What are the main expenses for purchasing real estate in Spain?

Introduction

In this article, we will analyze all the expenses that may arise when purchasing real estate in Spain. These costs include not only taxes but also various fees that need to be taken into account. Potential buyers should remember that, in addition to the main cost of the property, there are many additional financial obligations. Therefore, before making a purchase, it is crucial to carefully calculate and assess all possible expenses.

Main expenses when purchasing real estate

One of the most significant types of expenses when purchasing real estate isvalue-added tax (VAT)This tax applies to new housing provided by the developer, andstamp dutyknown as "documented legal acts" (AJD). Both of these taxes apply to newly constructed residential and commercial buildings, as well as to land plots.

Purchase of secondary real estate

If you are planning to buy a secondary property from a private owner, you will have to pay a different tax —tax on the transfer of ownership rights (ITP)As a rule, this tax is lower than VAT, and it is mandatory for transactions involving existing assets.

Additional fees

Furthermore, all buyers should understand that there are other mandatory fees that can significantly increase the total amount of investment in real estate. Among such expenses, the following can be highlighted:

• rewards for agents;
• legal services
• notary fee;
• payment for property rights registration;
• other associated costs;
• expenses for banking services.

Costs of property maintenance

An equally important aspect is the expenses related to maintaining the property after its purchase. In Spain, there are annual...property taxes (IBI)and alsowealth tax...that need to be considered when planning the budget. Also, don't forget about...income tax for non-residents (IRNR)which represents yet another important expense.

Documentation management

Keeping all documents that confirm the payment of taxes and fees can be useful in the future, especially when selling real estate. Having documents that prove expenses for improvements or modernization of the property will allow you to offset capital gains costs, which, in turn, will help you reduce tax liabilities when selling it later.

Reserve profit tax

Some buyers may encounterreserve profit taxIn the case where the purchase is made from a non-resident. Therefore, it is advisable to discuss this issue with professionals in advance to avoid surprises and unnecessary expenses.

Addressing professionals

To better understand this issue, it makes sense to consult with a reputable real estateagency. These experts can assist not only with calculating all obligations when purchasing but also with gathering all necessary documents. It is extremely important to keep copies of all receipts and payments, as well as to track all expenses - this will help ensure the transparency and legality of all your transactions.

Conclusion

When purchasing real estate in Spain, regardless of the type of transaction, it is important to be prepared for numerous obligations and requirements related to the purchase itself, as well as subsequent ownership. This will help avoid financial losses and unpleasant surprises, and will also assist in planning your budget more carefully and rationally.

Value Added Tax in Spain

Value Added Tax, as presented in Spain, is a national levy with a fixed rate that does not depend on the location of the property, except for the Canary Islands, where special rules apply. In the Spanish system, this tax, known as IVA, is set at 10% for residential properties such as apartments and houses, and 21% for commercial real estate and land plots.

However, in the Canary Islands, new buildings are subject to the IGIC tax, which currently stands at 4.5%. Previously, before the beginning of 2012, the rate for this tax on new residential properties was 4%, but then there was a significant increase to 10%. In Catalonia, the tax rate on new constructions was initially slightly higher at 6%, but then it increased to 7%, and subsequently was aligned with the general rate of 10%.

Stamp duty

In addition to the value-added tax, buyers should take into account the stamp duty, known as AJD (Actos Jurídicos Documentados). Typically, it amounts to approximately 1% of the property's value, but it can vary depending on the region. For example, in Catalonia, the stamp duty can reach 1.5%.

If the transaction is made between legal entities purchasing commercial real estate, VAT does not apply, and only a stamp duty is required, which in this case amounts to 1.8%. Both taxes—VAT and stamp duty—are to be paid by the buyer according to the law. If a deposit was made before the main signing of the documents, it is also subject to VAT from the moment it was paid.

Example of tax liabilities

For example, if you plan to purchase an apartment in a new building located outside the Canary Islands, with a cost of €120,000, the tax obligations in the form of VAT and stamp duty will be approximately:

• VAT: €12,000
• Stamp duty: €1,200

Thus, the total tax amount in this situation will be €13,200. However, if we are talking about a new house worth €700,000, the tax amounts will be approximately €77,000.

Taxes on secondary real estate

As for secondary real estate and transactions between private individuals, a property transfer tax, also known as ITT (Impuesto sobre Transmisiones Patrimoniales), applies here. This tax is also to be paid by the buyer and is applicable in cases where ownership of the property is transferred again.

In situations where the deal was initially arranged with a deposit payment, this deposit is not subject to recalculation when paying the ITT tax. The total tax amount must be paid upon completion of the deal. In such cases, VAT is not charged, and the stamp duty has already been included in the ITT.

Regional features of the property transfer tax

The property transfer tax rate varies depending on the region, and local authorities can either set fixed rates or allow municipalities to make individual decisions about the tax amount. Each area can regulate its tax conditions, which can significantly affect the cost of real estate and the overall taxes that will need to be paid upon purchase.

Taxes on property transfer in Spain

In Spain, the general property transfer tax rate, known as ITP, is 7%. However, many autonomous communities set different, sometimes higher rates. For example, in the Valencia region, this tax can reach up to 10% of the value of secondary real estate.

Reserve profit tax

When purchasing property from a non-resident, the buyer is required to pay a reserve capital gains tax, which is 3% of the transaction value. This process is regulated through a special form designated as 211. Otherwise, the tax authorities may consider the acquired property as a non-resident asset and include it in the capital gains tax calculations.

Example of tax calculation

To better understand what is being discussed, an example can be provided: if a citizen purchases an apartment in Barcelona for €120,000, the ITP tax will amount to €9,600, as the tax rate in Catalonia is set at 8%. In contrast, in the Canary Islands, the tax rate is significantly lower at 6.5%. As a result, an owner who decides to buy a similar apartment in the Canaries will save money, paying only €7,800.

Agency commissions

As for agent commissions, they are considered expenses that can arise in both the primary and secondary real estate markets. Typically, this commission is covered by the seller unless other terms have been discussed in advance. However, if the buyer chooses to work with an agent, they will be financially responsible for the realtor's fee.

Despite the fact that the internet offers a wealth of opportunities for independently finding buyers and sellers, most people prefer to work with professional agents. This choice is quite justified, especially in processes that require serious responsibility, such as purchasing real estate abroad.

• The commission rate charged by agents ranges from 2% to 15% depending on the region and type of property.
• The average commission rate is between 3% and 7%.
• If the buyer did not separately discuss the size of the agency fee, the realtor's commission will be included in the total amount of the transaction.

Legal services

When it comes to legal services, no matter how well a potential buyer understands the process, the assistance of qualified professionals is extremely important and can significantly ease and speed up the transaction. This is especially relevant for foreign buyers who do not speak Spanish or are unfamiliar with the local real estate market and current legislation.

In such situations, a professional like a lawyerlawyer), becomes an indispensable assistant that can not only provide explanations regarding the terms of the contract but also, if necessary, represent the client's interests and provide important information on legal and administrative issues arising during the transaction.

To successfully complete the real estate acquisition process, it is essential to thoroughly verify the legal security of the transaction. This involves researching the seller's ownership rights, checking for any possible encumbrances, and confirming all necessary permits and documents. Additionally, it is required to prepare all the necessary paperwork related to the completion of the deal, including the registration of the property, payment of various taxes, and carrying out other important steps in the process.

The cost of legal services

The cost of a lawyer's assistance, capable of providing services at this stage, is determined by the complexity of the tasks and the volume of work performed. It is generally recommended to start from an amount that is approximately1%from the total cost of the real estate property. If the cost of the lawyer's services exceeds1.5%From the price of the object, this may indicate possible inflated rates.

Payment for real estate in Spain

The process of purchasing real estate in Spain often involves the use of cashless payments or bank checks. Before entering into such a transaction, it is important to open an account with one of the Spanish banks and promptly transfer the necessary funds from your account in your country of residence. A fee may be charged for this transaction, reaching0.4%from the total amount of the transfer. As for bank checks, their cost usually ranges from0.05%to0.3%from the deal price.

Furnishing a new home

When the purchasing process is complete, the new owner often thinks about decorating and furnishing their home. Naturally, the expenses for this depend on personal preferences and financial capabilities.

• For example, the setup of a two-room apartment may require investments in the range of10,000to15,000 eurosif you are planning to purchase new furniture items.
• Nevertheless, these costs can be reduced by choosing more affordable solutions in large stores like IKEA, which offer a variety of inexpensive options.

Municipal tax on the increase in the value of real estate

It is also important to remember the municipal tax on property value increase, known ascapital gains taxThis tax is usually paid by the seller, but in some cases, it can also be taken on by the buyer. The tax rate depends on the cadastral value of the real estate and the period during which the owner has held the property.

• The longer the object has been owned, the higher the tax will be.
• For example, inin 2014In Spain, it amounted to21%, and inin 2015non-residents receiving income from investments paid a tax of20%.
• C2016 yearthe rate for non-residents has been reduced to19%However, this only concerned the first ones.6,000 eurosincome, and the amount above this threshold is taxed21%percentage tax.

Additional expenses for property maintenance

However, the costs of maintaining real estate are not limited to this. Owning a property in Spain entails additional financial obligations, including the cost of maintenance carried out by the management company. This concept includes:

• Repair services
• Cleaning
• Garbage disposal
• Payment for utilities that directly depend on resource consumption

It is obvious that maintaining a large villa with a garden and pool will require significantly more resources and effort than taking care of a small apartment.

Taxes and fees for property owners

In addition, property owners in Spain must consider the variety of tax obligations and fees. For example,local property tax (property tax - IBIIt needs to be paid regardless of whether the owner is a resident or a non-resident. This obligation applies to all owners.

It is important to remember that the amount of this tax can vary depending on the location and type of property, which also plays a significant role in budgeting for the purchase and maintenance of housing in this country.

Moreover, purchasing real estate is a significant step, so it is essential to carefully analyze both the financial and legal aspects of all potential expenses to carry out this transaction correctly and avoid unforeseen issues in the future.

Taxation on real estate in Spain

In Spain, the taxation system in the real estate sector is based on the cadastral value set by local authorities. This assessment is usually significantly lower than the market price, and tax rates can vary from 0.4% to 1.1% depending on the specific region. It should be emphasized that the cadastral value often turns out to be lower than the actual price of the property. For example, for a two-bedroom apartment valued at €200,000, the annual tax may amount to approximately €400-600.

Wealth tax

In addition, there is an annual wealth tax that has changed significantly in recent years. This tax is levied on a progressive scale:

• Starting rateis 0.2% for properties valued at up to €167,129;
• Maximum betA 2.5% rate applies to property valued over €10.7 million.

Thus, the minimum tax amount is €334 per year; however, residents of Madrid can avoid paying the wealth tax.

Tax on personal income for non-residents

When it comes to personal income tax, non-residents who own property in Spain are required to pay it. It's important to note that their tax obligations depend on whether they rent out their property or not. If the property is not used for rental purposes and the owners do not have other sources of income in Spain, the tax is calculated based on the value of the property. The tax rate in this case is25%from2%cadastral assessment.

For example, if a property has a cadastral value of €700,000 (while its actual value may reach €5 million), the calculation will be as follows:

• Taxable base — €700,000;
• The tax base (2%) will amount to €14,000;
• The total tax amount will be €3500.

Rental and tax obligations

In the event that non-residents rent out their properties and receive income, they are required to comply with Spanish laws and declare it, paying taxes accordingly. In this case, the tax base and rate will depend on the current legislation, taking into account the individual circumstances of the taxpayer, including possible double taxation with their home country. In most situations, non-residents either pay a fixed tax rate of25%From gross income, or they come through other schemes. Residents, on the other hand, have the opportunity to pay income tax based on their total annual income, which can vary depending on the level of income earned throughout the year.

Responsibilities of property owners

Homeowners whose properties are located in condominiums or mixed-use complexes automatically become part of the homeowners' association, as stipulated by law. This means they are required to contribute to the maintenance of common areas, as well as pay for utilities and other services permitted by the association.

The amount of these contributions is determined based on the areas of common spaces and the actual costs of their maintenance. The annual budget of expenses is formed through voting, in which owners or their representatives participate in the meetings of the homeowners' association.

Financial accounts and payments

Invoices are usually issued once every three months; however, there is also the option for a one-time annual payment. In this case, the amount may be adjusted based on the actual expenses incurred over the year and approved by the management committee.

To get an idea of the future contribution amounts, potential owners can contact the previous owner to request payment receipts. It is advisable to make such requests for as long a period as possible to gain a complete understanding of expenses and potential savings options.

Examples of expenses

For example, the maintenance cost of a small studio in a large old complex can be less than 150 euros per year, while for the owner of a luxury penthouse in a new residential complex, the expenses can exceed 3000 euros per year.

When talking about a standard two-bedroom apartment, which costs around 120,000 euros, the maintenance expenses can range from 100 to 600 euros per year. In high-end residential complexes, these fees can reach up to 3,000 euros.

It is worth noting that high mandatory contributions can have a positive impact on management —provided that the owner is able to pay for themHowever, it is important to understand that most management companies in Spain do not always fulfill their responsibilities at the required level.

Signing contracts for utility services

When purchasing property in new developments, special attention should be paid to signing contracts for utility services. Attempting to arrange these services independently can lead to financial losses: for instance, the cost of gas can reach 70 euros, while bills for electricity and water supply are around 120 euros each.

The expenses for utilities depend on many factors, and on average, the costs for heating, water supply, electricity, and garbage collection can amount to about 120 euros per month for a standard apartment of around 85 square meters.

For residents who prefer not to clean on their own, the services of professional cleaners can cost around 10 euros per hour.

Thus, housing maintenance costs can vary significantly depending on the type of property and the obligations undertaken, which requires careful analysis and planning for owners.

Conclusion

In conclusion, considering all the costs associated with purchasing real estate in Spain not only emphasizes the importance of thorough preparation for such a transaction but also demonstrates the need for a comprehensive approach. I have come to the conclusion that buyers should exercise maximum vigilance and awareness of all taxes, fees, and additional expenses that may arise during the acquisition of both new and secondary properties.

Main expenses when purchasing real estate

For example, in addition to obvious taxes, such asVATandstamp dutyThe expenses related to the following are also important:

• object management
• utility services
• insurance
• annual property taxes

I strongly recommend all potential buyers to seek help from professional realtors, who can assist not only in purchasing property but also in avoiding possible financial losses due to miscalculated expenses. Additionally, keeping detailed records of all financial transactions can prove invaluable in future real estate deals.

The importance of a comprehensive approach

Ultimately, a successful real estate purchase in Spain is not just about fulfilling the dream of owning property in a sunny country, but also a serious financial investment that requires careful analysis and strategy. Understanding all aspects of this transaction will give you the confidence and peace of mind needed to enjoy your new apartment or home without excessive worries about unexpected expenses in the future.