Correct Procedure For Buying Property In Spain
As a buyer of a 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 for residential properties being sold for the first time (never previously owned), or for commercial properties and plots of land at present VAT (known as IVA in Spain) is currently 10% of the purchase price of residential properties (villa, apartment, etc), and 21% for commercial properties and plots of land. The Stamp duty (known as AJD) is 1% of the price of the purchase, but may go up in other 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.
RESALE PURCHASE FROM A VENDOR
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.
As a general rule, ITP is 7%, but it differs in other regions and in Andalucía it is 7% on purchases below 400,000 and 8% over 400,000 euros.
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.
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.
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.
This tax has been changed several times in recent years. For the latest situation see Spanish Wealth Tax (Patrimonio)
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 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.
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 it is quite common on the Costa Del Sol.
For further information and examples of costs, please see the Legal Services Section of our website.
The information presented in these pages is provided for general information only and should not be regarded as offering a precise and complete advice. The Buying Procedure in Spain and future changes in legislation could affect the information provided. Therefore, people accessing this information are encouraged to contact us or seek independent counsel for advice regarding their individual legal issues.