THE COST OF BUYING AND OWNING PROPERTY IN SPAIN

It is important to have clear from the outset the real costs you will face when you buy property in Spain. It is equally important to be clear about the ongoing costs you will face as a property owner in Spain. If you underestimate either of these costs you run the risk of getting into financial difficulty. At that point your dream home in the Spanish sun could become a serious problem for you.

There are very few people in the Spanish real estate business that will take the time to explain all the costs you will face. Therefore it is your responsibility to be informed and do your own numbers. To do this you need to know which costs to expect so here we explain all the different types of costs. Bear in mind that the actual cost will depend on your particular circumstances.

Costs of buying property in Spain

As a buyer of property in Spain there are a number of costs and taxes over and above the property price that you will have to pay. Depending upon whether you are buying a new property from a developer, or a resale property from a private individual, you will either have to pay VAT & Stamp Duty, or a transfer tax. The different cases are explained below, along with the other costs and taxes that are common to both cases.

NEW BUILD FROM A DEVELOPER

VAT & Stamp Duty (IVA & Actos Jurídicos Documentados - AJD)

These taxes apply if the property is being sold for the first time, and the seller is a property developer. The VAT (known as IVA in Spain) is 7% on the price of the purchase in the case of built residential property (villa, apartment, etc), and 16% in the case of plots of land (without built property) and commercial premises. The Stamp duty (known as AJD) is fixed at 1% of the price of the purchase. Both VAT and Stamp Duty are paid by the buyer, and if any deposit is paid before completion of the sale, such deposit will be subject to VAT at the moment of payment of this deposit. In this scenario there is no transfer tax to pay.

RESALE FROM A PRIVATE INDIVIDUAL

Transfer Tax (Impuesto sobre Transmisiones Patrimoniales - ITP)

This tax applies if the property is deemed to be a second or posterior transfer. The Transfer Tax is 6% or 7% on the price of the purchase, depending on the Spanish Autonomous Region in which the property is located. The transfer tax is paid by the buyer. If any deposit is paid before completion of the sale it is not subject to the transfer tax. However the full amount of the transfer tax still has to be paid upon completion. In this scenario there is no VAT to pay, and stamp duty is already included in this tax.

Income Tax Provision When Buying From Non-residents

If the seller is not a Spanish resident, the buyer has to withhold 3% of the purchase price and pay it to the tax authorities (application form 211). If this is not done the property will be considered by the tax authorities as the asset backing the capital gains tax liability of the seller. This condition is very unlikely to apply when purchasing from a developer.

COMMON COSTS

Agency Fees

Estate agency fees or commissions are paid by the seller, unless otherwise agreed. If the buyer uses a search agency then search fees are paid by the buyer.

Despite the ability of the internet to bring together buyers and sellers without the need for an agent most people still use agents to find property in Spain. However you should be aware that agents charge between 2% and 15% of the sale price, depending upon the region and type of property. Unless the buyer has specifically agreed to pay the agent's fee this cost will be built into the sale price.

Legal Fees

You are strongly advised to hire a lawyer to help you during the buying process. Your lawyer drafts and reviews contracts on your behalf and can explain all the legal and administrative issues you face. Your lawyer should also carry out any necessary due diligence (checking ownership claim of the seller, charges on the property, permits, etc.) and arrange all the required documents to complete the process (property registration, tax payments, etc.).

A lawyer - Abogado in Spanish - will charge you according to the service you require. This will vary according to the complexity of the purchase. Many charge around 1% of the purchase price in legal fees. Be warned that some lawyers charge 1.5% or more of the sale price, which is a rip off. Even 1% can be unreasonably high given the work that is involved in a straightforward purchase of an expensive property with no legal complications. Your best option is to try and find a good lawyer who is prepared to charge on an hourly basis. Legal fees for a purchase without any complications and charged on an hourly basis should be in the region of 1.000 to 2.500 Euros.

Mortgage costs

If you choose to buy with a mortgage then this will incur several additional costs. First there will be the property valuation that the mortgage provider will require before granting the mortgage. This is paid for the by the buyer and can cost around 500 Euros. Then there will be the costs of the mortgage itself. This varies according to the provider, and even according to the particular branch. However there is usually some kind of opening fee of around 1% of the value of the mortgage. Finally a mortgage will increase the Notary expenses.

Notary Expenses

Notary expenses are nearly always paid by the buyer and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate Notary fees as being 1% of the purchase price declared in the deeds of sale. In many cases however Notary fees are more like 0.5% (or less) of the price declared in the deeds.

Property Registry Inscription Fees

Expenses related to inscribing the sale with the land registry are also nearly always paid by the buyer, and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate 1% of the purchase price declared in the deeds, though once again it depends upon the property and the area, and the fee could be considerably lower.

Other Costs

Bear in mind that it may be prudent to carry out a survey of the property and that this will have a cost.

In Summary, allow for up to 10% of the purchase price in taxes and other costs.

If the buyer takes out a mortgage these costs can be somewhat higher due to an additional public deed for the mortgage and the inevitable bank charges involved. In this case transaction costs might reach between 10% and 12% of the value of the property purchased.

Banking Costs

To pay for the property, you will more than likely need to write a banker's cheque. In order to do that, you will need to open an account in a Spanish bank and transfer money from the bank in your country. The cost of transferring the money can go up to 0,4% of the amount transferred. The banker's cheque will most likely cost 0,5% of its amount.

Furniture Costs

Once you own a property you will need to furnish it. The cost of furnishing a property depends entirely upon what you want. However as a very general rule of thumb a 2 bedroom apartment will cost around 10,000 to 15,000 Euros to furnish nicely if you buy everything new. Of course there is no limit to how much you can spend, though you can also get away with less than 10,000 if you are on a tight budget (all from IKEA, for example).

Costs of owning property in Spain

There will of course be costs associated with owning a property in Spain. Some of these will be maintenance costs, such as cleaning, repairing, reforming, utility bills, rubbish collection, and so on. These will be determined by the size and type of the property you buy. Obviously a large villa with a garden and pool will require much more effort and cost to maintain than a small apartment. For cleaning a figure of 10 Euros an hour is fairly typical throughout Spain.

Apart from the general maintenance costs referred to above, there are a number of costs in the form of taxes and fees that property owners in Spain face.

Property Ownership Tax (Impuesto Sobre Bienes Inmuebles - IBI)

A local tax on the ownership of property in Spain, irrespective of whether the owner is a resident or not. Calculated on the basis of the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) set by the town hall the tax rate goes from 0.4% - 1.1% of the valor catastral depending on the Spanish region.

Annual Wealth Tax (Impuesto Sobre Patrimonio)

Both residents and non-residents have to pay an annual wealth tax on the net wealth they own on 31st December of each year. For non-residents this tax only applies to assets located in Spain. Non-residents who only own property in Spain (and no other types of assets) can expect to pay a wealth tax based on the value of the Escritura Publica or the valor catastral, or a value assigned by the tax administration for the purposes of other taxes - whichever being highest. The tax rate varies between 0.2 and 2.5%.

Example: Property valued at  700.000 in Catalonia

A wealth tax has to be paid by everyone that has a net worth in Catalonia greater than 108.182,18 euros at the end of the fiscal year (the fiscal year is the same as the calendar year).

i. Resident in Spain

A property owner resident in Catalonia, Spain would have to declare the property tax under general terms. This means that net worth below 108.182,18 euros would not be taxed. Furthermore, residents are exempt from property tax on their main residence up to a value of 150.253,03 euros. The following table shows an example of the property tax declaration for a main residence valued at 700.000 euros.

ii. Non-resident in Spain

Non-residents that own a property in Catalonia, Spain will also have to pay a property tax. In this case, there is no value reduction for the property being the main residence. Since the person is a non-resident, the Government assumes that the person has a main residence elsewhere and the property in Spain is considered a second home. Nevertheless, the general reduction of 108.182,18 euros does apply in this case. The following table shows an example of the property tax declaration for a second home valued at 700.000 euros (the tax rates are the same as stated above):

Personal Income Tax (Impuesto sobre la Renta de No Residentes - IRNR)

Non-residents who own property in Spain have to pay an annual income tax that varies according to whether the property is rented out or not.

Non-resident property owners who do not rent out their property and who do not have any other source of income in Spain pay income tax based on the value of their property. The tax rate is fixed as 25% of 2% of the valor catastral of the property. The following table shows an example of the non-resident income tax declaration for a property with a valor catastral of 700.000 euros:

If non-residents rent out their property and receive an income in exchange, they are obliged by law to declare this income and pay taxes on it. The taxable base and the tax rate will be determined by the laws as they apply to each person's particular circumstances (taking into account the double taxation treaty - if any - between Spain and the country of origin of the non-resident). In many cases non-residents simply pay a flat rate of 25% of the gross income they earn from their property in Spain.

Residents in Spain will have to pay the income tax based on their income earned during the year. The tax rate depends on the level of income.

Community Fees

Owners of property that is part of any development, building, or complex in which common zones are shared with other owners are by law obliged to be members of the community of owners, know as the Comunidad de Propietarios. This will entail paying community fees for the upkeep of the common areas, and any other services that the community vote for. The fees will vary according to the magnitude of the common areas, the costs of maintaining them, and the services that the community vote for. A budget for annual community expenses is approved by majority vote of all owners (or representatives) who are present at the annual general meeting of the Comunidad de Propietarios.

Insurance

Household insurance will vary according to the circumstances of the owner and the type of property. However it should be born in mind as a cost that all property owners will face.

NOTE: Costs to bear in mind when selling a property in Spain.

Plusvalia

A special reference should be made to the local capital gains tax - known as Plusvalía. This is a local / municipal tax that only applies to the increase in value of the land upon which urban properties are built, and that is levied at the time of transfer of such properties. It is calculated on the basis of the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) of the property. The amount to be paid will depend on how long the seller has owned the property: the longer the period of time during which the seller has owned the property, the higher the amount of tax.

This tax should be paid by the seller, though it is possible for sellers of resale property to try to shift the burden of this tax to the buyer. This practise is unheard of in regions such as the Costa Brava and the Costa Dorada, though quite common in the Costa Del Sol.

Capital gains tax

Spanish property sold by a non-resident owner will be charged capital gains tax at 18%, with a 3% withholding provision.

© Mark Stucklin (Spanish Property Insight)

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