Buying and Selling Costa del Sol Property

The following guide gives you an overview of the standard Costa del Sol property purchasing procedure in Spain. However, as when purchasing a property in any country, it is essential that you seek independent professional advice. Feel free to contact us and we will be pleased to recommend you confident and independent legal and financial firms.

COST ASSOCIATED WITH 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

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.

Holding Company
For some purchasers there might be an advantage to form a holding company. Earlier it was popular to form Gibraltarian or other tax exempt companies, now it is mostly Spanish limited companies that cost around €1,800 in fees to constitute and an additional 1% of the desired capital as stamp duty. This is most likely only an option for the purchasers of houses more than €600,000 or up as running the company costs around €1,800 a year.

Wills
It is very advisable to grant a will in Spain regarding the assets in this country in order to avoid any kind of problems arising from the differences between the Spanish and the purchasers' law in succession matters and the execution of a will from one country to another through the Courts.

The Spanish law states that the assets must be left to the children, or parents, and the person is only free to leave a third part of their assets to anybody. So that it is advisable to grant a will in Spain, in which the foreign people state that the applicable law is the law of their country, and they can decide to leave their assets in Spain to whom they would like.

COSTS ASSOCIATED WITH OWNING PROPERTY IN SPAIN

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%.

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: