Taxes and expenses when buying a property in Spain

On many occasions, the deposit of reservation contracts and private purchase contracts are non-refundable. This means that all the money you put before paying the final amount (normally is 30% of the total purchase price for a new project and 10-15% second hand properties) would be lost, considered a penalty, if you finally decide not to buy. The real estate agent or the seller will have the total right to get that money from you, but only can keep it as a penalty and as long as it has been expressly established in the contract. So make sure to fully understand the actual total amount you will end up paying for your chosen house. And compare using that number as a reference (not the one you see online!). 

In that sense, it will be really useful to clearly understand the list of taxes and expenses you will be facing as a buyer, which generally represent between 10-12% of the purchase value, although it may vary depending on the type of operation.

National citizens and foreigners will pay exactly the same. Same taxes, expenses, and exact rates are applied for both groups. It will be on the sale that differences arise between tax residents and non tax residents in Spain. 

VAT

The first tax to consider is VAT (called IVA in Spanish). If you are thinking of buying a new property or an off plan development, the main cost you have to pay is the VAT. In new home purchases, VAT is 10% payable. However, if you are thinking of buying a plot of land, a garage or a storage room VAT is 21% payable. Both percentages are plus some other costs like Stamp Duty tax, Notary, Land Registry & Legal fees. As opposed to many other taxes and expenses we will see in a moment, the VAT tax rate is equal within the whole Spanish territory. This tax will be paid when signing the deed of sale. Then, the seller will transfer it to the tax authorities (Agencia Tributaria). 

STAMP DUTY TAX

The Stamp Duty, known in spanish as AJD (Actos Jurídicos Documentados), is the tax for documented legal acts refers to notarial, commercial or administrative documents for the purchase of real estate and off plan developments that are formalized within Spain. In Andalucia it is 1,5% of the price of the purchase, before VAT. Nevertheless, you can enjoy several tax rate reductions provided that you are inside one of the following two groups:

  • You are younger than 35 years old and the house you are acquiring will cost less than 130.000€
  • You have any disability and the property costs up to 180.000€

Now, let’s move to all the extra expenses you may be facing when acquiring your house in the Spanish territory. The information that follows is common for properties from developers and second-hand houses. 

TRANSFER TAX

If you decide to buy a second-hand home, the property transfer tax will be applied. The ITP is a tax dependent on the autonomous community.

In Andalusia, the ITP for the sale of a second-hand property, that is, in second or subsequent sale are subject to ITP at the rates of:

  • 8% for amounts from € 0 to € 400,000
  • 9% for amounts from € 400,000.01 to € 700,000
  • 10% for amounts of € 700,000.01 onwards

The Property Transfer Tax is cumulative. However, there are bonuses to this tax: the rate to apply would be 3.5% for the purchase of homes for an amount less than € 130,000, for a habitual residence if the buyer is under 35 years of age.

NIE NUMBER

As with nationals, all foreigners who, for economic, professional or social reasons, are related to Spain and its institutions, must be provided, for identification purposes, with a personal and non-transferable number. This is what is known as Foreigner Identity Number, also known by its initials NIE.

This identification number, currently mandatory if the applicant intends to carry out business, work activity or asset purchet/sales, is issued by the General Directorate of Police.

Thus, any person not resident in Spain who wants to do business in this territory and develop economic or professional activities, whether through the creation of a Limited Company, the sale and purchase of shares, the management of a company, purchase/sale of properties or simply work as a salaried employee registered in the General Social Security System, must have the corresponding Foreigner Identity Number (NIE).

For more information about how to obtain it, visit https://ramalloabogados.com/2020/07/13/nie-what-it-how-to-apply/

NOTARY

The notary is another expense to take into account when buying a home. Is required to draw up the public deed. The price you will end up paying to the notary depends on many factors, such as:

  • The agreed price of the property
  • If there is any mortgage
  • The number of pages/sections the contract has
  • How many parts interfere on the transaction

REGISTRATION COSTS: LAND REGISTRY FEES

Once the operation is closed and the taxes are paid, it is necessary to deposit the original deeds in the local Land Registry office to complete the process, so the owner remains protected against third parties and is the valid title deed in the event of the subsequent sale of the home. Land registration fees are calculated according to a scale agreed by the authorities (typically around 60% of notary fee). Also, if you still have a mortgage, the bank could (unless you deal with it) charge an early-cancellation fee.

REAL ESTATE FEE

If the purchase has been made through a Real Estate agency, the seller usually must pay a percentage of the sale price for the services offered. There must always be an agreement with the real estate agency where it indicates this.

The seller should also present the Energy Efficiency Certificate, and Community debt certificate. Both are mandatory to confirm the property is under energetic regulation and up to date on community fee payments.

LEGAL FEES

Finally, whether you buy or sell a property, it is highly recommended to use the services of a lawyer. Legal fees are normally 1% + 21% VAT on the total purchase or sale price. Legal services help to save on costs and future problems, which generally, in the long run, make the transaction more expensive and prevent a peaceful enjoyment of the property that we have acquired. In the experience of most clients, it is the lowest expense compared to the advice received.

Our wide experience at every field of Spanish law, made Ramallo Abogados a reliable partner who you can trust and deposit your reliance. We also provide a people-to-people process, as we like to meet & deal personally every customer issue. Please feel free to contact us for every query or question about our services.

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