GUIDELINES FOR PURCHASE OF PROPERTY
LEGAL GUIDE TO REAL ESTATE ACQUISITION
SOURCE: De Micco& Friends Attorneys at Law, Last updated 20.02.2018
I) Legal formalities & costs when buying property in Spain
The purchase process
Once the decision to purchase has been made, in most transactions in Spain, a private contract is first concluded (Option Contract, Opción de Compra, Arras Contract or Private Purchase), which sets out the details of the purchase. Which contract is ultimately applicable should be decided on a case-by-case basis and in consultation with the appointed lawyer. The contents of the preliminary contract include the exact legal description of the property, the determination of the final purchase price, the payment conditions, the determination of the time of contract fulfilment as well as the time of handing over the object of purchase. A down payment of 10 % will be made.
In the case of existing new buildings that have not yet been completed, arrangements are usually made for payments during the construction period. Advance payments are guaranteed by a bank or insurance company in accordance with the Building Regulations Act. In addition, this law obliges the building owner to take out a ten-year insurance policy in favour of the buyer for possible, elementary building damage.
Upon payment of the total purchase price, the public deed of sale (escritura) is issued. It is advisable to hire a lawyer to handle the purchase as well, as these activities are not carried out by notaries in Spain. The lawyer forwards the deed of sale directly to the tax authorities, where the transfer tax is assessed, if the property is resold or second hand.
Important for sellers! With the signature of the notarial deed of sale, ownership is transferred to the buyer! So make sure you have a step-by-step agreement – handing over the purchase price against signature of the notarial purchase contract document.
The costs of purchasing an object
The transfer tax (I.T.P.) 8 %, 9 %, 10 % is charged to the buyer when buying a property (villa, apartment, land, shop, garage), provided that the seller is not a developer or does not deal commercially with property sales.
Price of the property: 1.250.000 €
Up to 400.000€ - 8% 32.000€
On 200,000 € (400,000.01 € to 600,000 €) - 9%: 18.000
Remainder 650,000 € (600,000.01 € to 1,250,000 €) - 10% 65.000€
VAT and stamp duty (Impuestosobre Actos JurídicosDocumentados: 10 % + 1,2 % are applied to villas, apartments or garages that are part of a property as an annex, provided that the seller is a builder or promoter or is professionally dealing with these newly built properties.
Notary appointment and land register
Three days before the notarial recording, the notary public requests a current extract from the land register. When the land register extract is sent, the property is blocked for ten days. If another notary at this time requests an extract from the land register for the same property, the register will inform all other notaries who have also requested an extract. At the notary appointment, both buyer and seller must identify themselves. The notary then reads out the prepared deed and notes that the purchase price has either been paid before the notarial purchase contract is signed or is being paid at that moment. Usually the payment is made at the notary appointment with a bank certified cheque. Immediately after completion, the notary sends a notification of the purchase contract to the land registry. A copy of the deed of sale (escritura) is then submitted by the appointed lawyer for registration in the land registry (registro de la propiedad).
Payment of the purchase price
The purchase price shall be paid in full at the notarisation of the purchase contract at the notary’s office, less any down payment made by the Purchaser to the Vendor or third parties involved. This can be done within the framework of a financing by a representative of the financing bank by means of a bank certified cheque. As a rule, brokerage and consultancy fees are also paid at the same time as the notary appointment.
As a buyer of a Spanish real estate you should not pay by bank transfer before signing the notarial sales contract document, because you go with it in advance. If the notarial sales contract should not be locked for any reasons, performed payments must be sued back under circumstances by complex judicial procedures as unjustified enrichment again. This process can take years.
Fees of the notary and fees for the registration in the land register
The notary and registration fees range from 0.3 to 0.6%, whereby the costs depend on the extent of the notarisation or complexity of the notarial deed of sale drawn up, such as the recording of articles of association, agreed instalment payments or in the case of partially completed properties.
Fees of the lawyer
Lawyers in Spain calculate their fees according to the fee schedules of the bar associations. Although these are only indicative, they are primarily intended to prevent price dumping. It is generally forbidden for a lawyer to work below the fixed rates. Since a real estate transaction involves various activities (examination, drafting of the contract, notarial contract, handling) the fees are usually staggered. In practice, fee rates of 1.5 % – 2 % of the total purchase price plus VAT and external costs for the above-mentioned activities have now become established.
The “Plus Valía”
The Plus Valía is a value-added tax. It is calculated by the municipality on the basis of an index and takes into account the increase in the cadastral value of the land for the period from the time of purchase by the seller to the current time of sale.
This tax is levied by the municipality against the seller. However, the payment burden can also be regulated by contract. As various variables are used in determining this tax (location, size of the land, extent of development, period of ownership of the seller), the amount payable can vary considerably and should be determined precisely before the purchase.
Summary of service charges for real estate purchase
The official total costs incurred when buying a residential property in Spain are between 9 and 11%, plus the audit and consulting costs, which are calculated at 1.5 to 2% of the purchase price, depending on the project volume.
II) Other costs that arise after the purchase of a property in Spain
Real Estate Tax (IBI)
Municipal taxes are payable annually and are calculated on the basis of the cadastral value or the value of the land used by the Spanish tax authorities. The cadastral valuation takes into account both the value of the land and the value of the building, depending on its type, location and use. With this value basis, each municipality decides the percentage to be applied when calculating the municipal tax.
Waste collection fees & water costs (basura y agua)
The municipal fees for waste collection are set by the municipalities depending on the property and are paid every six months. For an apartment in Majorca the garbage fees are about 150,- to 180,- €, for a larger villa about 240,- € per year. The water consumption is read off the water meter and is charged every three months.
Contributions to the owners association
The condominium owners’ association is an association of persons provided for by law, formed by the owners of the apartments within a building or the owners of the houses within a housing estate. The purpose of this association is the ownership, maintenance and servicing of the elements of the common property of a building or housing complex. Each homeowner contributes a percentage of the costs. Usually, this percentage is based on the size of the apartment or plot of land, in relation to the total area of the residential units or plots of land.
A budget for the annual expenses of the community is presented at the annual owners’ general meeting. The owners present or their representatives must approve the budget by a majority vote. The costs can vary considerably. They usually include the caretaker’s salary and social security, garden maintenance, elevator maintenance, building repairs, garbage collection, water costs for garden irrigation, electricity costs for community lighting, building insurance, security control system and administrative costs. A community pool can increase the costs considerably. According to the law, the president of the community of owners must be the owner himself and is elected by the owners. He performs his work free of charge.
A 2-bedroom apartment in a building or complex with a caretaker, swimming pool and a small garden can cost between € 120 and € 300 per month. In a luxury apartment complex with several employees serving the community and a wide range of services, these costs can be as high as €800. It is therefore essential to check with the owners’ association about the actual service charges before buying.
The cost of a standard insurance for an apartment worth €300,000 with a building inventory worth €48,000 is approximately €400 per year. It should be noted in this context that the owners’ association of an apartment building is obliged to insure the building with regard to restoration costs. Therefore, the insurance policy of the individual condominium owner only has to cover damages inside the apartment, the inventory and third party liability. It is advisable to take out a risk insurance policy in case of failure of the insurance of the condominium owners’ association. For a house with a restoration value of 500.000,- € with an insured building inventory worth 180.000,- € the premium is approx. 1.500,- €.
Electricity is billed every two months and a basic amount is always charged, even if the property is not used. The calculation of this basic amount is based on a factor of the electricity consumption that could theoretically be achieved if the property consumed energy under full load.
III) Other taxes and duties
Among the most important taxes and duties for non-residents in Spain are the following taxes and duties:
1. capital gains tax (PlusValía)
2. annual real estate tax (IBI)
3. refuse collection fees and water (Basura y agua)
4. property tax (Impuesto de Patrimonio)
5. income tax (Impuesto sobre la Renta)
6. capital gains tax (Impuesto sobre Ganancias Patrimoniales Inmobiliarias)
The Spanish wealth tax is based on the net assets as at 31 December each year, the rate varies from 0.2 % to 2.5 %. Tax residents are subject to a tax base for the value of their net assets in Spain and abroad, while non-residents are subject to a tax base for their net assets taxable in Spain or assets on Spanish land.
The tax effects of the new wealth tax are as follows:
The Wealth Tax is applicable for the fiscal years 2011, 2012 and 2013, and an exemption from this tax will be reintroduced and will take effect on January 1, 2014 (consequently, the corresponding tax returns must be filed in 2012, 2013 and 2014).
The exempted minimum amount is €700,000 (previously €108,000.18). Therefore, persons whose assets are below €700,000 are exempt from paying this tax.
Each resident may deduct the value of their usual residence in Spain up to a maximum of €300,000 (previously €150,253.03).
The property tax is paid to the Autonomous Communities. The current tax rates are shown as an example in the table below.
Taxable assets in euros Total amount Remaining taxable assets Applicable rate %
|Taxable assets in euros||Total amount||Remaining taxable assets||Applicable rate %|
Wealth tax is applied individually to each natural person. If a property is owned by more than one person, each of these persons must pay tax in proportion to the value of the property and any debts. The appointed lawyer can usually show ways to minimise this tax.
Non-residents who own property in Spain must pay income tax on the income from their property. This also applies to the own use of the property as “income”. Regarding the income from real estate property there are two types of taxation:
- Income from renting the real estate property: 24.75% on the income from renting (income minus expenses).
- Income from own use of the real estate: 24.75% to 1.1% of the cadastral value of the real estate (provided that the cadastral value was corrected after 1.1.94; otherwise, the following applies 24.75 % from 2 % of the cadastral value)
These values currently apply to income from real estate in Spain. However, special tax bases apply for each individual source of income.
Residents in Spain must file their income tax return (Declaración de la Renta de las Personas Físicas) and provide information on their income, regardless of the source of income. If a person resides in Spain for more than 183 days per year, he or she is considered a resident for tax purposes and will be assessed for tax purposes.
Capital gains tax and deductions
The capital gains tax on sales of real estate for non-residents is 21% for 2012, 2013 and 2014. Capital gains tax is paid on the profit resulting from the difference between the value of the property in the year of purchase (purchase price + taxes + costs) and the year of sale (selling price less costs and taxes). The percentage for adjustment, which is newly adopted each year by the Budget Act, is also applied. If the property is sold by a natural person who acquired it before 31.12.1994, the profit and thus the tax base is reduced.
All sellers who are non-residents are subject to a tax of 3% of the sale price, regardless of the year in which they acquired the property. The buyer must file this 3% with the tax office by submitting form 211. The buyer must therefore provide the non-resident seller with a copy of Form 211, which proves that the retained money has been paid to the tax office. The seller can then deduct this amount from the sum he/she must pay in the course of his/her tax return on the profit received.
If the amount withheld is higher than the final profit tax payable, a refund of the difference can be claimed.
The capital gains tax on the sale of real estate has changed for residents in 2013. If a profit was made in a period of up to one year, it will be included in the general tax base, among other things, the profit will be added to the income from work (up to 56%). Profits made in more than one year are taxed as before, i.e. a fixed interest rate between 21% and 27% is applied. The innovation in 2013 is therefore to abolish the more favourable flat-rate taxation on income from “speculative gains” and to align its taxation with that applicable to income from work.
The assessment thresholds:
|Taxable income from savings||Applicable rate %|
|Up to 6.000 €||21%|
|Between 6.000€ and 24.000€||25%|
A 50 % exemption applies to capital gains from the sale of properties on Spanish soil acquired between 12 May 2012 and 31 December 2012. However, some exceptions apply here as well.
SOURCE: De Micco& Friends Attorneys at Law, Last Updated 20/02/2018