Property buying process in Mallorca
Information about taxes, laws, fees, financing and our recommendation regarding property buying process
1. The Buying Proccess
If you are buying a property in Spain, we advise you first of all to hire a lawyer to help you with the buying technicalities. (For additional information on the role of the lawyer please look at section 4.) Your lawyer will then check if there are any debts on 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. Because a property can be sold via multiple agents it is very important to reserve the property when the buyer and seller agree on the price.
If the buyer withdraws from the purchase after signing the option contract, the buyer 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.
The lawyer will then prepare the public title deed (Escritura de Compraventa) to be signed by the buyer or its 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 the buyer once it has been checked and registered.
2. Fees and taxes upon purchase
Allow 10-13% of the purchase price for fees and taxes. The taxes and fees upon purchase are the following:
- Transaction tax or value added tax VAT (IVA): Buyers of residential property in Mallorca are liable to paying 8% to 10% transaction tax for used properties. The tax is calculated in an incremental way, i.e. 8% up to 400.000€, 9% for the value between 400.000€ and 600.000€ and 10% for the value exceeding 600.000€. That means a property costing 850.000€ would be taxed 8% for the first part up to 400.000€, 9% for the 200.000€ and 10% for the 250.000€ part over 600.000€. The tax for the newly built properties is 10% and is called IVA (Value Added Tax). However, if you buy land in Spain, commercial premises or parking spaces in garages, then the VAT payable rises to 21%.
- 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. This tax should be paid by the seller according to the law but still some sellers ask it to be paid by the buyer.
- 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 around 1% of the purchase value to be allocated to lawyer´s fees.
- If the buyer needs a mortgage for the purchase, there can be some loan starting 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. We can recommend some tax advisors.
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 2000 Euros per year depending on the value of the property.
4. Must I use a lawyer to handle my Spanish property purchase?
You don’t have to but you should. 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 (the Spanish identity number that is obligatory to have during a property purchase), 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. 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 is around 1% of the purchase price.
We can recommend you multiple lawyers with good reputation and track record.
5. What is the cost of buying and financing a property in Spain?
There is no hard and fast answer to this question. However, generally there is an additional 10-13% of the purchase price in various fees and taxes. Within this 10-13% are the lawyer's charges, the notary fees and the transaction or value added taxes. If you are interested in financing your property, you can get 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 in Scandinavia and with all the banks and brokerage firms in Mallorca. Based on your needs we can recommend you the right selection banks for your loan application. We have a long experience in financing questions and find the best solutions for our clients.
Please contact us via this link if you have any questions or doubts.