The cost of buying Property in Spain

The following are the costs you should include on top of the purchase price when buying property in Spain.

Lawyers/Solicitor’s Fee:
Although it is not compulsory to engage a solicitor, if you are not familiar with the procedure you can appoint your own solicitor. It is important to seek professional advice from a local solicitor (Abogado). Their standard fee for the purchase of a property is 1% of the purchase price plus VAT. Using a non-local solicitor will be more expensive. The Spanish legal system is very different from other European countries and, to avoid misunderstandings, disappointments and possible fraud, it is essential to seek expert professional advice from the beginning.
Notary Fee:
These are collected by the Notary after preparing the deed and presiding over it’s signing. This fee is fixed by law, on a set scale according to the property value, but is not usually more then 1% of the purchase price including VAT.

Please note all professional fees including the notary’s and land registry’s charges are subject to 16% VAT.

Stamp Duty or IVA (V.A.T):
Which of these two taxes is levied will depend on the type of property you are purchasing. The property transfer tax is levied on resale properties and is charged at 7% of the new escritura value (purchase price).

If you purchase a newly built property, you will pay a different tax called I.V.A. (V.A.T.) which is charged at 7% of the selling price plus 0.5% stamp duty. You will be required to pay the 7% IVA (VAT) and the documentary stamp duty upon completion. No tax is payable before that point.

Property Registration fee:
A Property Registration fee is charged by the property registration office to inscribe the new deed into your name. The fee is based on the official registered value of the property. The length and complexity of the deed and other factors are also considered. The fee does not exceed 1% of the registered value.

Real Estate Taxes:

Municipal Tax (basura): local
This varies depending on where you live. Usually assessed per house or building. Sometimes the tax is combined with water consumption. Please see your Sales manager for details.

Non-residents
If you are a non-resident of Spain, and you keep the property for your own use, you will have to pay two annual personal taxes. There is a deemed income of 1% – 2% of the catastral (rateable) value of the house, and the tax is 25% – so, the tax is a quarter to a half a percent annually of the rateable value. There is also a wealth tax; the rate of wealth tax depends on the value of the property, and those rates range from 0.2% to 2.5%. As an example, a property valued at 200,000 Euros would pay 432.87 Euros (an average rate of a little under 0.22%) per annum. Both income and wealth taxes may be paid together on one simple form, provided that you own only one property in Spain for your own use.

If you rent the property out, Spanish tax of 25% of the rental is due. This can normally be offset against any taxes due in your home country.

Residents
The same two annual taxes as above are due from residents who occupy their own Spanish property. The two differences are that the deemed income (1% – 2% of the catastral value) is added to your other income and taxed according to the rates given below, and that, in respect of wealth tax, residents benefit from an exempt band of a little over 108,000 Euros. This is subject to upward change. Income taxes are applied in bands in much the same way as the U.K.

Income Tax Rates

Income Tax rate on this portion
0 – 4,161€ 15%

4,162€ – 14,357€ 24%

14,358€ – 26,842€ 28%

26,843€ – 46,818€ 37%

> 46,819€ 45%

Personal and family reliefs (“personal and family minimum”) are given by way of deductions from total income, before applying the tax rates. The core relief is a personal minimum of Euro 3,400 per taxpayer (ie Euro 6,800 for a married couple). Additional amounts may be added to the personal minimum to reflect disability, age over 65, and single-parent status. An additional family minimum may be available to reflect, for example an aged parent, or an unmarried child, financially dependent upon and living as a member of the taxpaying family unit.

If you let your house, the rental income you receive is also added to your other income and taxable at the above rates. If your taxes are being withheld and you earn less than 21,000€, you don’t have to file. If you are a UK citizen, you must apply for certificate E101 to indicate that you will be a resident of Spain, and no longer subject to pay income tax in the UK. There is also a notional tax levied on deemed rental income on property that is not your main home or not rented out. It is normally based on 2% of the official value (valor catastral). This rate drops to 1.1 per cent of the valor catastral if this has been revised since 1994. Where such a property is only let for part of the year, the notional income is calculated for the part of the year that the property is unlet. The notional income is added to your other income and taxed at the appropriate rate (or a flat 25% for a non-resident).

As a Spanish tax resident you will be liable to pay Spanish tax on your WORLDWIDE income which includes your UK state retirement and other pensions and interest earned on deposit accounts in the UK or offshore.

Environmental Services Taxes:
The local equivalent of rates, known as IBI, includes an annual charge for rubbish collection. In addition, your property may form part of a Community of Owners in which case your annual subscription must be paid, to deal with the upkeep of the common areas and other community matters. All Communities of Owners have legal powers to enforce payment – membership is not voluntary. In the case of a new house, you may be required to make a deposit to help provide an initial working fund for the new Community.

Insurance:
Whether you are going to use your second home in Spain as a family holiday home or let it for investment income, it is essential that you arrange suitable insurance cover. Most insurers see bigger risks associated with holiday homes because they are often left unoccupied for long periods, and are consequently more expensive. When exchanging contracts your solicitor or moneylender in Spain will need proof that you have suitable buildings insurance, or they may recommend a Spanish Insurer. Before you choose a foreign policy it is important that you read the small print so you understand the scope and restrictions of cover. Unless you are fluent in Spanish this can be difficult.

You may also find that policies offered by European insurers are cheaper, however cover tends to be much more limited than UK or US policies. You may be better off choosing a comprehensive policy in the UK or US that’s written in plain English and specifically designed for holiday homes in Spain.