Make yourself aware of all the costs of buying property in Spain including the taxes involved, as well as those you will incur upon sale.
If you are in the process of a buying property in Spain, please note that purchasing property in Spain can entail significant costs – not least government taxes – not only in the purchase but also in the event of the eventual resale.
Better to go in with your eyes open, as they say! This summary also explains your annual tax filing obligations.
Things to know when buying a property in Spain
Transfer Tax.– The purchase of a property in Spain is subject to a Transfer Tax which is payable by the purchaser. The tax rate varies depending on the region of Spain and it is usually between 7-10%. As an example, the tax rates applicable in Andalucía are as follows:
Proportion between Property value and Tax rate
When you purchase a property from a developer, Spanish Property Transfer Tax is not applicable but rather VAT (currently 10% of the purchase price) is payable instead.
Additionally, Stamp Duty on documentation associated with the property conveyance is also payable and this property tax rate also varies depending on the region of Spain.
This can vary between 0.5% and 1.5% and, for example, in Andalucía it is 1,5% of the purchase price.
Notary fees and land registry fees.– In Spain all property transactions have to be signed before a notary public and then this deed is duly registered at the land registry of the municipality when the property is located. These costs are approximately 0.5% of the purchase price.
Professional fees.- Depending on the value of the property and the complexity of the transaction, these fees are between 0.5% and 1.5% of the purchase price, subject to negotiation between the parties.
Mortgage costs.– If you need Spanish bank finance for the purchase of the property, you will need to be aware that there will be additional notary fees, land registry fees and Stamp Duty.
Sadly enough, by adding the bank commissions the total costs would be in the region of 2-3% of the mortgage capital.
Valuation of the Property
The first step in a typical home purchase is to have the property valued. This is often at the insistence of the financial institution that may issue the mortgage although they will insist that you, the buyer, must pay.
The person carrying out the survey must be certified by the Ministry of Finance under the Law Regulating the Mortgage Market (Ley 41/2007).
The minimum amount chargeable for the carrying out of a valuation is €208 and will ultimately depend upon the following factors:
- Not all surveyors or survey companies charge the same<
- Where the property is located
- Will the surveyor need to charge expenses (mileage etc) to reach the property
- Does the surveyor need to access technical information (plans etc)
Ultimately, the financial institution will have to accept the surveyors report and so you will most likely use one recommended by them or by an independent surveyor like TINSA that is well known and has links with most of the financial institutions. You can find a list of suitable English-speaking architects in Spain.
Property Register Check
To ensure that the particulars of the property are correct i.e. the identity of the current owner(s), the mortgage charges and any other encumbrances that currently exist on the property and the existence of any court judgments affecting the property etc it is necessary to check with the property register at the local town hall where the property is located.
If you do this yourself the cost is a nominal administration charge of approx. €10.
While it is perfectly legal to arrange for the transfer of a property in Spain via a private legal contract, this is not the typical way of doing so.
The reason is that for the new property title to be registered in the public property register it is necessary to complete the transfer of the property by public deed or ‘escritura publica’.
From a practical point of view, no financial institution will offer a mortgage to facilitate the purchase without a public deed.
This involves the drawing-up of the deeds of transfer by a public notary. This is an independent official, who oversees the process and ensures that the proceedings take place according to the law and that the documentation is verified.
The amount charged by the notary is prescribed by law and varies in function to the price of the property.
Below is a table with approximate costs according to house price. Please note these may vary and the cost must always be confirmed by the notary before proceeding to avoid any problems:
Inscription on the Property Register
Once the property has been transferred it is advisable to register the new ownership details with the public property register.
Apart from not being able to obtain a mortgage without doing so, failure to register can cause multiple problems in the future with regard to future property transfers, inheritances, defending title against third parties etc.
Below are approximate costs for having this carried out. It will be necessary to check specific prices with the individual registry.
Removal of the Previous Mortgage From the Register
While not a legal requirement, it is preferable to have the previous mortgage removed from the property register.
This is the case even though the mortgage has been paid off following the sale of the property. The charge will still appear on the register and it’s removal incurs a number of charges, notably notary and registry charges.
The process involves obtaining a certificate from the financial institution that issued the mortgage that the mortgage has been discharged.
This certificate is then presented to the notary who draws up a public deed to that effect. The deed is then presented to the registry for inscription on the property register which thereby removes the mortgage charge from the property.
What are the taxes payable when owning a property in Spain.
Income tax.- When a property is not rented to third parties, the property owners have to pay an annual tax based on the deemed rental value of their homes. The ‘taxable base’ is 2% of the cadastral value of the property (1.1% if this value has been revised during the last 10 years), and the tax rate is 24%. No property costs can be deductible. However, for EU residents the tax rate will be 20% in 2015, and will be reduced to 19% from the 1st of January 2016.
If the property is rented to third parties, the rental income needs to be declared and the tax paid to the Spanish tax office. For EU citizens, the tax rate is 20% (19% in 2016) of the net rental income, whereas for non-EU citizens the tax rate is based on the gross rental income.
For EU citizens, only the costs that are directly related to the generation of the rental income are deductible (e.g. agents fees, cleaning, laundry, repairs and maintenance). In the case of all other property costs (e.g. local rates, community fees, utilities or interest on bank mortgages) they are only deductible pro rata to the number of days the property is rented.
For the number of days, within a calendar year, a property is not rented out, it remains subject to deemed rental income as explained at the beginning of this section.
The tax declaration is called Modelo 210 and the deadline for the payment is 31 December each year.
Wealth tax.- Non-resident individuals are subject to wealth tax on the value of their Spanish assets, but only for the net value that exceeds 700.000 € per property owner. The tax bands and tax rates are as follows:
The tax declaration is called Modelo 714 and the deadline for the payment is on 30 June each year.
Local rates (IBI and Basura).- This is the annual municipal tax called ‘Impuesto sobre Bienes Inmuebles’ (IBI), which is based on the cadastral value of the property. This tax varies depending on the municipality in which the property is located. There is an additional rubbish collection tax which is paid twice a year.
The Spanish Town Halls are not obliged to ensure that the tax demands are properly received in the property’s address as they are sent by normal post. Therefore you should ensure that you arrange for the payment of these taxes by direct debit.
Property owners, need help dealing with non-resident and rental income tax in Spain?
Things you need to know when you sell a property in Spain
Capital gains.- This tax is calculated by the difference between the sale price and the purchase price, having deducted all the necessary costs related to the respective purchase and sale, and adjusted by Spanish indexation relief. The tax rate is 20% for 2015 (19% in 2016).
When the property is sold by a non-resident, the purchaser has the obligation to withhold 3% of the sale price and pay it to the tax office within one month from the date of the purchase. This is considered as a payment on account of the total tax payable by the vendor. If the capital gains tax payable by the vendor exceeds the 3% tax withheld, the balance is paid to the tax office within four months from the date of the sale, and if lower the vendor will be able to reclaim for a tax refund.
Plusvalía Tax.- This local tax is paid to the Town Hall where the property is located, and is based on the increase of the value of the land between the date of purchase and the date of sale. The tax rate increases in accordance with the number of years the property is owned, with a maximum of 20 years.
Other costs.- Normally there are no notary fees or land registry fees, as they are payable by the purchaser, unless otherwise agreed between the parties.
Professional fees for dealing with the sale are based on the value of the property and the complexity of the transaction and, as for the property purchase, they are normally between 0.5% and 1.5% of the sale price. If the property has a Spanish mortgage and has to be cancelled prior to the sale, there will be notary fees and land registry fees payable by the vendor, which are normally withheld by the purchaser.