of Madrid. Confirm the current rate on the regional tax portal before you budget.

For new-build property from a developer, you instead pay IVA (VAT) at 10% plus AJD (Actos Jurídicos Documentados / stamp duty), which is regional:

• Madrid AJD is typically around 0.75%.
• Valencia AJD is typically around 1.5%.

Annual Ownership Costs

Once you own, the recurring bill looks broadly similar across Spain but with regional nuances.

IBI (Impuesto sobre Bienes Inmuebles) is the annual municipal property tax, set by each Ayuntamiento based on the cadastral value. Rates typically fall in a 0.4%–1.1% band of cadastral value. Valencia city and Madrid city both sit in the middle of this range, but cadastral values in central Madrid are usually higher, so the euro amount is often larger there.

Basura (rubbish tax), vado (if you have a garage entrance), and community fees (cuotas de comunidad) for apartment buildings are set by the building or town, not the region. Community fees in a modern Valencia building with a pool can rival those of a central Madrid finca without amenities.

Non-Resident Income Tax (IRNR) hits foreign owners even if you don't rent. If the property is empty or for personal use, Hacienda imputes a notional income (usually 1.1% or 2% of cadastral value) and taxes it at:

• 19% for residents of EU/EEA countries.
• 24% for non-EU residents (which now includes UK owners post-Brexit and, of course, US and Canadian owners).

This tax is national, so it's identical in Madrid and Valencia — but it's the one most foreign owners forget to file (Modelo 210). File it annually and keep proof.

Wealth tax (Impuesto sobre el Patrimonio) and the Solidarity Tax on Large Fortunes are where the regions really split:

• Madrid has historically applied a 100% regional bonification, effectively neutralizing regional wealth tax — though the national Solidarity Tax on Large Fortunes can still apply above high thresholds.
• Valencia applies wealth tax with a lower exempt threshold and progressive rates.

For high-net-worth buyers, this is often the deciding factor. Verify current rules with your asesor fiscal — the national government and regional governments have both moved on this in recent years.

Rental Restrictions: The Widening Gap

This is where Valencia and Madrid have moved in noticeably different directions.

Valencia's tightening rules

The Comunitat Valenciana has introduced strict registration and licensing requirements for short-term tourist rentals (viviendas de uso turístico, VUT). Key points a foreign owner needs to know:

• You need a registration number from the regional tourism registry, and it must appear in every listing on Airbnb, Booking, etc.
• Many buildings now require explicit community approval for tourist use — a majority of the comunidad de propietarios can block short lets.
• The city of Valencia and several coastal municipalities have declared saturated zones where new tourist licenses are effectively frozen.
• Non-compliance fines can run into tens of thousands of euros.

If your investment thesis depends on Airbnb-style yields, do not buy in Valencia without a written legal opinion confirming the specific unit can be licensed. A "the previous owner rented it on Airbnb" comment from an agent is not proof.

Madrid's approach

Madrid city has its own tourist-let framework, most famously the Plan Especial de Hospedaje, which in many central districts requires tourist apartments to have an independent street entrance — a rule that has knocked out a large share of would-be Airbnb units in interior floors. Outside the city, other Madrid municipalities have lighter regimes.

For long-term rentals (contracts under the LAU, typically 5+ years for individual landlords), both regions follow national rules, including rent-index caps in "zonas tensionadas" (stressed housing areas) declared under state housing law. Valencia city and parts of the metropolitan area have moved toward such designations more actively than Madrid.

Capital Gains When You Sell

Capital gains on the sale of Spanish property by a non-resident are taxed nationally, not regionally:

• 19% flat for EU/EEA residents.
• 24% for other non-residents (US, Canada, UK, etc.), applied to the net gain after allowable costs.

The buyer withholds 3% of the sale price and pays it directly to Hacienda as an advance against your CGT bill (Modelo 211). You then reconcile via Modelo 210. Additionally, the municipality charges Plusvalía Municipal on the increase in the land's cadastral value — set locally, and often higher in central Madrid than in most Valencia neighborhoods because land values have risen faster.

Common Pitfalls for Foreign Owners

• Assuming your notary is your lawyer. The notario is a neutral public official. Hire your own abogado.
• Underestimating community fees in buildings with pools, concierges, or lifts — very common in Valencia coastal developments.
• Skipping Modelo 210 every year the property sits empty. Hacienda will eventually catch up, with interest.
• Buying with a tourist-rental business plan before checking the specific building's bylaws and the municipality's licensing status.
• Wiring funds without a clean paper trail. Spanish banks now demand robust source-of-funds documentation under AML rules; start assembling it before you make an offer.

Short FAQ

Is Madrid always cheaper tax-wise than Valencia? For purchase tax and wealth tax, generally yes today. For annual IBI and utilities, it depends on the specific property.

Can I get residency by buying? The Golden Visa program for real estate investors was phased out by Spanish law. Other visas (non-lucrative, digital nomad) still exist but are not tied to property purchase. Verify the current status with a Spanish immigration lawyer.

Which city is safer for rental income? Long-term rentals to professionals or students work well in both. For short-term tourist lets, Madrid's rules are strict but predictable; Valencia's are stricter and still evolving.

Spanish tax rates, regional bonifications, and rental rules change frequently. Confirm every figure in this guide with the Agencia Tributaria, the relevant regional tax office, your Ayuntamiento, and an independent licensed Spanish abogado before making any purchase, sale, or rental decision.