Lately, some of our overseas friends are asking if they can buy property in Spain and how. My first answer is always yes, but there are some aspects you need to know previously.
In this article I will try to explain in plain English ‘how to’ and all the implications of buying property in Spain, but before going further let’s clarify some basic concepts.
Table of Contents:
Basic Concepts
Urban vs Rural Property
You need to know if you are buying an urban property or a rural property. Generally, an urban property is a unit, flat, apartment or house in a city/town surrounded by other apartments/houses.
Rural property is a piece of land or any construction in a rural area, usually are pieces of land outside the city/town. If there is a house built in a piece of land, doesn’t mean this house is an urban property.
It is very important to know this distinction, because in rural properties (generally speaking) you CANNOT build the house of your dreams with swimming pool, there are strong limitations in what you can build in rural areas.
Title Search
Once you know the property you want to buy, it is more than recommended to ask for a Title Search (Nota Simple) in the Property Registry of the province. This title search will tell you who is the real owner, if there is any limitation, rights, outstanding taxes, debts etc.. It is a very important document. The Notary will ask for it, but better to know all the information in advance and not the day of the settlement.
With all the information available, visit the property and ask as many questions as possible. Do not trust in photos on the Internet.
Step by Step
Now that you know the information in the Title Search, then you can continue reading the next steps:
- NIE (Número de Identificación de Extranjeros) Foreigner Identification Number: The first step is to obtain the NIE. This number is unique for each person and it is needed to make any transaction in Spain.
You can obtain this NIE in the Consulate or Embassy of Spain in your country. Please check the documents needed with the Spanish Consulate in the country you are living in. - Deposit Agreement (Contrato de Arras): This is not a compulsory document but it is recommended. The Deposit Agreement is a document where the buyer agrees to buy and the seller agrees to sell the property for the amount agreed in a defined time frame. A deposit is made by the buyer in order to secure the property.
It is common a clause in the agreement saying that “if the buyer does not execute the deposit agreement the buyer will lose the deposit, if the seller does not execute the deposit agreement the seller will have to pay the double of the amount deposited by the buyer”. - Notary: The transaction is settled at the Notary. The notary will generate a notarial deed (Escritura Pública). The seller, the buyer, the notary, and sometimes the agent, will meet to finish/settle the transaction where the buyer should pay the outstanding amount to the seller.
At this moment the buyer receives the keys and all rights on the property. - Taxes: Depending on the property, if it is new or second hand, the buyer will have to pay the IVA (Goods & Services Tax) or ITP&AJD (Stamp Duty).
- Expenses: The buyer will also pay the Notary, the Property Registry (next) and some of the agent services. In some
cases Notaries acts as well as administrative agencies. - Property Registry: Once paid all the taxes and expenses, the deed has to be registered in the Property Registry of the province (up to 3 months).
Usually, the cost of the taxes and expenses are aroundthe 10 % – 15% of the value of the transaction.
Running Costs
Now you are the new owner of your property, but How much it will
| Urban | Rural | |
| Council Rates (IBI): for the local council services, cleaning, garbage collecting, etc. It will depend on the value of the property and each council has its own rates. | 500€ – 2,000€ /year | 100€ – 500€ /year |
|
Land Tax: There is no Land Tax in Spain. Rates and taxes are payable to the local council. |
– | – |
| Strata fees: If the property is in a block of apartments, there are strata fees, if it is an independent house, there are no strata fees. | 600€ – 1,200€ /year | – |
| Insurance: Depending on the size of the property, square meters and inclusions in the policy. |
average property 500€/year |
|
| Services: Electricity, water and natural gas. If services are contracted but there is no consumption, a minimum service fee is payable. Rural properties, usually, do not have these services contracted or available. |
Electricity: 250€/year |
|
| Irrigation rights: If your rural property has irrigation rights, its cost will be in proportion of the square meters. It will also be depending on the region. | – | average 0,05€ sqm/year |
Tax Implications
Tax residents will submit its Tax return every year including any income coming from its urban properties. As a non-resident in Spain, you will have to pay tax in Spain for the urban property located in Spain. Called IRNR (Tax Return for Non-Residents)
If you don’t rent the property, you will have to pay the 19%-24% of the income generated by the property, calculated as follows:
Cadastral value x 2% (1.1% if this value has been reviewed) x 24% (19% if you live in EU, Iceland or Norway).
Example: Let’s say the cadastral value is 15,000€, has not been reviewed and you live in Australia.
15,000€ x 2% x 24% = 72 € to pay to the Tax Office.
If you rent the property, you will have to pay the 19%-24% of the income generated by the property, calculated as follows:
Income = rent received (no deductions are allowed) x 24% (19% if you live in the EU, Iceland or Norway).
Example: Let’s say you receive an annual rent of 7,000€ and you live in Australia.
7,000€ x 24% = 1,680€ to pay to the Tax Office.
I forgot to tell you about the Weath Tax, (Impuesto sobre el Patrimonio), where it is compulsory to pay when the value of your assets in Spain are greater than a certain amount.
For non-residents, the minimum exempt is 700,000 euros. Once the net equity is calculated, you have to find out your tax rate. The general tax rate goes from the 0,2% to the 2,5% but the Autonomous Community, where the asset is invested, can modify the tax rates.
These are the general state rates (2018 fiscal year, ending 31/12)
Selling the property
When you decide to sell the property, you should follow the same steps that we saw before, but now you will be the seller! The important thing to know here is the tax implications.
Tax residents will submit its tax return every year including any Capital Gain from selling the property. As a non-resident in Spain, you will have to pay Capital Gains Tax for the profit obtained for the sale.
There are so many tax aspects/regulations to consider when selling but, generally speaking, you will have to pay 19% of the net profit obtained. If you want to know more, visit our calculator (in
I hope you will find this information useful and you could find a nice property in Spain that suits you. Please, feel free to post a comment!