Spanish budget: taxes and costs for the purchase and maintenance of real estate

Real estate acquisition costs

In addition to the immediate cost of the property in Spain, the buyer incurs a number of costs in the form of taxes, fees and duties, which can significantly increase the purchase budget. And before making a purchase, it is necessary to clearly calculate all the amounts and weigh everything "for" and "against". It is quite problematic to do this on your own, so you need to turn to the services of a trusted real estate agency.

Experts strongly recommend that all buyers of Spanish housing be sure to keep copies of all invoices, preferably both in printed and electronic form. The same applies to ongoing construction and repair work after purchase. The safety of all licenses and payment documents in the future will help to compensate for the cost of capital gains when selling an object, and thus reduce the amount of tax fees.

Depending on the type of transaction – acquisition new housing from a developer or the purchase of "secondary" from a private person, the buyer will have to pay VAT, plus stamp duty or tax on the transfer of property rights. Both options are described below, as well as taxes and fees that are typical for both cases.

New building from a developer or bank

VAT and Stamp duty (IVA& Actos Jurídicos Documentados – AJD)

These taxes apply to residential premises sold for the first time, that is, for newly built new facilities. The same type of taxation applies to commercial real estate and land plots. VAT is a national (or federal) tax, so its rate is the same regardless of the location of the property (with the exception of the Canary Islands, which have their own version of VAT). Currently, VAT (known in Spain as IVA) is 10% of the value of residential real estate (house, apartment, etc.), and 21% for commercial real estate and land plots.VAT for new homes in the Canary Islands, known as IGIC (Impuesto General Indirecto Canario), is currently 4.5%. Until January 2012, VAT for all new real estate was 4%, after which it rose sharply to the current 10%. The exception here was Catalonia, where the tax was always equal to 6%, then increased to 7%, and subsequently equalized to a single indicator of 10%.

State duty or stamp duty (AJD– Actos Jurídicos Documentados)

It is about 1% of the purchase price, but may vary depending on the region, so its value should be clarified in advance. For example, in Catalonia, the stamp duty is 1.5% of the cost of the object. If the seller and the buyer are legal entities, then when buying a commercial object, VAT is not paid, but only stamp duty is paid, which in this case will be 1.8%. Both VAT and stamp duty are paid by the buyer, and if a deposit was made before the completion of the purchase and sale process, it will also be subject to VAT at the time of payment. In this scenario, there is no need to pay property transfer tax.

Example. Buying an apartment in a new building (except for the Canary Islands) with a cost of 120,000 will entail the need to pay VAT and stamp duty in the amount of about 12,000 and 1,200, respectively. The amount of tax and stamp duty when buying a new house at the price of 700,000 will be 77,000.

"Secondary" from a private person

Property Transfer Tax (ITP– Impuesto sobre Transmisiones Patrimoniales)

This tax is also paid by the buyer and is applied if the object has changed more than one owner, that is, if it is considered that this is the second and more transfer of ownership of the property. If a deposit was paid before the completion of the transaction, then it is not subject to proportional ITP accrual. However, ITP will need to be paid in full after the completion of the purchase and sale process. In this case, you do not have to pay VAT, and stamp duty is already included in this tax.

The tax rate depends on the region – municipalities can, at their discretion, adopt a general rate or set its individual size. The total (national) ITP is 7%, but many autonomous regions have set a higher rate. For example, in the Valencian community, the tax is 10% of the value of secondary real estate.

Reserve income tax when buying from a non-resident

If the seller of the property is not a resident of Spain, the buyer is obliged to pay 3% of the purchase price to the tax authorities (application form 211). If this is not done, the property will be considered by the tax authorities as an asset of the seller (actually the former owner) and will enter the taxable base when calculating capital gains tax.  

Example. The ITP tax on the purchase of an apartment worth €120,000 in Barcelona will be €9600, since in Catalonia the approved ITP amount is 8%. In the Canary Islands, on the contrary, the ITP tax rate is slightly lower than the national value of 6.5%, therefore, the purchase of an apartment of a similar price category obliges the owner to pay a lump sum of 7800.

Costs that relate equally to the objects of the primary and secondary markets

Agency fee

The agency fee or commission is paid by the seller, unless other conditions are stipulated during the transaction. If the buyer has used the agency's help, then it is he who pays the commission to the realtor.

Despite the modern possibility of the Internet to "bring together" the buyer and the seller, thereby saving him from having to pay an agent's fee, most people still use the help of professionals. This is a reliable and justified solution in such a difficult matter as making a transaction to buy real estate abroad. Agents, as a rule, charge from 2% to 15% of the sale price, depending on the region and type of property (on average 3-7%). If the buyer has not stipulated a separate payment of the agency fee, the realtor's fee will be included in the transaction amount.

Legal services

Despite the opportunity to find a suitable property on your own, the help of specialists will greatly facilitate the task. This is especially true for foreigners who do not speak Spanish, nor the subtleties of the purchase and sale process, nor knowledge of Spanish legislation. A lawyer (Abogado) will help with the latter, who will familiarize himself with the contract, will be able to make requests on his own behalf and explain all legal and administrative issues that may be encountered in the process. He must also check the legal purity of the transaction (check whether the seller has ownership rights, encumbrances, permits, etc.) and prepare all the necessary documents to complete the process (property registration, tax payments, etc.).

The cost of a lawyer's services directly depends on the number and complexity of the services provided. On average, it is necessary to focus on the amount of 1% of the cost of the object. 1.5% or more is already considered overpriced, and even 1% can be an unreasonably high expense, given that, for example, an expensive object is purchased without any legal complications. Perhaps the best option is to try to find a good lawyer who works on an hourly basis. In this case (a simple transaction, an object without any complications and encumbrances), the costs of paying for the services of a lawyer with an hourly rate will amount to €1000-2500.

Mortgage payments

If the purchase of real estate is carried out with borrowed funds, then this will entail additional costs. Before making a decision on granting a mortgage, the lender evaluates the property. This service is paid for by the buyer and can cost about €500.

The next costs will be direct mortgage payments, the amount of which depends not only on the borrowed amount and maturity, but also on the bank and even on its specific branch. As a rule, the applicant, who is also a potential buyer, must open a current account with the bank, and the fee for opening and servicing the account will be about 1% of the size of the approved mortgage loan. Finally, a mortgage will increase notary expenses.

Notary expenses

Notary expenses are almost always paid by the buyer and calculated in relation to the purchase price. Howas a rule, they make up 0.3-0.5% of the cost of the object.

Real estate registration costs

The entry in the land registry is almost always made at the expense of the buyer. On average, this amount is also about 0.3-0.5% of the purchase price, although, again, it depends on the object and region.

Other expenses

Perhaps a reasonable step when buying a property in Spain will be a survey of the condition of the object (reliability of construction, soil quality, etc.), which, of course, will require an additional budget from the buyer.

In general, the associated costs without a mortgage will increase the purchase price by about 11%, and with a mortgage by 13%, which in monetary terms when buying an object for 120,000 will be approximately 13,000-15,000.

Bank charges

As a rule, the process of paying for real estate is carried out by bank transfer or by issuing a bank check. To do this, you need to open an account in a Spanish bank in advance and transfer money there from a bank account in your country. The commission for the transfer of funds can be up to 0.4% of the transfer amount. A bank check will most likely cost from 0.05 to 0.3% of the amount.

Furniture

Immediately after the implementation of the process of purchase and sale and registration of real estate, the primary desire of the owner is the arrangement of his new home. Of course, these costs depend entirely on taste and wallet. On average, furnishing a two-room apartment will cost €10 000-15 000, subject to the purchase of completely new furniture. To minimize these costs, you can buy all the household utensils in a chain store such as IKEA.

Municipal Property Value Gain Tax (Impuesto de Plusvalía)

This tax is paid by the seller, but sometimes the buyer agrees to pay it. The tax is calculated based on the cadastral value, and depends on the period of ownership of the property: the longer the period, the higher the tax. In 2014, Spain had a rate of 21%, and in 2015, capital gains earned by non-residents were taxed at a rate of 20%. In 2016, the tax rate for non-residents will be reduced to 19%, but it will only apply to the first 6000 euros of income, anything over this amount will be subject to a 21% tax.

The cost of owning real estate in Spain

Of course, the costs of purchasing a residential property in Spain will not be limited to expenses. These include the cost of maintenance of the house, performed by the management company: repairs, cleaning of the territory, garbage collection, as well as payment for utilities, the amount of which depends on the individual level of energy consumption. The total amounts will be formed based on the size and type of real estate. Obviously, a large villa with a garden and a swimming pool will require much more effort and expense than a small apartment. In addition to the general expenses mentioned above, there are a number of costs in the form of taxes and fees faced by property owners in Spain.

Real Estate Tax (Impuesto Sobre Bienes Inmuebles – IBI)

The local tax on the ownership of real estate is paid regardless of whether the owner is a resident or non-resident of Spain. It is calculated based on the cadastral value (the administrative value is usually much lower than the market value) and is set by the local administration. Depending on the region, the rate of this tax varies from 0.4% to 1.1% of the cadastral value of the object. It should be understood that the cadastral value is always much lower than the real one, so the IBI for a two-bedroom apartment with a real value of 200 000 can be on the order of 400-600 per year.

Annual Wealth Tax (Impuesto Sobre Patrimonio)

This tax has been changed several times in recent years. It is calculated on a progressive scale, and the more expensive the property, the higher the tax rate will be. The initial rate is 0.2% (for objects worth up to 167,129 euros), and the highest rate of 2.5% is applied to objects more expensive than 10.7 million euros. Thus, the minimum amount of tax will be €334 per year. An exception is made only to residents of Madrid, where there is a zero tax rate on wealth.

Personal Income Tax (Impuesto sobre la Renta de No Residentes – IRNR)

Non-residents who own real estate in Spain must pay an annual income tax, depending on whether the property is rented or not. If the housing is not rented out and the owners do not have another source of income in Spain, then they pay income tax based on the value of their real estate. The tax rate is set at 25% of 2% of the cadastral value, that is, a quarter of two percent will have to be paid as tax.

Example. The cadastral value of the property is 700,000 (while the real value of the object can reach 5 million), so the calculation of taxes will look like this. Taxable value of the property: €700,000. Tax base (2%) = €14,000. Tax (25%) = €3500.

If non-residents rent out their real estate and receive income, according to Spanish law they are required to declare it and pay taxes. The tax base and tax rate will be determined in accordance with the legislation, taking into account the specific circumstances of the taxpayer (taking into account double taxation, if any, between Spain and the country of origin of the non-resident). In most cases, non-residents simply pay a fixed rate of 25% of gross income.In turn, residents pay income tax depending on their income received during the year. The tax rate depends on the level of income.

Management company services

Owners of real estate objects that are part of condominiums, buildings or complexes where common areas are shared with other owners, by law become members of the society of homeowners (Comunidad de Propietarios). This entails the obligation to pay utilities for the maintenance of common areas, as well as any other services that the community votes for. The fee will vary depending on the size of the common areas, the cost of their maintenance and the set of approved services. The annual expenditure budget is approved by a majority vote of all owners (or their representatives) present at the annual General meeting of the Comunidad de Propietarios.

Invoices are usually issued quarterly or immediately for the whole year. In the latter case, the figure may be subject to adjustment when the actual costs become known and the annual report is approved by the committee. To find out the exact amount, you can ask the seller to provide receipts, preferably for a long period (if possible for five years), to find out what the tenants were saving on and roughly determine the upcoming level of costs.

For example, payments for a small studio in an old residential block may be less than 150 euros per year, while the owner of a luxury penthouse in a modern residential complex will have to pay the management company more than 3000 euros per year. The annual maintenance of a standard two-bedroom apartment costing about 120,000 will cost from 100 to 600, although elite residential complexes can bill for 3000/year. High fees are not necessarily a negative point (of course, if the owner can afford them), the owner will get good management for his money. But it's worth remembering that less than half of all management companies in Spain really do their job well.  

Utilities

When buying a new building, the conclusion of utility contracts is required. Independent organization of this process will entail additional costs: gas about 70 euro, water supply and electricity approximately 120 euro.

The sizes of utility payments are strictly individual. On average, heating, electricity and water supply, as well as garbage collection cost the owner of a standard apartment (85 sq. m. m) in €120 per month. For those who are not used to cleaning the apartment on their own, cleaning by third-party forces costs €10 per hour.

Insurance

The amount of insurance directly depends on the type and value of the property, as well as on the individual circumstances of the homeowner. In any case, these costs should also be included in your budget.

Portal HomesOverseas.ru thanksfor help in preparation article CatherineПрокудину (InmoRusa), Марину Костину (Damlex Company, SL), Павла Маслова и Андрея Карачуна (ESTATE BARCELONA).

_{photocredits: дмитрий кругляк flickr / estate barcelona / inmorusa}

Ольга Шошина