Investing in Spain
The big question is why Spain?
The country is vast, with 17 regions made up of beautiful cities which are not only reflective of Spanish heritage and culture, but also showcase a range of captivating landscapes and sunnier climates.
Low property prices
Although Spain’s real estate sector saw property prices across the country plummet a staggering 40% since the 2007 recession, this downward trend has started to slow and the sector is now on the rise. Big cities such as Barcelona and Madrid are increasingly attractive as more investors are benefiting from the low prices, accessibility and good rental income prospects. Lenient Spanish property laws also make it easier to obtain a mortgage in Spain for up to 70% of the property value.
Since 2014 the country's economy has grown and is predicted to continue to grow at a steady rate. The residential investment market has expanded significantly and as a result of this it is becoming more attractive to overseas investors. With the British pound being a stronger currency than the Euro, Spain is even more of an attractive investment proposition for UK investors as any purchase is guaranteed to be value for money.
Also, unlike UK property law, Spanish property law gives full ownership of the property and land to the owner indefinitely.
Worldwide, Spain is one of the most well known tourist destinations being the third most visited country in the world.
In recent years, Spain has ranked first among 141 countries in the Travel and Tourism Competitiveness Index published by the World Economic Forum (2015)
There will always be demand for properties for both short- and long-term rentals.
As of the 27th September 2013, foreign property investors have been able to obtain a Spanish residence permit, known as “The Golden Visa” to live and travel around the country. The visa allows property owners to apply for Spanish residency so long as the purchase price is up to 500,000 and the owner travels to the country at least once every year.
At Metro Village, we can help you to obtain Spanish residency by answering all of your questions regarding this process, and by putting you in contact with a specialist who can help you to find the best solution to obtaining Spanish residency. In order to acquire the “Golden Visa you will be required to:
- Make an investment of value equal to or greater than 500,000 Euros
- The investment of 500,000 Euros must be unencumbered.
The visa is valid for two years, and can be renewed after the two years as long as you continue to meet the above criteria.
Our specialist team of lawyers situated in Spain and lead by Sabina Canals have sufficient expertise to assist you with legal procedure and documentation for buying property in Spain.
The legal process normally begins with the signature of a power of attorney in a Spanish Notary or at your Embassy/Consulate (depending on your country) in order to obtain an NIE number. For example, one way of doing this could be to open an account with a letter of intention, signed on your behalf or reservation contracts previously authorised. Obtaining all necessary information from you before the start of the legal process is vital and our lawyers will guide you through this process from start to finish. At Metro Village we understand that client needs can differ and that's why our team provide a tailored service to meet varying client needs.
When you work with us you will be appointed a specific lawyer from the start of the buying process who will draft and review all legal contracts and ensure you have full understanding of all legal and administrative issues throughout.
Your appointed lawyer will also carry out any necessary due diligence, such as checking the ownership claim of the seller, any charges on the property and if any permits are required before arranging the legal documents required for completion of the sale e.g. NIE, GOLDEN VISA, property registration, tax payments, etc
Legal fees payable will total one per cent of the purchase price including all the purchase and registration activity (not including taxes)
The payment will be done 50% with the power of attorney and the rest at the end of the operation in the Notary - tax liquidation and registration is included.
Overseas real estate investors can now take advantage of the Spanish 'Golden Visa' law which enables residence permits to non-EU citizens who invest at least 500,000 Euros when purchasing real estate in Spain.
The law, passed by the Spanish Parliament and signed by the King Don Juan Carlos I became operational on September 27, 2013. Under this law, Spanish residency can also be granted to direct family and dependents of the buyer.
Our partner, Barcelona Sotheby's International Realty, offer specialised legal service in the purchase of real estate by foreigners in Spain at the disposal of our customers.
It is the responsibility of the buyer of real estate in Spain to meet all costs associated with each purchase of property and our legal team are aware that the intricacy of these costs can sometimes be complicated particularly as overall fees may differ based on the circumstances of each sale. At Metro Village we ensure our clients are fully aware of associated buying costs from the outset and take the time to explain the detail behind all fees applicable.
Associated Costs when Buying in Spain
There may be a number of costs and taxes over and above the property price the buyer could incur for a single purchase of property in Spain. Depending on whether you are buying a new property from a developer or a resale property from a private individual, you may have to pay VAT & Stamp Duty or a transfer tax.
The different cases are explained below, along with the other costs and taxes that are common practice.
New Build from a Developer (Or Bank)
VAT & Stamp Duty (IVA & Actos Jurídicos Documentados – AJD)
These taxes apply for residential properties being sold for the first time, commercial properties and plots of land. As a national tax, VAT, known as IVA in Spain, is set at the same rate wherever the property is located (with the exception of the Canaries, which has its own VAT rate).
The current Spanish VAT on all property is 10% of the purchase price of residential properties (villa, apartment etc.), and 21% for commercial properties and plots of land.
VAT on new homes in the Canaries is known as IGIC (General Indirecto Canario), and currently stands at 4.5%.
The Stamp Duty, or AJD in Spain, is normally 1% of the purchase price, but can be slightly higher in different regions. 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 payment of this deposit. In such cases there is no transfer tax to pay.
Release from a Private Individual
Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP)
This tax applies to property deemed to be a second or posterior transfer (i.e. not the first time a newly built home is bought) and is paid by the buyer. If any deposit is paid before completion of the sale it is not subject top row rate ITP. However, the full amount of ITP must be met upon completion. In this scenario there is no VAT to pay and Stamp Duty is already included in this tax.
The Transfer Tax rate is ceded to the autonomous regions, they can choose to apply the general rate or their own rate.
The national average rate of ITP is 7%, but many of the autonomous regions have applied higher local rates. Therefore the rate you pay depends upon the autonomous region where you buy (for more information see Transfer tax on resale homes – Impuesto de Transmisiones Patrimoniales or ITP)
Income Tax Provision When Buying From Non-residents
If the seller is a non Spanish resident, the buyer has to withhold 3% of the purchase price and pay it to the tax authorities (via 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. However, this condition is unlikely to apply when purchasing from a developer. This cost can affect both new build and resale property purchases
Estate agency fees or commissions are paid by the seller, unless otherwise agreed. If the buyer uses a search agency then search fees are paid by the buyer.
Agents charge between 2% and 15% of the sale price, depending upon the region and type of property. Unless the buyer has specifically agreed to pay the agent’s fee this cost will be built into the sale price.
If you choose to buy with a mortgage then this will incur several additional costs, including the property valuation that the mortgage provider will require before granting the mortgage. This is paid for by the buyer and is normally about 500 Euros. Mortgage rates vary between providers, and even between particular branches. In addition there is usually an opening fee of around 1% of the value of the mortgage. Lastly, the set mortgage rate will increase 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. Usually, Notary fees are calculated as being 1% of the purchase price declared in the deeds of sale, although this fee can be less, around 0.5%.
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. As a rule, this is usually 1% of the purchase price declared in the deeds, although, depending on the property and the area, the fee could be considerably lower.
It is prudent to carry out a survey of the property before completion of the sale and this will incur an additional fee.
In summary, allow for up to 15% 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, a Spanish bank is required and transfer the funds to this account. The cost of transferring the money can go up to 0.4% of the amount transferred. The banker’s cheque will most likely cost 0.5% of its amount.
Plusvalía Municipal Tax
This is normally paid by the vendor but buyers should be particularly careful with this tax if the vendor does not live in Spain, as it can go unpaid. See the section below on costs to bear in mind when selling property in Spain for more information.
Costs of owning property in Spain
Standard maintenance costs such as cleaning, repairing, reforming, utility bills, rubbish collection, are determined by the size and type of the property.
Property Ownership Tax (Impuesto Sobre Bienes Inmuebles – IBI)
IBI is local tax on the ownership of property in Spain, irrespective of whether the owner is a resident or not. It is calculated on the basis of the valor catastral (an administrative value that is often lower than the market value). IBI is set by the town hall and rates usually differ from between 0.4% – 1.1% of the valor catastral depending on the Spanish region.
Annual Wealth Tax (Impuesto Sobre Patrimonio)
This tax has been changed several times in recent years. For the latest situation see Spanish Wealth Tax (Patrimonio).
Personal Income Tax (Impuesto sobre la Renta de No Residentes – IRNR)
Non-residents who own property in Spain have to pay an annual income tax that varies according to whether the property is rented out or not.
Not rented out
Non-resident property owners who do not rent out their property and who do not have any other source of income in Spain pay income tax based on the value of their property. The tax rate is fixed as 25% of 2% of the valor catastral of the property.
For example, the tax on a property with a valor catastral of 700,000 euros would be as follows:
Property value for tax purposes = 700,000 Euros
Taxable base (2%) = 14,000 Euros
Tax (25%) = 3,500 Euros
If a non-resident rents out their property and receives an income in exchange, they are obliged by law to declare this income and pay taxes on it. The taxable base and the tax rate will be determined by the laws as they apply to each person’s particular circumstances (taking into account the double taxation treaty – if any – between Spain and the country of origin of the non-resident).
In many cases non-residents simply pay a flat rate of 25% of the gross income they earn from their property in Spain.
Residents in Spain will have to pay the income tax based on their income earned during the year. The tax rate depends on the level of income.
Owners of property that is part of any development, building or complex in which common zones are shared, are by law obliged to be members of the community of owners, commonly known as the Comunidad de Propietarios.