I. Additional costs of sale
It can be very confusing to understand what needs to be paid, and how much and to whom. Here we consider the cost from a buyer's point of view.
A. Additional costs of a sale without a mortgage
The majority of the cost is the tax arising from the purchase. In Spain the rate is calculated as 8% (Transfer Tax, ITP) for re-sale properties and 10% (value added tax, IVA/VAT) for new properties. In the case of a new properties a Stamp duty of 1,2% is also payable (Stamp Duty, AJD) making a total of 11,2% tax payable on new properties. In exceptional cases the tax may even be the general VAT (21%). However, this only happens in very few cases and we will not go any deeper into this point. The base for the calculations is the sale price and will always be the price stated on the deeds which are signed at the notary (deeds).
2. Notary Costs
You also have to pay the notary. These fees can vary, but to give you a general idea, in the majority of cases, notary costs can be between € 1.000 and €1.200.
3. Registration in the Property Register
A fee also has to be paid to make or amend an entry in the Property Register. Depending on the property this fee can be between € 300 and € 700.
4. Processing costs for transmissions.
Fees are payable for transmissions and registrations, as well as changing all service contracts (water, gas, electricity, telephone, community fees...) into your name. Currently the fee is approximately € 1.100.
5. Takeover costs
For new properties initial connection charges, of up to € 2000 for electricity, water and gas must be added.
In summary, in the majority of cases you can expect to pay 8% or 11,2% of the sale price plus additional costs of € 2500 and € 5000. In general, you should budget for the price of the property + 10%.
In most cases the seller does not receive the total sale price because the notary retains part of the taxes due from the seller, who receives instead the sale price minus the tax he has to pay (see also Seller’s expenses).
B. Additional costs in the case of sale with a mortgage
To obtain and register for a mortgage the following costs arise for the buyer:
1. Bank rates
First you have to pay for the property appraisal conducted by the bank. In normal cases this is between €250 and €600.
2. Bank commissions
To obtain a mortgage, banks generally have processing charges of between 0.5 and 1.5% of the amount to be borrowed.
In Spain mortgages are also subject to a tax which varies depending on the amount of the mortgage, of just over 1% of the mortgage. To be exact, it is 1% of the mortgage amount plus the amount of the guarantee.
4. Notary expenses
The mortgage document is signed in front of the notary, which also incurs a notary fee.
5. Registration in the Property Register
The mortgage is registered into the Property register. The registration costs must be paid.
The bank will require you to purchase time insurance for the property you acquire as this is the only way to guarantee the value of the property for the bank. The majority of banks will only accept policies from the insurance company with which they collaboratee. Also, banks frequently request (especially when large credit amounts are involved) that an additional life insurance is purchased. The costs of this can vary immensely depending on the value, location and age of the property, as well as the age and personal situation, of the buyer.
For the mortgage tax, notary costs and registration costs, you should allow for between 2 – 3% of the amount of the mortgage plus an additional bank charge. All this results in additional expenditure of between 3 – 4.5% of the loan amount.
II. Seller’s expenditure
There is often confusion over costs that accrue to the seller
A. The tax on the gain from the sale
From 1st January 2010 the gain obtained from the property will be taxed at 21%. The difference between the purchase and sale price, as recorded in the public deeds, will be the base for this calculation. However, this is not completely true as there are determined values and multipliers that can be deducted. This way, the additional costs arising from the purchase, such as the ITP or estate agents commission, can be calculated based on the purchase price thus reducing the tax value. Thus, roughly, we can calculate the tax amount from the difference between the price you sell for, minus the price you bought the property for. This difference is taxed at 21%.
The retention is seen as a kind of down payment on that amount.
1. Retention in the case of non-residents
Seller’s who do not live permanently in Spain do not leave after selling before leaving a new address and without paying the sales tax, the tax office uses the following list: Do not ask the seller to enter the payment but the buyer. The buyer is required to retain 3% (retention) of the purchase price and not give it to the buyer. The buyer pays this amount to the Spanish tax office as a sort of advance payment for the tax liability of the seller. (But do not worry: we will of course take care of these formalities for you).
Therefore, the seller does not receive 100% of the purchase price agreed but 97%. The buyer pays the amount agreed but in a number of payments resulting from the amount of the purchase price.
In the case that the retained amount exceeds tax payable, you can reclaim it from the tax office by the corresponding tax declaration.
2. Does retention exist for residents?
Those living permanently in Spain, residents, do not have to pay 3% retention at the time of signing of the deeds, if they are also residents for tax purposes. The emphasis here is on the term “tax”!
It is not only necessary to be registered in Spain as a resident but also to have made tax returns as a primary resident in Spain for at least 3 years. (Beware! There can also be confusion here as there are also resident tax declarations which can not be formed as “principal tax returns”. These will not be recognised). You should be able to demonstrate to a notary that you are resident for tax purposes by using a tax office form, called the “Certificate of tax residence of residents”.
3. Tax exemption for tax residents
- If the owner of the property is over 65 years of age and is a tax resident no tax will accrue at the time of sale of the residence. Note: in the case of the seller owning more than one property this rule will only apply to the habitual residence.
- If the house sold is the only property belonging to the seller (regardless of the age) and is used as habitual residence, the money earned from this sale is free from tax as long as it is used to buy another property in Spain within two years.
B. Surplus value
This tax is called in short “Surplus” (Tax on increased value of land). This tax is collected by municipalities; it is a one off payment and only takes into account the size of the plot, the location and how long the property has been there. It does not take into account any existing building on the site.
C. Property IBI taxes
This tax accrues at the end of summer / autumn. Even if the property is sold in January, the seller is still required to pay the corresponding IBI for the full year.
D. Corrective action of property documentation
The seller is required to sell the property with the correct documentation. However; frequently new builds have not been fully registered. We can usually arrange full registration before the signing the deeds, charging the costs incurred to the seller.
E. Cancelling a mortgage
If you have a mortgage on the property, cancellation costs will accrue with your bank. Your bank will inform you in more detail of the exact cost.
III. Annual expenses
In comparison with the majority of European countries it is not expensive to own properties in Spain. It is important to keep in mind the following information:
A. Annual property tax
The “annual property tax”, IBI, is equivalent to the English “Council Tax”. This tax, for a medium sized house, generally amounts to between €400 and €1.500 a year.
B. Municipal rates
Rubbish collection costs “Suma” (Municipal rubbish collection rate) must be calculated, however, these are generally not very high. For example in Dénia they are just €119 a year.
C. Community Ownership
In the case that you have bought a property in an urbanisation, some community costs may accrue. These costs will vary depending on each development and on the surface area of each property. You can generally calculate a cost of between €60 and €150 a month. This amount includes the costs of care of communal areas including pool, building security, lifts, electricity and water consumption of communal areas, and maintenance costs.
D. Home insurance
We recommend that you take out building insurance. Eventually, council insurance can also be attached.
E. Fiscal and legal representation
We advise that our clients, for their Spanish tax interests seek an English speaking agent to will take care of all their administrative affairs. This way you can avoid language problems and will not miss any payment dates. The cost of this will not be very high, varying depending on the scope of advice. For “normal” representation, there is usually a cost of between €100 and €150.
F. Other expenses
For the sake of integrity you should ensure that you are up to date with the payments of electricity, water, gas and telephone.
Eventually you might also want to take on a caretaker to look after your garden and pool in your absence.