Buying a Property
Buying a New Property 'Off Plan'
Most brand new properties in Spain are sold 'off plan' which means that the developer may not have started the construction or the construction may be in very early stages.
When you decide to purchase a new property, the payment will usually be made in stage payments, but this will vary from developer to developer.
To reserve a new property you will need to pay a €3,000 Reservation Deposit (with some developers this could be €6,000) which means that the property is taken off the market, a Reservation Contract will be issued giving brief details of the property, the price and the payment terms and the Lawyer will commence his work. It is widely accepted in Spain that the Lawyer will ask for 50% of his fees at the outset of the transaction.
Buying Costs
New Property
Apart from the costs of the property itself, the buyer will be liable to pay 7% IVA (VAT) on the purchase price which is usually payable at the rate of 7% on each stage payment, plus a 1% Stamp Duty on completion.
Re-Sale Property
In addition to the purchase price there is also a 7% transmission tax payable on all re-sale properties, paid on completion.
On both new and re-sale properties, you will need to allow for the lawyers fees, which do vary from region to region in Spain and can be anything from 1-1.5%. The property registration office will also make a charge of approx £300 for the property Deeds to be put into your name and there will also be charges for the Notary for copies of the 'escritura publica'.
In total you should allow approx 10% of the purchase price to cover your costs.
All property in Spain is registered at the Land Registry which details who owns the property, the exact size of the property, and if there are any mortgages, etc. on it. Only the people named on the Title Deed have the right to sell the property.
Annual Costs
When you own a property in Spain there are three annual taxes you should be aware of depending on whether you are a Non-Resident or Resident:
The local Town Hall IBI (local rates)
If you buy a resale property the previous owner has to provide the previous bills to prove payment. For guidance this payment should only be less than £200 per annum but will vary depending on size of property and the area it is in.
This is payable by both Non-Residents and Residents.
You will also be liable for a type of Wealth Tax, this is a low tax payable annually and is based on the value of the property as recorded in the Title Deeds.
For Non-Residents, the current rate is 0.2% which would mean on a property valued at 145,000 euros (£100,000) you would pay 290 euros (£200) per annum.
For Residents the Wealth Tax is calculated at 0.2% on the difference between the current allowance for residents and the real wealth that the client has. The current allowance for all Spanish residents is 102,172 euros before they have to start paying tax. For Residents the value of their house (as in the Deeds), bank account etc is added together and the difference between this amount and the Allowance is subject to tax at 0.2%. So if your property is valued at 145,000 euros (£100,000) and you have 5000 euros in your bank account, you would have a wealth of 150,000 euros from which you would subtract your allowance of 102,172 euros giving you an amount of 47,825 euros on which you would pay tax at 0.2% which would be just 95 euros. If the property is in joint names you would have 2 Allowances, so you may find you will not need to pay any Wealth Tax.
A property owners Income Tax is payable for Non-Residents based on the rateable value of the property. This is not paid by Residents.
Although this tax is called an Income Tax it actually has nothing to do with personal income. The tax is calculated at 2% of the value of the property in the Title Deeds, and the current rate payable is 25%. This would mean that on a property valued at 145,000 euros (£100,000) you would pay 750 euros (£500).
INCOME TAX
Income Tax is only payable by Residents, and as in the UK this tax is based on your income.
This tax is always declared during the months of May and June and corresponds to the previous tax year.
Much like the UK, you receive a Personal Allowance from the tax authorities (for 2005 this is 8,413 euros and this increases by 300 euros each year). This amount is non-taxable and income over this amount is paid from 17%-48% depending on your level of income.
CAPITAL GAINS TAX
When you come to sell your property, Capital Gains Tax will be charged on any profit you have made.
- Non-Residents are liable to pay 35% tax on the profit.
- Residents who have owned the property for more than one year have to pay 15%.
- Residents aged over 65 years and who have lived in the property for at least three years are totally exempt from Capital Gains Tax
WILLS
When you buy a property in Spain you must make a Spanish Will - your Spanish solicitor will be able to arrange this for you. Spanish property comes under the jurisdiction of Spanish Inheritance law and is not covered by your UK Will.
INSURANCES
Property insurance is compulsory by law when taking out a mortgage. Comprehensive household insurance is available to protect your home and contents, and additional insurance is advisable if you are planning to rent out your property.
Intasure, with offices in the UK and Spain will be able to provide quotations for buildings and contents cover, underwritten by Norwich Union, for your Spanish permanent or holiday home. Whether you intend to be a resident or non-resident contact Intasure .
MORTGAGES
Making a decision to buy a property in Spain is a very important one and if you require finance to fund your purchase we and our highly qualified Mortgage team in Spain will be able to advise you on Spanish Mortgages.
Spanish Mortgages are offered by the major Spanish banks and are very easy to set up.
Interest rates are lower than in the UK and are currently 3.5%-4% and mortgages are, of course, euro mortgages. Spanish banks will lend a maximum of 50%-80% dependant upon which part of Spain the property is located, whether the property is a resale, brand new or off plan.
Repayment periods can be arranged for 5, 10, 15 or 25 years but this will also depend on the age of the applicant.
Applying for a Mortgage
If you are buying a resale property or a property that is immediately available, the Bank will agree the mortgage in Principle within 6 weeks provided that confirmation of income has been received. The Mortgage will take effect on completion when the client will take over the property and move in, the repayments will commence the month following, and will be set up as a Direct Debit from your Spanish bank account.
Spanish Banks will only lend on completed properties, so if you are buying a property that is either off-plan or in the early stages of construction, there is no need to apply for the mortgage until approx 3 months prior to completion.
To determine the amount that the Spanish Bank will lend you they will need to carry out a valuation of the property and they will also need confirmation of your income. Normally it is recommended that the monthly repayment of your mortgage should not exceed 35% of your income.
Documentation required
Employed Applicants
- Copy of your Passport
- 6 months Pay Slips
- Last P60 received
Self-Employed Applicants
- Copy of your Passport
- Last Tax Statement
- Accounts for the previous 1 or 2 years
The Bank will also need to see the annual income on a Tax Statement or equivalent from the Inland Revenue and monthly proof of income. A spouse's income details are always required even if they will not be principle name on the mortgage.
Mortgage Set-Up Costs
- Notary Fee
- Mortgage Set-Up Fee
- House Survey Fee
- Mortgage Deed Fee
Once you have arranged your Mortgage you will need to transfer funds from the UK to purchase euros, as well as transferring the balance over to Spain. We would recommend you use a reputable Currency Exchange company such as Currencies Direct who can over you an excellent trouble free service. (Link)