For many retirees, Spain is a very desirable country to settle in. The warm weather, a relaxed way of life and a more affordable way of living make life on the Costas sound appealing. However, it is not all plain sailing. It is highly likely that, for those retiring to Spain, they will also purchase a Spanish home in conjunction with the move. In this instance, it is important that you engage an independent Spanish lawyer to advise you in relation to the transaction.
Before you make the move, there are a number of factors to consider. For those purchasing a Spanish home there will be costs to consider in relation to property ownership, as well as tax implications. In addition to this, the potential impact that Brexit may have is also cause for consideration. We will set out in this article the issues mentioned above.
Purchase Tax and Value Added Tax
When retiring to Spain and buying a property in Spain it is likely that the highest cost (outside of the price paid for your property) will be the purchase tax and/or value added tax payable on the purchase of Spanish property. It is important to note that the tax payable differs depending upon whether or not the property has ever been sold in the retail market.
If the property is being sold for the first time, then value added tax is payable, which currently stands at 10%. Stamp duty (a purchase tax known in Spanish as “actos jurídicos documentados” or AJD) is also payable to the autonomous community in which the property is located, which is between 1% and 1.5%.
For resale properties, the tax payable is called “impuesto sobre transmisiones patrimoniales” or ITP. This is paid to the tax authority in the autonomous community in which the property is situated. In this instance, ITP will be between 6.5% and 11% depending upon where in Spain the property is located and the value of the property.
All of the above percentages are subject to frequent change in the current economic climate.
In the event that you retire to Spain and, in conjunction, buy a Spanish property, a further fee that will be incurred will be the Notary's fee. Documentation must be signed before a Notary at a completion meeting. The documentation signed is known in Spanish as an Escritura Pública de Compraventa. The Notary will charge a fee that will be determined by factors such as the nature and value of the transaction and the number of pages that the Escritura covers. For example, a Notary’s fee for purchasing an apartment in Barcelona can vary between approximately €800 and €1,200 Euros.
Property Registry fees
Once the property belongs to you and the purchase tax has been paid, your interest must be registered on the property register. A property registry fee may be approximately €500, but may vary depending on the type and value of the property.
Property Tax - IBI
IBI or property tax is equivalent to council tax or business rates in the UK and is applied to all Spanish residential and commercial property. When purchasing your Spanish home, it will need to be determined whether the IBI has been paid up to date. According to established rules, the tax itself is calculated based on a rateable value (the “valor catastral”) set out by the local town hall.
Who is liable to the property tax? Strictly speaking, it is the owner of the property, so the seller. However in practice, a purchaser completing a property transaction in the first half of the year may agree to prorate the liability to the tax during that year.
It will be your responsibility as a property owner to ensure that you keep up to date with annual IBI payments.
If retiring to Spain, do I need to make an annual tax declaration?
It may not be necessary for a non Spanish national, who is resident in Spain, to make an annual tax declaration. It is dependent upon the amount of pension income that is being received by the retiree. Currently, it is only those who receive more than €14,000 Euros in annual pension income who need to submit an annual tax declaration in Spain.
If your Spanish home is situated in a block of apartments, or is a house that forms part of a development, the homes of choice for many of those retiring to Spain, there will be a community of property owners that is responsible for the maintenance of the common areas. The costs associated with the upkeep of these areas is called a service charge, also known as a community fee, which each owner is subject to. The percentage of the total community fee to which you will be liable will be set out in the sale and purchase documentation when you complete the purchase.
Whilst the costs of running the community should be divided equally between all of the owners, it is not always the case. Whereas retirees are more likely to keep up with the payment of the community fees, there may be a degree of indebtedness of other owners who for whatever reason are failing to pay their share. This is important to be aware of as those who do pay their community fees are likely to subsidise the debtors by paying more than they should, as the community expenses must be paid in any event. Failure to make payment of the fees is usually met with a series of demands followed by court proceedings.
When purchasing a Spanish home that forms part of a community of property owners, your lawyer should request the community’s previous two years’ accounts and minutes of previous annual general meetings, to determine to what extent there is indebtedness within the community.
The effects of Brexit on retiring to Spain
The costs associated with purchasing Spanish property will not be affected by Brexit at all. The areas that will be most affected by Brexit include, but are not limited to, living and retiring to Spain, and healthcare in Spain. We discuss these issues in detail in our video guide on the effect of Brexit for UK nationals, and in our living, working and owning property in Spain article.
If you are considering making the move and retiring to Spain, please do be in contact with us. You can contact us by email at email@example.com, by telephone on 020 3478 1420, or by completing our contact form.