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| Buying properties in Spain |
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Buying Costs Taxes and fees normally amount to 10% of the total purchase price of the property. Purchase Taxes For re-sales the taxes payable are 7% (including stamp duty) For new-build properties VAT (IVA) of 7% is payable in addition to 1% stamp duty For commercial property or land VAT is 16% and stamp duty 1% Plusvalia (Capital tax) is set by the local authorities and is usually paid by the seller - but this must be negotiated Notary fees are usually about 0.5% (the fees are governed by law) Ongoing CostsCost of living in Spain is generally less than in the UK. Water, gas and electric rates are similar to that of the UK.
Taxation of Spanish property There are two local property taxes which are both based on the property's theoretical rental value according to the local land registry, and is adjusted in line with inflation. The rates of tax will vary from region to region due to the varying rates of tax imposed by the regional and local governments.Local property tax (Impuesto Sobre Bienes Inmuebles (IBI) This is the main local property tax affecting owners of Properties in Spain payable yearly to the Town Hall. The amount of the tax is calculated by reference to the valor catastral (official value of the property) registered in respect of all properties in Spain. The percentage charged varies from area to area, and is roughly 0.5% to 1%.Local mains drainage and refuse collection tax (basura y alcantarillado) This local tax payable by property owner and a related to rubbish collection and drainage. The amount to pay varies from area to area, and should be paid to the local Town Hall Every 3 or 6 months. This tax should be between €200 and €250 per year. Also, if your Spanish property has a garage entry you are obliged to pay €18 per year. Personal Taxes. As a non-resident property owner in Spain, you may be liable for income tax, value added tax wealth tax, capital gains tax and inheritance tax. Individual situations vary considerably and it is best to seek advice from a tax consultant who has knowledge of the Spanish tax system.Income Tax (Impuesto sobre la Renta de las Personas Fisicas (IRPF)The income derived on property in Spain should be declared in Spain. If you sell your Spanish property within one year of purchasing it, then the profit you make is considered an income and not a capital gain, and you would have to pay Spanish income tax on anyprofit made. If you rent out your Spanish property, then you have a "rental income" from the Spanish property and will have to pay Spanish income tax. The rates of income tax payable by a resident and non-resident is different. An individual is considered a Spanish resident if they spend more than 183 days within a year in Spain. A non-resident is taxed at the standard rate of corporate tax at 35%. Note: The personal income tax law is undergoing significant amendments, which are still in the process of being passed by the Spanish Parliament. These amendments could slightly affect some of the contents of this article, and will also modify some aspects of the corporate tax law and the non-residents' income tax law. However, the definite text of the amendment is not available yet. If you are non-resident a "deemed rental income" is levied by the Spanish tax authorities for urban real estate not rented out or used as a second residence. Therefore, if your Spanish property is not rented out or not your primary residence (i.e. a holiday home), you will be liable for the "deemed rental income tax" even if you do not let out your Spanish property. The local town hall will charge you according to the valor catastral (rateable value) of the your Spanish property. They will assume you are making 2% of this value each year from letting your Spanish property and charge you 25% of that "income", which equates to a total of 0.5% of the valor catastral (rateable value) of the your Spanish property.
For example, if you own a Spanish property with a valor catastral (rateable value) of €100,000 and you are not renting it out, you will still be liable for 25% of €2000, which equates to €500. Until recently, if you sell a Spanish property more than one year after purchasing it, then you are liable to pay Spanish capital gains tax (GGT) on the difference between the amount that you sell the property for and the amount that you declared having purchased it for previously, minus any inflationary gain. A non-resident will pay Spanish CGT tax at 35% and residents will pay at a rate of 15%. A resident may have the option to ''roll'' the tax into another property provided that it is a single main residence.NOTE: The EU has declared that non-residents should not have to pay this higher rate in future and will be entitled to pay a lower rate of 18% CGT Although the figure of 35% for non-residents sounds high, CGT is subject to an annual"indexing" ("inflationary") tax relief. This means that the which means that an inflationary"index" allowance is subtracted from the profit before the CGT rate is applied. A Non-resident who purchased their property before 1986 actually has no CGT tax to payon sale. Whereas non-residents who purchased their properties between 1986 and 1998 have a complicated tax position as both the old formula (an indexing allowance of about 11 % per annum) and the new formula (an indexing similar to the rate of inflation, recentlyabout 1 %) need to be considered. Non-residents are liable for a "cautionary" retention tax of 5% when they come to sell their Spanish property. For example, when a non-resident sells their Spanish property their buyers pay 5% of the sales price (retention tax) directly to the Spanish tax authorities and will only receive 95% of the sales price. This retention tax is kept "on account" by the Spanish tax authorities until the non-residents capital gains tax is calculated. Once the capital gain is determined (i.e. the profit minus any inflationary considerations for the period that the property was owned) and the appropriate CGT is calculated, the Spanish tax authorities will deduct the retention tax from the CGT that is liable. If the CGT liable onthe sale of the Spanish property is more than the 5% retention tax that is held "on account" then the non-resident has to pay the difference. If, however the CGT liable on the sale of the Spanish property is less than the 5% retention tax that is held "on account" then thenon-resident is reimbursed the difference by the Spanish tax authorities. A Spanish property bought and sold in a quick timescale will gain virtually no capital gainstax relief. Plusvalia Plusvalia is a tax levied by the local Town Hall based on the particular area where the property is located, on the surface area of the land, on the Catastral value and on the date of the previous title deed. This tax is essentially a tax on the increase in value of the land may range from a few approximately £12 to as much as £12000 on larger properties with a lot of land. By law the vendor (seller) is obliged to pay this tax but it is common practicefor the parties to negotiate on who is to assume this liability. Inheritance Taxation Your beneficiaries will become liable to pay the somewhat horrendous death duties that are applicable in Spain (usually amounting to a figure between 15 % and 50 % of the value of the gift to each beneficiary) except in the case of the gift house (or half of a house) by a deceased spouse to his/her survivor (in the case only of the single main residence) where a tax discount of 95% is available. The duty is based upon the value of the property at the date of death. Economic Summary – Spain Spain Overview Spain has been transformed in the last three decades from a rural, backward, agricultural country into a nation with a diversified economy with strong manufacturing and service sectors. However Spain's bureaucracy remains firmly rooted in the 1950's. Between 1961 and 1973, the so called years of development the Spanish economy grew at 7% a year and in 1963 the per capita income of the Spanish economy reached $500 a year. This elevated Spain from the ranks of the developing nations (as defined by the UN). After joining the EU in 1986, Spain once again had one of the world's fastest growing economies with its annual growth averaging 4.1% in the period between 1986 and 1991, compared with the EU average of 3%. Likewise, foreign trade grew from $23.8 in 1975 to $52.5 billionin 1980 and to $143 billion in 1990. Today the economy of Spain is the fifth largest in Europe, accounting for around 9% of EU output. Per capita income, at 78% of the EU average is among the lowest in the EU, although it is well ahead of Ireland, Portugal and Greece. Spain's main trading partners are France, Germany and Italy for exports and Germany, France and Italy for imports. The Basque country and Catalonia are the Spanish economy's main industrial regions andjust five of Spain's provinces (Barcelona, Biscay, Madrid, Navarre and Oviedo, all situatedin the north and east) produce over half the country's industrial output. Catalonia, where some 85% of companies are located in Barcelona, is Spain's economic powerhouse and one of Europe's most important industrial regions. In the early nineties, Spain experienced one of the worst recessions in the EU, resulting in falling output, reduced investment, an increasing public deficit, numerous bankruptcies (including the spectacular failures of Torras and Banesto), and rising inflation. In 1993 itwas also the end of the seven year EU 'honeymoon' transition period, during which the country's tariffs and quotas on EU imports were phased out, thus exposing the economyto the full force of EU competition. Huge investment was needed for Spain's infrastructure,including roads, railways, airports, water supply and communications and the country received $22.8 billion between 1995 to 1999 from the EU specifically for this purpose. Financing Your Spanish Property Non-Spanish residents
Depending on your age (most loans have to be repaid before reaching 75), you can expect a mortgage term of up to 30 years. Mortgages granted are normally up to a maximum of 70% of the valuation price, however, 80% is possible with guarantees. And if you are buying off plan, this is based on the property value on completion, not while it's still beingbuilt. On rustic properties, mortgages of up to 60% are available. Mortgages are based on being able to spend a percentage of your net income between 35% and 40% on your mortgage payments. (This means you hold a Residencia card and are paying both national insurance [Seguridad Social] and tax in Spain.) Loans of up to 85% of property value (and with guarantees 100%). Mortgages are based on a net income multiple of up to 50%. On rustic properties, mortgages of up to 60% are available. Equity release of up to 50% in the event of outright ownership of a Spanish property. Case study: Income/Mortgage/Monthly repayments A mortgage of 200,000€ euros can cost as little as 608€ (approx. £420) a month interest only (interest rate quoted: 3.65%). The equivalent mortgage in capital and interest over 30 years would cost 914€ (approx. £630). To qualify for this, you would be required to show net earnings in the region of £1,500 per month.
Additional information Euro, Sterling and US Dollar mortgages are all available on a repayment, interest-only, basis. Spanish lenders assess loan eligibility on the applicant's ability to service the loan, and not on any potential future rental income. Subject to status, mortgages are available for the following types of purchase: off-plan, existing freehold, rustic, new build, or property in need of renovation.
Documentation you will need to apply for your Spanish mortgage |
