BUYING PROCESS: TAXES, LAWS, FINANCING & RECOMMENDATIONS

1. The Buying Proccess

If you are buying a property in Spain, we advise you first of all hire a lawyer to help you with the buying technicalities. (For additional information on the role of the lawyer and a contact to one, please look at section 4.) An offer to buy is made by your lawyer, subject to contract. Your lawyer will then check if there are any debts against the property, such as mortgages and loans, and confirm the legal owner of the property is the person offering it for sale.

Assuming all is as it should be, your lawyer will draw up an option contract stipulating the buying price, the deposit (usually 10%), when you will pay it, when you are prepared to complete the actual purchase, and what you consider to be included in the price (furniture and fittings, for example). Writing an option contract reserves the property for you while you finalize other legal and financial arrants.

If you withdraw from the purchase after signing the option contract, you will lose any deposit paid. If the seller changes his or her mind, in some cases, he will have to pay twice the amount depending on the wording of the contract.

Your lawyer will then prepare the public title deed (Escritura de Compraventa) to be signed by you or your lawyer (assuming he has a power of attorney) and the seller in front of a Spanish notary. Here, the rest of the payment is due.

On completion, the notary will send details of the title deed to the local land registry to inform it of the identity of the new owner. Approximately three months later the official Escritura will be returned to you once it has been checked and registered.

2. Fees and taxes upon purchase

Allow 10% cent of the purchase price for fees and taxes. The taxes and fees upon purchase are the following:

Sales tax – value added tax VAT (IVA): Buyers of residential property in Spain are liable to paying 7% IVA (VAT) for used and 8% IVA (VAT) for new properties. However, if you buy land in Spain, commercial premises or parking spaces in garages, then the VAT payable rises to 16%.
Plusvalía: In general this tax burdens the increase of value of lands between the moment of its acquisition and its sale, and is levied by the local Town Hall based on a) the particular area where the property is located; b) the surface area of the plot; c) the cadastral value; d) and on the date of the previous title deed.
Notary Fees: The Notary charges according to a fixed scale and depending on the official value of the property. The notary will send details of the title deed (Escritura) to the local land registry to inform it of the identity of the new owner. Allow 1% more or less for the notary and property registry fees.
Lawyer's Fees: Allow 1% of the purchase value to be allocated to lawyer´s fees.

3. Annual Taxes on Property

There are annual taxes applicable to property ownership in Spain. We recommend you have a tax adviser, known as gestoría, to handle the annual tax payments. That saves a lot of work and avoids possibly missing deadlines for payment, which can lead to fines.

The main annual taxe is the Land tax (IBI) The tax base is the cadastral value of the property and the rate varies from 0.4% to 1.1% depending upon the region. The amount varies, but it ranges from 200 Euros to 800 Euros per year.

4. Must I use a lawyer to handle my Spanish property purchase?

Yes. It is not mandatory but it is important. It is important for you to have the help and expert advice of a lawyer in order to guarantee a secure purchase. In Spain, your lawyer will take care of all the normal legal checks that need to be done - with the local town hall, for example, to ensure a 10-pin bowling alley and all night disco isn't about to be constructed next door to your dream home. Your lawyer will draw up an initial pre-sale contract, apply for the NIE number, handle the payment of the customary 10% deposit and accompany you to the notary for the final exchange of contracts. Your lawyer will inform you about taxes due on your property both during and after the purchase. And above all else, he or she will ensure that you end up with a property which is legally yours, which is what you thought it was and which doesn't come complete with a mountain of debts. The lawyer can also draw up a testament for your property, which is also important. In addition, in Spain, lawyers work in your interest regarding relations with banks. In case you need financing, your lawyer can help you with redirecting you to the right bank. Basically, your lawyer is there to answer any questions you might have regarding the purchase process and the ownership of your property. The costs of a lawyer are between 0.5 and 1.5% of the purchase price.

We work with Nathalia Rigo Olausson. She is a Spanish lawyer who speaks fluent Swedish and who works at the law firm Montis Abogados. Her contact details are:

Nathalia Rigo Olausson
Tel.: +34 971 21 30 96
nathalia@montisabogados.com

5. The costs of buying and financing a property in Spain

There is no hard and fast answer to this question. However, generally there is an additional 10% of the purchase fried in various fees and taxes. Within this 10% are the lawyer's charges, the notary fees and the 7% value added tax. If you are interested in financing your property, you can get 70 to 80% financing from a Spanish bank. Spanish banks are generally uncomplicated and fast regarding mortgages. Especially in Mallorca, they are very used to handling mortgages for foreign customers.

We have contact with multiple banks and based on our past experience recommend HALIFAX in Santa Ponsa and Solbank in Puerto de Andratx.

Please e-mail us any doubts and questions you may have and we will post the questions and the answers here.