Please note that the information
provided in this article is of a general interest nature and intended
as a basic outline only. You are well advised to contact a professional
for advice specific to your circumstances. Nothing contained in this
article should be seen or taken as the writer or publisher providing
legal or financial advice.
Many clients have asked for a breakdown of the costs of buying in
Spain. Here we have been as complete as possible in respect of the
“usual” purchase. There will always be the “unusual” purchases where an
incoming buyer takes over a debt, a mortgage or other obligation from
the seller of a second hand or resale property. As such these
transactions are not usual so we haven’t specifically addressed them
here.
Let us briefly mention the operation of an “escrow” account.
This is a form of bank account, structured between a buyer and seller
and works primarily to the buyer’s advantage. The point being that the
money lodged in the account cannot be withdrawn without the buyer’s
approval. This is essential as many property transactions do fall
through and the would be buyer may experience some difficulty in
seeking to recover sums that are in a seller’s or the sellers lawyer’s
bank account.
An “escrow” account is usually held within the seller’s lawyers “client
account” arrangements at his bank and an account is nominated to
receive all sums from the purchaser. The difference is that this
account is subject to an agreement between buyer and seller as to its
operation. A provision of which will be that it the account is only
accessible by two or more signatures – or not merely one. This means
that the seller and buyer jointly control access to the account.
The purchaser who is buying at distance, will probably chose to
nominate their own lawyer as one of the signatories under a Poder or
Power of Attorney. This allows for monies to be withdrawn from the
account upon the satisfactory completion of the agreed stages of the
property transaction.
You should not be surprised if asked by an Estate Agent to
provide a holding deposit which is regarded as an act of good faith
from you as the would be purchaser. It usually means that they’ll cease
to actively market or show the property.
The deposit may be between €3000 to €6000 and you may be offered the
chance to swipe a credit card number to make this deposit. Our clients
are advised that this sum should be placed under the escrow account
arrangements, mentioned above, and may be lodged with their lawyer
until the escrow account is set up. Your lawyer will then be able to
advise the Estate Agent that they are holding sums to your order which
will can be released to the escrow account following its set up.
As a yardstick, in Spain, you should budget for purchase costs
of approximately 10 to 12% on top of your agreed property purchase
price. This will cover legal fees, plus expenses including notary
public fees, land registry, stamp duty and VAT (called in Spain
“Impuesto sobre el Valor Añadido” or “IVA”) – which are set out in more
detail below.
The buyer is usually responsible for:
-
Transfer Tax (or IVA or
- Stamp Duty when buying from a developer)
- Property Registration Fees
- Notary Public Charges
- Legal Fees
The seller is usually responsible for:
-
Own Capital Gains Tax on any increase in escritura value Plus Valia Tax
– This is a local municipality (Town Hall) tax based on the increase in
the value of the land from when it was last sold. This is a one off
payment. We have seen circumstances where this tax is paid in an agreed
division between the buyer and seller or soley by the buyer. To avoid
any confusion is important to decide at the outset of the purchase
whether the buyer should be asked to shoulder none, part or all of it.
-
Selling Agent Fees – plus IVA - as agreed with the Estate Agent
A usual breakdown of the above budget for costs and expenses, of the buyer are as follows:
Fees
-
Notary Public Fees. These are charged on a scale of fees which, in turn, depend on the price of the property.
- Property Registration Fees - Land registry. These are around 40% of the Notary charges.
- Legal
Fees - are normally charged at around 1.00% to 1.50% of the agreed
purchase price plus 16% IVA. You should note, if purchasing off plan,
lawyers have a tendency to charge 50% of their fees at the first stage
- the signing of the Private Purchase or “Option” Contract and 50% upon
delivery of the property by the developer and completion by the buyer.
- Mortgage
Legal Costs. It is important to discuss with your lawyer whether you
are seeking a mortgage to complete the purchase of your property. Some
lawyers will waive any additional charges incurred in their dealing
with the mortgage papers provided that you take a mortgage at the same
time as your purchase. If, having purchased without mortgage funds, you
subsequently wish to raise a mortgage on your Spanish property, or
re-mortgage, expect to pay around 1% of the loan sought in legal fees.
Taxes
-
Transfer Tax – around 7% for second hand properties. Interestingly for
younger purchasers, the transfer tax reduces to 3.5% if the buyer is
below 35 years of age and the property is to be their main residence.
- IVA is charged
at 7% for the purchase of a new property. However, if you are
purchasing a Parcela or plot of land, garage or commercial building the
IVA rate increases to 16%.
-
Impuesto Actos Juridicos Documentados or “Stamp Duty” is around 1% for new properties.
-
Plus Valia -• according to the law it is the seller’s responsibility
but please see above. Payment may from a few hundred €s for smaller
properties to several thousand €s for large villas or plots. It must be
remembered that this tax is calculated on the increase in value since
last bought. You should therefore note that if the seller has held the
property for a long time – particularly through the 1990’s and early
2000’s – a period of substantial growth - the Plus Valia may well be
very high when calculated from last sales price to this sales price.
Additional costs
-
Impuesto Sobre Bienes Inmuebles or “IBI” is a local Town Hall charge
and effectively an annual real estate tax. IBI’s are similar to “Rates”
in the UK. Your lawyer should obtain copies of previous bills from the
seller of a resale or second hand property.
- Community
charges. These charges will be rendered if you buy a property on an
Urbanisation. The “community” will maintain the gardens and swimming
pools. The costs of their work and staff will be covered by these
charges. In large formal Urbanisations these charges may be quite high
but they may also include the provision of water to your property.
-
Basura - Rubbish Collection tax. This annual tax is payable by all property owners to the local Town Hall.
-
Insurance - It is compulsory to have fire insurance when you have a
mortgage, indeed few lenders will release the funds to complete your
purchase without evidence that you have an insurance policy in place
with their interests noted on it.
- Surveyor
Fees - Even if you are not purchasing with mortgage funds you may
obtain comfort from obtaining a Surveyor’s Report on your chosen
property.
Mortgage Costs.
If you are planning to complete your purchase using mortgage funding,
besides from the costs of servicing the borrowing you’ll need to budget
for the following additional costs:
-
Bank Valuation Fee - Calculated as a percentage of the valuation for
smaller properties usually in the region of €400 to €750 plus IVA.
Rising to 1% of the valuation for larger properties.
-
Bank Arrangement Fee – Often 1% of the mortgage amount.
- Stamp Duty – Based on mortgage liability and usually around 1.8% of the loan.
-
Notary Public Fees – The mortgage needs to be signed and witnessed in
front of a Notary in order to be effective. Notary’s fees for this role
are calculated as a percentage of the mortgage liability.
- Property
Registration fees - Land Registry – The mortgage needs to be recorded
as a charge against the property and fees will be due based on a
percentage of the mortgage liability.
Do not forget about Wealth tax which is payable annually. It is based
on the value of the property and income – either notional or actual -
derived from the property.
Please also remember when making the above payments from the UK or non
€ Zone country that the costs – including the monthly mortgage
payments, annual taxes or insurance premiums - may be substantially
increased by Bank charges incurred in using a High Street bank to bank
method of currency transfer. It is sensible to consider the use of a
currency exchange specialist to “forward buy” your €s at a
predetermined rate to minimise exchange rate risks.
© Mark FR Wilkins 2005 (Marbella)
Mark FR Wilkins
The Rights Group SL
mark@therightsgroup.com
www.therightsgroup.com
0034 600 343 917