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 The point being that the money lodged in the account cannot be withdrawn without the buyer’s approval.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 This allows for monies to be withdrawn from the account upon the satisfactory completion of the agreed stages of the property transaction.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:
- 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.
- 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.
- 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.
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.