New developments

When buying a new development in Spain or, in other words, in the case of an “off-plan” purchase where the seller is a company/developer, one of the most important taxes that the buyer will need to cover is the IVA (Spain’s Value Added Tax, equivalent of VAT) that currently amounts a percentage of 10% of the purchase price and applies for a dwelling, two parking spaces and storage rooms that are bought together. If the buyer wants to add a third parking space to the deal, the normal V.A.T. rate of 21% applies.

A very common clause related to this is the private purchase contract indicates that if the V.A.T. rate varies during the time that the contract is in force (due to a change in Spanish legislation), the new rate established shall be applied solely to the payments that have not been carried out at the exact moment that the change in the V.A.T. rate enters in force. Therefore, the amounts that have been paid will not be affected by the variation in the V.A.T. rate.

There are two exceptions regarding the applicable V.A.T. percentage to be taken into account: the first exception applies to the Canary Islands, where the Canary Islands General Indirect Tax ("Impuesto General Indirecto Canario") is 7%. Secondly, if social or public housing is purchased, the V.A.T. rate may be 4%.

On the other hand, buyers will also pay the so called “stamp duty tax” that in the case of the Region of “Andalucía” amounts 1.2% of the purchase price. This tax needs to be paid because of the formalisation in a public document of the title deed of purchase that is signed before a Spanish Notary.

Besides, a transaction related to a property that isn’t built yet means that when signing the private purchase contract, there might be some extra expenses that the selling party is not able to calculate in concrete terms, because it depends on some factors that will materialise once the work is completed. We are referring here on the one hand, to the utilities' connection fees that the supply companies will charge the owner of the new property for establishing the individual supply contracts e.g. water and electricity after the signature of the title deed at the Notary.

When buying an apartment that belongs to a building, usually there are expenses related to the Community of Owners that was constituted by the developer right after the construction works have been completed and that cover the payment of the services contracted by the developer that were necessary for the start-up of the development (i.e. supplies, home insurance that covers the common elements, etc.).

Resales

In the case of second or subsequent transfers of a real estate property, the buyer does not have to pay V.A.T., but the so called “transfer tax” and the amount to be paid in the Region of Andalucía, would be 7% of the purchase price.

There are a number of reduced rates of this tax, e.g. the 2% rate for the purchase of a property for resale by a natural or legal person carrying on a business activity. In any case, we advise you to seek legal advice if you are interested in further information.

If you are buying in another Spanish autonomous region, please check the rate that applies there. 

Plots of land

In the case of the purchase of an urban plot of land, it must be taken into account who is the selling party. If the plot is purchased from a legal entity (i.e. a company), the buyer must pay 21% V.A.T., together with the Stamp Duty (1.2% in Andalucía).

However, the purchase of rural land which is also not building land, shall be exempt from V.A.T., provided that the requirements imposed by the legislation in force are met. In that case, if the buyer is a private individual, he/she has to pay 7% transfer tax instead. Besides, if the buyer is a trader or professional with the right to deduct V.A.T., the seller can waive the V.A.T. exemption and the reverse charge would apply.

On the other hand, if the land is purchased from a private individual, a transfer tax of 7% is payable if the plot is located in Andalucía.

Other fixed costs

Notary and Land Registry fees

A fixed expense to include on our list when buying a property in Spain, whether new development or resale, are the notary's fees. The fees of Spanish public notaries, known as tariffs (in Spanish “aranceles”), are regulated by the State, which generates homogeneity in this field. In the case of the execution of the public deed of purchase, the fees depend on the price of the property whose ownership is transferred and are also in line with the length of the deed.

It is customary for the buyer to designate the notary of his choice, as it is usually expressly agreed in the private contract that the buyer will pay the notary's fees. Otherwise, the so-called "legal costs" regulated in article 1,455 of the Civil Code apply, according to which the costs of drawing up the deeds will be borne by the seller (who will pay for the "main" deed"), and the costs of the first copy and other costs after the sale will be borne by the buyer.

The other expense you have to pay are the Land Registry fees, as it also costs money to register the change of ownership of the property in the Land Registry. Again, it’s usually the buyer who is in charge of paying these fees that are fixed by law and depend directly on the price of the property.

Property tax (I.B.I.) and rubbish collection fee

The year the ownership of a real estate property is transferred, it will be also necessary to comply with the payments of the so called “municipal taxes”, that are paid to the town hall usually between May and August depending on the city where the property is located.

The taxes we are referring to are the “Property Tax” (in Spanish “Impuesto sobre Bienes Inmuebles”, known as “I.B.I.”) and rubbish collection fee, that are calculated according to the cadastral value of the property determined by the tax authorities.

In this regard, the parties usually agree on a pro-rata share of the aforementioned municipal taxes, so that the sellers pay the proportional part for the days of the year that they have been the owners, and the buyers are in charge of the corresponding part from the day, following the signing of the deed of purchase.

Legal fees

As you may already be aware, handling the purchase of a property in Spain is not exactly child's play and even less so if you are a foreigner and do not speak the language of the country. For this reason, it’s highly recommended to seek advice from a lawyer that can assist you during the whole process. Their fees are usually set at 1% of the purchase price plus 21% V.A.T. and there could also be administrative costs to be covered by the buyer.
 

Real estate agency

Although in Spain the tradition is the seller is responsible for paying the real estate agency’s fees, which can amount to 3-6% of the purchase price, there are already some regions where this is changing, so you may be able to share the cost, depending on where you’re buying. This would be the case for a buyer who hires the service of a real estate “personal shopper” or Buyer’s Agent, who searches for a certain type of property for their clients.

Also, it’s possible that the buying party may wish to hire additional services from the real estate agency like decoration and furnishings for the property. 

Not included: bank loan with mortgage

This list of expenses does not include the costs associated with the bank financing of the purchase, usually linked to a bank loan with mortgage. If you are thinking of taking out a mortgage in a Spanish bank, you will need to take into consideration an opening commission (can be up to 2% of the borrowed capital), property valuation costs (between 250 and 600 €) and taking out insurances such as life and home insurance, as well as opening a current bank account in order to access interest rate rebates. It’s worth noting that conditions may vary depending on the bank chosen, so it’s a good idea to shop around. 

Summary

The cost of buying a real estate property in Spain is made up of several items that vary depending on the chosen type of property. Therefore, it’s essential to prepare a breakdown of expenses after having agreed on the purchase price to ensure that all of them can be covered by the existing budget.