You will appreciate, the actual cost of buying a property in Mallorca Spain is not only the price that you see in the advertising, as it implies important elements of additional costs such as taxes, fees and other expenses of various categories, that increase your final budgeted costs if not careful, at the outset!
These cost vary depending on the status of the property you are buying, i.e whether the property is newly built or is a resale of an existing property and/or whether for private or commercial use!
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Taxes
Both the Spanish central government and autonomous regions like Balearic Islands have enforced numerous tax increases within their jurisdiction. Below is a realistic indicative outline, all subject to prevailing rates at the time of purchase!
The distinction should also be made between one-time and yearly taxes.
One-time taxes
When purchasing a property the buyer must pay value added tax (VAT) or real estate transfer tax (ITP).
Value added tax (VAT)
On first time sale of newly built properties such as houses, townhouses or newly built flats, then the tax stands at 10%. In all cases where VAT is paid, then 1,2% stamp duty tax is paid. All subsequent sales are not subject to VAT but to real estate transfer tax (ITP).
VAT is also paid in the case when the property is being sold by a company or a business person. This is 21% on the sale of building plots and commercial property.
Real Estate Transfer Tax (ITP)
This is applicable on all sales that are not subject to VAT and is referred to as real estate transfer tax (ITP) is applicable. The real estate transfer tax is a regional tax which varies according to each autonomous region.
Presently the Balearic Government has established the real estate transfer tax as follows. Please note, prevailing rates will apply at the time of purchase:
- The first € 400,000 of the purchase price will be taxed at 8%
- Between € 400.000,01 and € 600.000 real estate transfer tax is 9%
- amounts between € 600.000,01 and € 1.000.000 will be taxed at 10%
- amounts between €1,000,001 and €2,000,000 will be taxed at 12%
- For price above €2,000,001, 13% of the value is payable.
Example of invoice:
Purchase price 800.000 €
Up to € 400.000 tax to pay is € 32.000 charged (8% on €400,000),
for the amount between € 400.000,01 and €600.000 tax incurred is € 18.000 charged (9% on €200.000),
for amounts above € 600.000, tax incurred is €20.000 charged (10% on € 200.000).
Total amount of real estate transfer tax charged and payable: €70,000
Ongoing annual taxes
Ongoing taxes for the purchaser are land and income tax.
Property Tax
Property tax (Impuesto sobre Bienes Inmuebles, IBI) is paid annually and is levied on the value of land and urban land according to the assessment of the local council.
The cost of property tax varies from municipality to municipality and is in the region of 0,4% and 1,1% of the cadastral value for developed land and between 0.3% and 0.9% for undeveloped land.
Many municipalities have increased this tax by between 6% and 10%.
Income tax for non residents
The general income tax rate for non-residents is 24%, or 19% if you are a citizen of an EU or EEA country. Non-residents cannot benefit from allowances or deductions against their tax bill.
Wealth Tax
Wealth tax applies to both residents and non-residents, but only on assets held in Spain. For non-residents in the Balearic Islands, this tax only applies if your Spanish assets exceed €3,000,000. In such cases, you are only taxed on the value above this threshold. For Spanish residents, the wealth tax covers all global assets, with an allowance of €3,000,000 plus an additional €300,000 for the primary residence.
Summary Guide of costs/fees when buying property in Spain:
The general broad brush rule is that a purchaser will need to budget for additional costs to cover all tax liabilities and fees somewhere between 12-17% of the purchase price.
Please note: all costs are determined at the time of purchase!!
The following being a reasonable indicative breakdown:
- 10% VAT plus 1.5%-2% Stamp duty – New Property purchases (only)
- 8 – 13% ITP Transfer Tax – Pre-owned property (only)
- 21% VAT plus 1.5%-2% Stamp duty – Commercial purchase/ company purchases (only)
- 2-5% – all properties, for notary fees, legal fees, property registry (land) and bank arrangement fees.
All subject to negotiation where possible and specific quotes at the time!
Who pays what between seller and buyer?
Spanish Law states that unless stipulated in the Contract, taxes and fees are split between the buyer and the seller as follows:
The Buyer pays: The purchase tax or IVA, Registration fees, bank mortgage fees and Notary costs
The Seller pays: The estate agents fees, capital gains tax, the ‘plus valia’ tax and bank and registry charges to cancel an existing mortgage.
The following additional costs/fees will also apply buying or selling a property in Mallorca
Firstly, the Intermediary costs when buying property in Spain:
Real Estate Agency fees:
Despite the ability of the internet to bring together buyers and sellers without the need for an agent, most people still like to use agents or a private Property Search Agent to find or rent property in Spain.
Generally, estate agency fees or commissions are paid by the seller, unless otherwise agreed.
If the buyer appoints a personal Property Search Agent, then the search agents fees are paid by the buyer.
Normally such costs are more than offset by the personal service of the Property Search Agent, in terms of negotiating the best purchase deal, the potential access to off market properties, your own personal time and costs saved, plus generally improved legal fees!!
Real Estate Agents in Mallorca charge normally around 5% or 6%, but can vary depending upon the region and type of property.
Unless the buyer has specifically agreed to pay the agent’s fee, this cost will be built into the sale price.
Legal fees
Book appointment with a lawyer
You are strongly advised to engage a lawyer to help you during the buying process.
Your lawyer should investigate all legal aspects of your property purchase, draft and review all contracts on your behalf and explain all the legal and administrative issues you face.
They should also carry out any necessary due diligence (checking the ownership claim of the seller, charges on the property, permits, etc.) and arrange all the required documents to complete the process (property registration, tax payments, etc.).
A lawyer – Abogado in Spanish – will charge you according to the service you require. This will vary according to the complexity of the purchase. Many lawyers charge around 1% to 1.5% of the purchase price in legal fees, but fixed price fees may also be negotiated!
Your best option is to try and find a good lawyer who is prepared to charge on an hourly basis. Seek quotes for legal fees based on your specific purchase, without any complications and charged on an hourly basis. These should normally be in the region of 3.000 to 4.000 Euros, depending on the complexity involved.
Other Associated Costs
Notary
Notary expenses are nearly always paid by the buyer and are calculated in relation to the purchase price declared in the deeds of sale.
To be on the safe side you should calculate Notary fees as being 1% of the purchase price declared in the deeds of sale.
Property Registry
Expenses related to inscribing the sale with the land registry are also nearly always paid by the buyer, and are calculated in relation to the purchase price declared in the deeds of sale. This amount can also be put at a maximum of 0.5% of the purchase price, but in most cases, it is significantly less than this amount.
The 3% Withholding Tax
In Spain, there is a special rule concerning the income tax payable by the seller on the profit made on the sale. The buyer retains 3% of the notarised purchasing price and must pay this to the tax office within one month as an ‘aconto’ payment on the seller’s profit tax. In this way, the Spanish tax authorities secure a part of the expected profit tax. The non-resident seller must file a tax return for the property sale within 4 months of the sale, in which he or she can then deduct the 3% as a payment already made on the final tax liability.
Banking costs
You will need to open an account in a bank operating in Spain and transfer money there from the bank in your own country.
The cost of transferring the money can go up to 0,4% of the amount transferred. Please check all rates with your Bank prior to sending!
Other Ongoing expenses
A prospective purchaser should take into account that there will be regular expenses affecting the property itself. These include:
Community charges:
Although all properties sold in Mallorca are freehold, a purchaser will automatically become a member of the Community of Owners when the property is part of a development complex with shared facilities such as a swimming pool, gardens, parking spaces, roads and lighting to maintain.
Community charges are usually paid in advance by direct debit and owners are required to attend annual meetings at the complex to discuss costs and vote in a new President and Owners Committee.
Each complex has a separate administration company which manages the complex on behalf of the owners.
Owners are expected to know and comply with community regulations and statutes.
Refuse collection and council tax (Impuesto sobre Bienes Inmuebles or IBI) will be charged annually by the Local Authority based on the ‘catastral value’ or as we would call it, property value for council tax purposes.
Gas, water, electricity, telephone etc.
A prospective purchaser should always check that the vendor is up-to-date with all payments affecting the property and its services.
Costs when selling a property in Spain.
Capital Gains Tax (Plus valia municipal tax)
‘Plus valia´ Municipal Tax is a local authority increased land value tax. It must be paid by the seller as required under Spanish law and is the tax liability on the increased value of the land since last purchased. The calculation will be made by the local council and increases depending on the number of years you have owned the property.
Selling property in Spain attracts Capital Gains Tax at a rate of 19% for non-residents. It is paid on the difference between the price on your deed when you bought the property and the new sales price.
For non-residents it is paid in two stages – you pay a contribution towards your tax of 3% of the sales price on the day of completion and the balance of the tax is paid when requested by the Government tax department, which can be anytime up to 5 years after completion.
Residents may, subject to legal advise at the time, avoid the tax when you sell your main residence and put all the profit towards your next home within 2 years.
Alternatively, you will be asked for the tax to be paid with your tax return in the first year after the sale.
Cost of buying property in Spain: In case you need a Mortgage
If a mortgage is required this can be most easily obtained here. The banks in Mallorca will loan usually up to 60% of the purchase price to a non-resident and up to 80% to a resident.
We can assist you to find the bank which will make you the best offer including but not limited to the following costs.
Book appointment with mortgage specialist
Disclaimer
Please note, all the above is subject to the prevailing rates at the time of your specific purchase.
Any financing proposal, is also subject to full status reports with all financial checks conducted by the funding bank and subject to the Banks financial assessment of all risks and interest rates applying.
