THE BUYING PROCESS – IN BRIEF
Once you have found a property and your offer has been accepted you can secure the sale by placing a holding deposit, normally between 3000€ to 6000€ depending on the purchase price. This deposit would take the property off the market, would be non refundable and would “freeze” the price for a period of a month or two.
In order to exchange contracts, once your lawyer has done all the due diligence on the property of your choice, 10% of the purchase price would have to be paid (minus the amount already paid). This does not mean you can finance the remaining 90% but that there is a binding agreement to sell and purchase.
To obtain finance in Spain banks will give you between 50% and 70% of the purchase price. Finance on rustic land is considerably less, but in all cases will depend on the bank and your own status (income, loans, mortgages and credit references). The balance would have to come from your own funds.
The following costs are attached to any property purchase in Spain.
- Transfer Tax: 7% of the purchase price.
- Legal fees: approx 1% of the purchase price
- Notary and Land Registry fees: approx 1% of purchase price
If purchasing with a mortgage there is to add:
- Stamp duty: 1% of the mortgage amount. Stamp duty on the mortgage it’s not applicable when taking over an existing mortgage.
- Arrangement fee: 1% of the mortgage amount (this may vary from bank to bank)
THE COST OF BUYING - DETAILED
Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP)
This tax applies if the property is deemed to be a second or posterior transfer. The Transfer Tax is 7% on the price of the purchase in most regions, but as of July 2010 there are plans to put it up to 8% in some regions like Catalonia. The transfer tax is paid by the buyer. If any deposit is paid before completion of the sale it is not subject to the transfer tax. However the full amount of the transfer tax still has to be paid upon completion. In this scenario there is no VAT to pay, and stamp duty is already included in this tax.
Income Tax Provision When Buying From Non-residents
If the seller is not a Spanish resident, the buyer has to withhold 3% of the purchase price and pay it to the tax authorities (application form 211). If this is not done the property will be considered by the tax authorities as the asset backing the capital gains tax liability of the seller. This condition is very unlikely to apply when purchasing from a developer.
New Build From A Developer
VAT & Stamp Duty (IVA & Actos Jurídicos Documentados – AJD)
These taxes apply if the property is being sold for the first time, and the seller is a property developer. The VAT (known as IVA in Spain) is 8% on the price of the purchase in the case of built residential property (villa, apartment, etc), and 18% in the case of plots of land (without built property) and commercial premises. The Stamp duty (known as AJD) is 1% of the price of the purchase, but might go up in some regions, so be sure to check on the latest rate. Both VAT and Stamp Duty are paid by the buyer, and if any deposit is paid before completion of the sale, such deposit will be subject to VAT at the moment of payment of this deposit. In this scenario there is no transfer tax to pay.
Estate agency fees or commissions are paid by the seller, unless otherwise agreed. Unless the buyer has specifically agreed to pay the agent’s fee this cost will be built into the sale price.
You are strongly advised to hire a lawyer to help you during the buying process. Your lawyer drafts and reviews contracts on your behalf and can explain all the legal and administrative issues you face. Your lawyer should also carry out any necessary due diligence (checking ownership claim of the seller, charges on the property, permits, etc.) and arrange all the required documents to complete the process (property registration, tax payments, etc.).
A lawyer – Abogado in Spanish – will charge you according to the service you require. This will vary according to the complexity of the purchase. Many charge around 1% of the purchase price in legal fees. Be warned that some lawyers charge 1.5% or more of the sale price, which is a rip off. Even 1% can be unreasonably high given the work that is involved in a straightforward purchase of an expensive property with no legal complications. Your best option is to try and find a good lawyer who is prepared to charge on an hourly basis. Legal fees for a purchase without any complications and charged on an hourly basis should be in the region of 1.000 to 2.500 Euros.
If you choose to buy with a mortgage then this will incur several additional costs. First there will be the property valuation that the mortgage provider will require before granting the mortgage. This is paid for the by the buyer and can cost around 500 Euros. Then there will be the costs of the mortgage itself. This varies according to the provider, and even according to the particular branch. However there is usually some kind of opening fee of around 1% of the value of the mortgage. Finally a mortgage will increase the Notary expenses.
Notary expenses are nearly always paid by the buyer and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate Notary fees as being 1% of the purchase price declared in the deeds of sale. In many cases however Notary fees are more like 0.5% (or less) of the price declared in the deeds.
Property Registry Inscription Fees
Expenses related to inscribing the sale with the land registry are also nearly always paid by the buyer, and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate 1% of the purchase price declared in the deeds, though once again it depends upon the property and the area, and the fee could be considerably lower.
Bear in mind that it may be prudent to carry out a survey of the property and that this will have a cost.
In Summary, allow for up to 10% of the purchase price in taxes and other costs.
If the buyer takes out a mortgage these costs can be somewhat higher due to an additional public deed for the mortgage and the inevitable bank charges involved. In this case transaction costs might reach between 10% and 12% of the value of the property purchased.
To pay for the property, you will more than likely need to write a banker’s cheque. In order to do that, you will need to open an account in a Spanish bank and transfer money from the bank in your country. The cost of transferring the money can go up to 0,4% of the amount transferred. The Property Overseas Group has a preferred foreign exchange specialist who can secure you the best deal.