If you are considering buying a property in Spain it is important to be aware of the total cost of purchasing a Spanish property. The costs of purchasing property in Spain vary, depending upon the location of the property, but the costs fall into the same categories no matter where in Spain the property is located.
What is the main cost of purchasing property in Spain?
The main cost associated with purchasing property in Spain is tax, as is very often the case with any property purchase anywhere in the world. If you purchase a new property in Spain then the greater part of the tax payable will be VAT, whereas if you buy a resale property in Spain you will pay a purchase tax or stamp duty.
The amount of VAT or stamp duty you will pay will depend upon where in Spain you purchase property. So, if you buy a resale flat in Barcelona you will pay 10% purchase tax (called ITP) to the Catalan autonomous government, whereas if you buy a new build in Tenerife you will pay 7% VAT (called IGIC) and 1% stamp duty (called AJD). Buying off plan on the Costa Brava attracts VAT (IVA) of 10% and stamp duty (AJD) of 1.5%, whereas buying resale at La Manga Club will cost you 8% purchase tax (ITP).
Arguably, the basis on which the purchase tax is calculated ought to be the purchase price of the property. The unorthodox commercial practices of the pre-recession era (encouraged in no small part by the banks), as well as the reduction in value of Spanish property prices since 2008, coupled with the artificial increase in the value of properties for taxation purposes (qua rateable values) across Spain, has resulted in the tax agencies of the governments of the 17 autonomous communities in Spain requiring that whatever the real purchase price of a property, purchase tax or stamp duty must be based on the lowest value of the property for taxation purposes (or lowest official value) as set by that tax agency.
This, to many, will sound not dissimilar to the modi operandi of such organisations as the Cosa Nostra. Of course, you would not be far wrong. It is a method of extorting from property purchasers higher amounts of tax that would not be payable if the true purchase price were to be used a basis for the calculation of tax. This practice of the autonomous governments has been challenged in the Spanish courts and such challenges have met with some success.
However, it is still highly advisable to base one’s purchase tax or stamp duty payment on the lowest official value. If not, the risk is that the “true” purchase value will be reassessed and you will have a battle to avoid paying an increased amount of tax based on a value considerably higher than the lowest official value. Your independent legal adviser will be able to calculate the amount of tax to be paid long before you commit to the purchase, so that you should know how much tax you will have to pay before proceeding.
For more information on purchase tax, please read our article on claims for retrospective purchase tax in Spain.
What are the other costs of purchasing property in Spain?
Of course, for many of us complete knowledge of all likely expenses is essential before committing one penny to the transaction. The other costs of purchasing a property in Spain include the Notary’s fees, the property registry’s fees, and miscellaneous expenses covering bank fees, courier fees, translation fees if necessary, charges for NIE certificates, and other out of pocket expenses incurred by your legal adviser.
Notaries’ fees vary, but typically they amount to approximately 850 Euros or so for a purchase. A further Notary’s fee will be payable if one is also mortgaging the property, as the mortgage documentation will also need to be notarised. Property registry fees for a purchase amount to approximately 500 Euros, although may also vary for different reasons. Again, the registration of a mortgage will attract another property registry fee.
You may decide to have your property surveyed before you purchase, essential if you are buying a single family home. Surveyors’ fees vary quite a lot in Spain, but a fair fee would be between 600 and 800 Euros.
The costs of purchasing a Spanish property are often calculated by reference to a percentage of the purchase price. This is not an altogether bad way of budgeting. However, armed with the information in this article you can now calculate the expenses far more accurately. Clearly, the more expensive the property the lower the percentage of that price expenses will amount to. For example, if you are buying a resale property in Alicante for 60,000 Euros, the costs will amount to approximately 10,500 Euros, so 17.5% of the purchase price, whereas if you buy a resale property in Murcia for 350,000 Euros, the expenses will amount to approximately 33,800 Euros, so 9.7% of the purchase price.
What are the costs of purchasing property in Spain with a mortgage?
If you are borrowing money from a bank to finance your purchase in Spain, secured against the property (a mortgage), then there will be a tax to pay (AJD) based on between 1% and 1.5% (depending upon the autonomous community) of the total amount secured, which as a rule of thumb is approximately 1.5 times the amount borrowed (taking into consideration penalty interest and the costs of foreclosure, should that be necessary).
What are the costs of legal fees in relation to purchasing property in Spain?
Given the importance of using an independent Spanish lawyer to advise and assist you in relation to the purchase, you will need to take your lawyer’s fees into consideration also. These may vary, but ought not to be more than 1% of the purchase price, not including VAT and any disbursements. E&G Solicitors in Spain does not charge a fixed percentage for advice and assistance relating to property purchases, but we do cap our fees so that you can be budget with certainty.
What are the costs of purchasing a property off-plan in Spain?
If you are purchasing a new build property, or you are buying off plan in Spain, then the VAT element will be payable to the developer and will form part of the purchase price itself. It will appear in the purchase contract, so you will be aware of it from the outset. You will still need to pay stamp duty of between 1% and 1.5%, depending upon where you are purchasing. Notary’s fees and property registry fees will also be payable, as above.
What are the costs of owning a property in Spain?
It is wise to consider the costs that you will incur moving forwards, once you have completed your purchase in Spain. These include property tax payable annually, service charges payable monthly, quarterly or annually, and income tax (non-residents income tax if you are not resident in Spain). Again, your independent legal adviser can certainly assist.
What should I do next?
If you are considering purchasing a property in Spain you will find our article on the stages of buying a property in Spain to be useful. You may also find our FREE GUIDE to buying property in Spain of use. Click here to download your free copy today.
In addition you will find further information, including video guides, on buying a property in Spain on our property pages.
At E&G Solicitors in Spain we have been advising and assisting purchasers of property all over Spain, both the mainland and the islands, since 2004.
If you have any questions or if you would like us to assist you in relation to a property purchase in Spain, please contact us at email@example.com, by telephone on 020 3478 1420 or submit your query using our contact form.