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.
Buyers Guide – When it comes to the costs of buying and owning Spanish property you need to be well-informed and do your own numbers, rather than rely on the claims of others. Here I explain all the different types of costs, but bear in mind that actual costs will depend on your particular circumstances, and though I update these figures periodically, they may fall out of date for a while with the passage of time.
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.
1. Costs associated with buying a new home from a developer (or bank)
These are the costs you will face when buying a new home in Spain from a developer or bank. It doesn’t matter how long ago the property was built. To count as a new home it must never have been sold before.
1.1 VAT & Stamp Duty (IVA & Actos Jurídicos Documentados – AJD)
These taxes apply for residential properties being sold for the first time (never previously occupied), or for commercial properties and plots of land. This is a national tax, so VAT is the same wherever the property is located (with the exception of the Canaries, which have their own version of VAT).
At present VAT (known as IVA in Spain) is 10% on the purchase price of residential properties (villa, apartment, etc), and 21% for commercial properties and plots of land.
VAT on new homes in the Canaries is known as IGIC (Impuesto General Indirecto Canario), and currently stands at 4.5%
VAT on newly-built homes rose from 4% to 10% on 01/01/2012.
The Stamp duty (known as AJD) is 1% of the price of the purchase, but might go up in some regions, so be sure to check on the latest rate. 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.
These are the costs you will face when buying a Spanish property that has been sold before. Generally speaking, that means when buying a home from a private individual.
2.1 Spanish Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP)
This tax applies if the property is deemed to be a second or posterior transfer (i.e. not the first time a newly built home is bought), and is paid by the buyer. If any deposit is paid before completion of the sale it is not subject to ITP pro rata. However the full amount of ITP 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.
The Transfer Tax rate is ceded to the autonomous regions, who can choose to apply the general rate, or their own rate.
The general (national) rule of ITP is 7%, but many of the autonomous regions have applied higher local rates. The rate you pay depends upon the autonomous region where you buy (for more information see Transfer tax on resale homes – Impuesto de Transmisiones Patrimoniales (ITP))
2.2 Income tax provision when buying from non-residents
If the seller is not resident in Spain, 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.
These are the additional expenses you are likely to face when buying any property in Spain, regardless of whether the property is new or not.
3.1 Estate 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.
3.2 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.
3.3 Spanish 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.
3.4 Spanish notary costs
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.
3.5 Spanish Land 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.
Though not strictly transaction costs like fees and taxes, there are other costs to bear in mind when buying a home in Spain. After all, they all come out of the same pocket – namely yours.
4.1 Banking Costs
To buy property in Spain you will almost certainly need to open an account with a bank in Spain, and may need to transfer money from abroad. There maybe international transfer costs – check with both banks – and if you need to exchange currency to buy Euros make sure you use a currency broker to get a good rate of exchange and overpaying for Euros.
Once you have got the funds in place, you will need to pay the vendor on the day you complete the purchase. The most common way to do this is to take a banker’s cheque along to the notary’s office to give to the vendor when you sign the deeds. Banks try to charge as much as they can for issuing banker’s drafts, and I’ve even known them to charge 0.5% of the cheque’s value. However, you can also get them for as little as €50 to €60. It all depends on the deal you have with your bank. Make sure you clarify this with your bank before you ask for the cheque.
4.2 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).
4.3 Plusvalía Municipal Tax
This is normally paid by the vendor, but it can become a problem for the buyer if the vendor fails to pay it. Buyers have to be particularly careful with this tax when the vendor does not live in Spain. See the section below on costs to bear in mind when selling property in Spain for more information.
Before buying a property in Spain you may also wish to have a building or structural survey done, and that will have a cost. Find out more about building surveys in Spain.
In Summary, allow for between 12% and 15% of the purchase price in taxes and other costs, though it does depend what and where you are buying.
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)
This tax has been changed several times in recent years. For the latest situation see Spanish Wealth Tax (Patrimonio)
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.
Not rented out
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 tax on a property with a valor catastral of 700,000 Euros would be as follows:
Property value for tax purposes = 700,000 Euros
Taxable base (2%) = 14,000 Euros
Tax (25%) = 3,500 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.
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.
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 municipal tax
A special reference should be made to the local/municipal 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 Plusvalía Municipal tax is usually paid by the vendor, but sometimes the buyer agrees to pay it – it’s part of the negotiation process. Be warned that if the vendor fails to pay it, the buyer then becomes liable for the unpaid tax, with interest!. Also, the town hall might not register the property for local real estate tax (IBI) purposes, until the Plusvalía is settled. That means the new owners starts accumulating unpaid IBI tax bills (without notification), plus penalties and interest, all without knowing it.
When the vendor is a non-resident, the law states the buyer is liable for this tax, even if the parties have agreed that the vendor will pay. So when you buy a property in Spain, especially from a non-resident vendor, make sure you or your lawyer checks that the Plusvalía Municipal has been paid by the vendor within 30 days of the sale.
The safest way to play this, from a buyer point of view, is to agree to pay this tax using funds deducted from the agreed sale price. That way the buyer can be sure the Plusvalía has been paid. This is particularly relevant when buying from a vendor who does not live in Spain (non-resident).
Capital gains tax
Spanish capital gains tax rates on property and other assets
If the vendor is a non-resident, there is also a Spanish withholding tax retention, which the buyer pays directly to the tax authorities, to cover the vendor’s capital gains liability
When buying property in Spain, always keep digital and hard copies of all invoices related to your purchase. Likewise, if you ever do building work on the property once you own it, keep copies of all licences and invoices. You may be able to offset these expenses against capital gains when you sell, and so reduce your Spanish capital gains tax on property sales