August 12th, 2014
In budgeting for the purchase of a Spanish property, buyers should be prepared for all the associated costs and taxes, to ensure that the total cost of purchase can be properly assessed.
The associated costs and taxes can easily add up to an additional 12-15% on top of the purchase price; and the following is a reminder of the principal areas to consider.
1. Survey/ independent valuation. The buyer must be satisfied as to the property’s true open market value and its physical condition, before entering into a contractual obligation to purchase. Independent professional advice is recommended; and the cost will depend on the nature and complexity of the property and advice needed. But typically (if not included in a mortgage budget), 0.5-1% plus IVA should be budgeted for as a minimum, for obtaining reliable independent professional advice of this nature.
2. Purchase taxes. The rate of purchase tax the buyer faces depends on where the property is situated. Also, whether the seller is a developer selling a newly built property; or it is a private/ resale of a property. But this tax alone can be as high as 10% of the purchase price, so it is essential for buyers to be clear at the outset as to the applicable tax rate for an intended purchase.
3. Tax retention on a Spanish property transfer. When a buyer purchases from a non-Spanish resident seller, the buyer has to retain 3% of the declared purchase price and pay this to the Spanish Tax Authority. But although the buyer takes responsibility for this retention and accounting to the Spanish Tax Authority, it is actually an amount paid by a non-resident seller on account of the seller’s own tax liability. So, although confusion over this issue does arise, this ‘cost’ is actually a deduction from the amount the seller receives; and it is therefore a seller’s cost, not a buyer’s cost.
4. Estate Agency Fees. The buyer should only be responsible for agency costs if a property finding service has been contracted. Otherwise, the estate agency fee should ordinarily be a cost covered by the seller.
5. Mortgage costs. A buyer who is taking out a mortgage to fund a Spanish property purchase typically needs to budget on an additional cost exposure of 2% plus IVA, taking into account: survey/ independent valuation (to be recommended even if there is no mortgage- see above); additional Notary/ registration fees; and lender charges.
6. Legal Fees. Expert independent legal representation is essential when buying a Spanish property (please see our previous Blogs for details). The cost depends on the value of the transaction and the complexity. But typically, 1-1.25% plus IVA (usually subject to a minimum fee level) should be budgeted for.
7. Bank Charges. If the purchase monies are coming from outside Spain and from non-Euro currency, then a specialist Foreign Exchange service should be used. Otherwise, up to 3- 5% can be ‘lost’ in a direct bank to bank FX/ transfer.
Additionally, some Spanish banks even charge to receive Euro transfers above a certain value. So, sometimes it can be cheaper to make multiple smaller transfers. This should be checked in advance.
Spanish banks will also charge for issuing the bankers’ draft on completion, and that alone can cost between 0.25-1% of the amount being paid. The type of cheque required and applicable charges should be specifically discussed with the bank in advance.
8. Notary Costs. Although technically this should be a shared cost, it has become normal practice in most Spanish property sales for the buyer to pay the Notary fee, but this is an area for possible negotiation. The amount of the Notary fee will depend on the value and complexity of the transaction, but we recommend that the budgeted figure is around 0.75-1% plus IVA.
9. Property Registry. The buyer almost always bears the Property Registration charges. Again, the amount will depend on the size/ complexity of the transaction and also the type of property and location. But we recommend that the budgeted figure is around 0.5-0.75%.
10. Sellers’ Costs. Thinking ahead to the future sale of a Spanish property should also be part of the buyer’s assessment at the time of purchase. In the following weeks, we will post a summary of sellers’ costs in a separate Blog. But, all matters considered, the total cost of selling a Spanish property is generally not dissimilar to the total cost of buying (so a typical guideline range being 12-15% of sale price). Additionally, a seller might also face a capital gains tax liability following the sale.
In conclusion therefore, most well advised Spanish property buyers will typically assume a range of 25-30% to cover the ‘in and out’ costs and taxes when assessing the total transactional cost of Spanish property ownership.
The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.