Vita Vilcina (Stocksnap.io)
In our third and final buying property in Spain guide series we provide you with advice on negotiating the taxes and costs involved in a Spanish property investment.
a. Costs and taxes payable when purchasing Spanish property.
In addition to the purchase price of the property, buyers in Spain will be liable for taxes and other costs, all of which need to be factored in. These may include fees for notaries and estate agents, as well as the cost of registration. It’s advisable to avoid cash transactions and to use cheques or bank transfers where possible.
Before we begin our overview of payment of taxes, it’s important to emphasise that certain taxes are obligatory, depending on the type of property. VAT and stamp duty are payable when purchasing a new-build property from a developer, whilst transfer tax is applied when purchasing an existing property from a private seller. An example of these two different situations is included below.
The following costs may be involved in purchasing a Spanish property:
- The purchase price, paid to the vendor
- VAT & Stamp Duty, payable on a new build, commercial property or building plot
- Transfer Tax, payable on the resale of an existing property
- Income Tax provisions as well as Capital Gains Tax, payable by the vendor
- Fees to estate agents and buyers’ agents (depending on agent’s fee structure)
- Notary fees
- Legal fees (optional)
- Deed registration fee
- Bank charges and NIE number fee
- Surveyor’s fee (optional)
- Fees for administrative agents (optional)
1. The purchase price payable to the vendor
The first step is the sale, which involves payment of the deposit followed by the balance; do ensure to extract the deposit from the final payment. Usually, this transaction involves a number of separate cheques, payable to the vendor, as well as the lawyer and the Notary. These should include any relevant taxes.
2. VAT and Stamp Duty pertaining to new builds, commercial properties and building plots
VAT in Spain is known as IVA, whilst Stamp Duty is known as Actos Jurídicos Documentados or AJD. VAT or Value Added Tax is payable when buying a new, previously unoccupied residential property, a commercial property, or plot of land. VAT is a national tax and is calculated according to the location of the property, although the Canary Islands are an exception as they have their own indirect rate of VAT. In 2016 VAT is currently 10% of the purchase price of a residential property such as an apartment, finca, or villa, and 21% of that of a commercial property or plot of land, including garages. In the Canary Islands, VAT is known as IGIC or Impuesto General Indirecto Canario and equates to an extra 4.5% of the purchase price.
In addition to VAT, Stamp Duty or AJD is payable to the regional authority, this can vary between regions, but is usually between 0.1% 1.5% of the purchase price. In the Balearic Islands AJD is currently 1.2%, in Catalonia 1.5% and in the Canary Islands 1%. When purchasing privately, you’ll need to complete an official self-settlement tax form, and transfer this sum into the exchequers’ account. If you’re using an agent or a lawyer, they will assist you with VAT, Stamp Duty and other taxes.
- A newly built villa in Portals Nous, Mallorca, Balearic Islands: purchase price 2,000,000 Euros with VAT at 10% and Stamp Duty at 1.2% equals 224,000 Euros
- A plot in Port d’Andratx, Mallorca, Balearic Islands: Purchase price 700,000 Euros with VAT at 21% and Stamp Duty at 1.2% equals 155,400 Euros
- A supermarket in Barcelona: purchase price 2,500,000 Euros plus VAT at 21% plus Stamp Duty at 1.5% equals 562,500 Euros
- A penthouse in Santa Cruz de Tenerife: purchase price 600,000 Euros plus VAT at 5% and Stamp Duty at 1% equals 33.000 Euros
3. Transfer Tax payable on the sale of a previously owned property
In Spain Transfer Tax is known as Impuesto de Transmisión Patrimonial or ITP. If you are purchasing a previously owned property, you are exempt from VAT and Stamp Duty, but you have to pay transfer tax known as ITP or Impuesto de Transmisión Patrimonial to the local authority. The amount payable is set by the local authority and ranges between 6% and 8%, but can be as much as 10%. Take a look at the examples below and refer back to our overview table Impuesto de transmisiones patrimoniales (ITP) de la compra segunda mano, for the specific ITP rate in each region.
- As at 2016, in Mallorca and the Balearic Islands the ITP payable on the purchase price up to €400,000 is 8%; the amount payable from €400,001 to €600,000 is 9%; and the amount payable above €600,001 is 10%
- As at 2016 in Marbella, Andalucia, the ITP payable on the purchase price up to €400,000 is 8%; the amount payable from €400,001 to €700,000 is 9%; and the amount payable above €700,001 is 10%
- As at 2016 in Barcelona, Catalunya, the ITP is 10%
- As at 2016 in Madrid the ITP is 6%
Example of the ITP calculation for Mallorca (Balearic Islands):
Resale Villa in Son Vida, Palma de Mallorca: Purchase Price 1,000,000 Euros
plus 8% on €400,000 = €32,000 plus 9% on €200,000 = €18,000
plus 10% on €400,000 = €40,000
IN TOTAL: €32,000 + €18,000 + €40,000 = €90,000
The ITP value is calculated by the number of Escrituras, or property deeds, so if you purchase a house for €1,000,000 containing four equal apartments, and for each apartment there is a separate Escritura there will be four separate ITP Transactions, each of which is taxed at 8% this will equate to four times €250,000. By contrast, if there is only one Escritura for the entire house, the ITP is measured by the total value of €1,000,000, however, the ITP payable increases to 10%; please refer to the calculations pertaining to the villa at Son Vida. If making the purchase independently, familiarise yourself with the following advice on taxes, and check where you must submit the self-assessment form for transfer of the tax for a previously owned property or Stamp Duty for a new property.
- if the property is located in a provincial capital, you will need to go to the tax office for the local authority known as the Delegacion de Hacienda.
- if the property is located in a town which is not a provincial capital – go to the district settlement office located in the offices of the property registry or Oficina Liquidadora de Distrito.
You have one month from the date the deed is issued to pay transfer tax and Stamp Duty and only after paying these taxes, you can register the property in the property registry.
4. Income Tax provisions and Vendor’s Capital Gains tax for the non-resident vendor
In the case of the vendor being a non-resident, the buyer withholds 3% of the purchase price to be paid directly to the tax authorities using the application form 211. In this eventuality, the tax authorities may consider the actual property as the asset backing the vendor’s Capital Gains Tax liability. The tax in question is the vendor’s Capital Gains Tax, which must be declared in their annual income tax returns or La Renta. The rate of tax is currently 19%. It may be possible for the vendor to reclaim Capital Gains Tax if the tax liability is less than the 3% retention. The vendor then has three months from the date of sale to submit a final tax return (Form 210). At this point they must either pay the extra tax due on the sale or claim the refund due to them. This transaction should be done at a local tax office or delegación de hacienda.
The vendor’s Capital Gains Tax is calculated on the net profit, which is a combination of the purchase price, the purchase costs plus the cost of maintenance, and it will be necessary to produce all relevant receipts. In Mallorca, the vendor’s Capital Gains Tax liability is often greater than the 3% withheld, and this is calculated according to the size of the liability and the Spanish tax authorities have the right to visit your home in order to check this. However, they are legally obliged to take any action within four years.
For example, let us examine the vendor’s Capital Gains Tax calculation in Mallorca, in the Balearic Islands. A person living in London sells a holiday villa in Son Vida, Palma de Mallorca, for €1,000,000 in November 2015 and the buyer withholds €30,000 and pays it to the tax office. The vendor originally purchased the villa in 2007 for €400,000, with additional costs of €50,000 plus €200,000 to refurbish and maintain the villa. So, the net profit is calculated at €1,000,000, minus the €650,000 in costs. The result is a capital gain of €350,000, with a Capital Gains Tax of €68,250 (equivalent to 19% in 2016). In this case, the vendor, who is resident in the UK, is not entitled to a refund and the Spanish tax authorities could issue a demand for a further €38,250.
Please contact us if you require further advice; however, if you engage an agent or lawyer, they will deal with this on your behalf.
5. Who pays fees to estate and buyers’ agents?
In Spain, estate agent fees are paid by the vendor who originally contracted the agency. Their fees are 5% plus 21% IVA which equates to 6.05% of the purchase price; this is deducted by the Notary on completion. However, if purchasers hire buyer’s agents to represent their interests, usually they are not liable for any fees as this these are split with the estate agents. In this case both the estate agent and buyer’s agent each receives a fee of 2.5% plus 21% IVA (equal to 3.025%). The seller must still pay the same fee, regardless of whether a buyer uses a buyer’s agent or not.
The Notary charges for authorising the deed of purchase and the mortgage deed. The law dictates that the seller pays fees for the authorisation of the deed, but the purchaser only pays for copies of the deed. If there is a separate agreement with the vendor, then this rule may not be applicable. Notary’s fees are set by the government through their schedule and range from 0.1% for properties of above €400,000 and around 0.4% for properties valued at less than €100,000. In Mallorca, the fee is usually between €1,000 and €3,000. If there is a mortgage, then the Notary’s fees are also due on the mortgage deeds. As a guide, include an extra 0.25% of the purchase price of the property including mortgage deeds.
Should you decide to hire a lawyer to undertake the Due Diligence, the average fee is between 0.5 and 1.5%, which can be negotiated with your chosen law firm. Your lawyer will investigate any liabilities relating to the property such as borrowings, outstanding mortgages or loans and will inform you of any building licenses, land registry entries or infringements. They will also investigate the legal ownership and check the title deeds. We strongly advise that you engage a lawyer, particularly if you are a first-time buyer and want a smooth, uncomplicated transaction.
Deed registration fee
It is necessary to register the title deed at the local office to guarantee that your property ownership rights are fully protected; the deed will contain information about the relevant office you must use. The fee for this is a standard 0.4% for the first €6,010, which reduces to 0.02% above €6,010.121 Euros.
Banking fees and NIE number
Monthly bank charges are around €20, whilst the one-off cost of obtaining the NIE number is about €200. After opening a bank account, you will need to make out a banker’s cheque, equivalent to around 0.5% of its amount, but can be often discounted to 0.1% (€1,000 Euros for a €1,000,000 transaction), but it is advisable to consult your bank. If you are transferring money from abroad to a Spanish bank account, check the charges for this, as they may not be applicable due to the European SEPA bank transactions scheme. Be aware that some banks might charge up to 0.1% of the amount transferred, but get in touch if you need further advice on this. In the event that you require a mortgage or finance, be aware that costs can vary between different banks or providers.
It’s always advisable for the purchaser of a Spanish property to have a survey carried out by a Chartered Surveyor. This should identify any factors that might have an impact on the value and potential enjoyment of the property. Chartered surveyors are covered by a professional indemnity, so in the case of an error, compensation may be available. On average Surveyor’s fees are between €1,000 and €2,000.
If you have contracted an administrative agent to assist with the paperwork, you should allow for a further €1,000 to €2,000, depending on their schedule of fees. If you work with an agent or lawyer they will handle this paperwork on your behalf. Finally, ensure that VAT or IVA is included when you receive any price quotation. In many cases VAT is only included in the final invoice, so it’s certainly worth double checking this.
b. The cost of property ownership in Spain
Having calculated the cost of buying a home, let us now examine how much it costs to maintain and own property in Spain. Any home will need regular upkeep and maintenance, so have a budget in place for this, as well as for other outgoings such as maintaining a swimming pool and garden. There will also be costs for cleaning, refurbishment, utility bills and general repairs. These will depend on the size of the property and your choice of service provider.
As a property owner you will also be liable for taxes and other fees, including:
- Property Ownership Tax (Impuesto Sobre Bienes Inmuebles – IBI) which is a local tax on ownership in Spain, which applies to both residents and non-residents. This is calculated at the administrative value, or Valor Catastral of the property which is usually much lower than the market value and can be between 0.4% 1.2%, and varies between different regions in Spain.
- Annual Wealth Tax (Impuesto Sobre Patrimonio) which is also payable by both residents and non-residents, but in a different way. Residents pay wealth tax on their global assets but are entitled to a range of tax-free allowances, while non-residents pay on their net assets within Spain. Non-residents pay this tax at a rate of between 0.2% and 2.5% on their Spanish property, with a minimum exemption of €700,000.
As an example, a Calvia villa with a value of €1,000,000 will be taxed based on €300,000 Euros as a €700,000 exemption was deducted, which equates to €729.55 annually. However, a €650,000 apartment in Portixol is tax exempt.
- Personal Income Tax (Impuesto Sobre la Renta de No Residentes – IRNR) is applicable to non-residents living in Spain; the rate you pay will depend on whether the property is rented out or not. Property owners who don’t let their home and who have no income in Spain will pay income tax according to the value of their property. The rate is fixed and is calculated at 25% of 2% of the cadastral value of the property but the cadastral value is significantly lower than the actual market price.
Non-residents who rent out their property will need to declare their rental and tax is paid after the deduction of expenses. As of February 2016, the income tax rate is 19% of the net rental income after deduction of expenses. However, the rate of tax is calculated according to each individual case, taking into account double taxation treaties.
- Community Fees are payable by the owners of properties when they are part of any development or complex where all the owners share a common area and are legally members of the community or Comunidad de Propietarios. The owners jointly approve the budget at their annual general meeting and fees depend on the size of your area, maintenance costs and service charges. The fees do vary and it is advisable to check these before you make a purchase
- Utility charges including electricity, water, telephone and heating are deductible from your bank account on a monthly basis and these costs are usually comparable to those in other European countries.
- Insurance also needs to be taken into consideration. Fire insurance is a statutory obligation if you take out a mortgage, whilst household Insurance will protect your home and furniture. The main insurers include Axa Seguros, Liberty Seguros, and Helvetia and others and it is advisable to obtain comparative quotes and offers, and we are happy to assist with introductions.