Most fees are based on the ‘declared’ value of the property, which was traditionally much lower than the actual price paid. However, under the ‘law of public fees’ ( Ley de Tasas, 1989), it’s no longer possible to declare a very low figure and there are severe penalties for gross under-valuation. Local authorities maintain tables to calculate the current fiscal value ( valor catastral) of properties and it’s this price (or the actual price paid) which should be declared.
However, if you get an absolute bargain, it may be wise to declare the market value rather than the price paid! In any case, the tax authorities ( Agencia Tributaria) can still reassess a property’s value for tax purposes. It’s generally recognised that the figure in the sales deed should be around 1.6 times the fiscal value (which should still be well below the actual sales price) and in any case not less than 20 per cent below the sale price.
If the authorities discover that the declared value is lower than their valuation they can levy a surcharge of 6 per cent on the difference, plus administration charges. If the value declared in the deed ( escritura) is under-declared by over e12,000 or 20 per cent less than the actual market value, the buyer can be taxed on the difference between the declared value and the authority’s estimated value, as if it were a gift.
If you grossly under-value a property by 50 per cent less than the official valuation, the authorities also have the right to buy it within two years at the under-valued price. Reviews of declared values ( hoja de valoración) are common nowadays and it’s risky to make too low a declaration. A revaluation can be made up to four years and six months after the date of purchase. If a property is revalued, the revaluation must name the architect or surveyor who performed the valuation and the reason for the increase. If you disagree with the valuation you can lodge a protest, which must be done within a limited period (usually one month).
The fees payable when buying a property in Spain may include the following:
- Transfer tax (resale properties only).
- Value added tax (new properties only).
- Legal document tax (new properties only).
- Land tax.
- Notary’s fees.
- Legal fees.
- Deed registration fee.
- Surveyor’s fee (optional).
- Selling agent’s fees.
- Utility fees.
Most taxes are paid by the buyer, with the exception of land tax ( plus valía) and the selling agent’s fees. However, a contract may state that the buyer is liable for all expenses ( todos los gastos), including plus valía. This is legal, provided the buyer agrees, as the law stipulates simply that expenses will be divided when they aren’t set out in the contract and who pays what fees is often a matter of negotiation. Always ensure that you know exactly what the total fees will be before signing a contract.
Resale property buyers must pay transfer tax ( Impuesto de Transmisiones Patrimoniales/ITP) of a certain percentage. The percentage varies depending on the region where the property is situated, e.g. 6 per cent in the Basque Lands and Navarra, 6.5 per cent in the Canaries and 7 per cent in the remaining regions. Most regions provide a reduction in ITP for first-time resident buyers (e.g. in Andalusia, first-time buyers under 35 purchasing their permanent residence pay 3.5 per cent instead of 7 per cent, in Catalonia, buyers under 32 with an annual income under e130,000 pay 5 per cent and in Madrid, buyers of old buildings in the centre under 90m2 pay a reduced rate), families with three or more children or the disabled.
Value Added Tax in Spain
Value added tax ( Impuesto sobre el Valor Añadido/IVA) of 7 per cent (4.5 per cent in the Canaries) is levied on new properties purchased from a developer or builder and being sold for the first time (including a garage or swimming pool constructed at the same time). IVA is 16 per cent on building land ( terreno urbanizable) bought without any immediate plans to construct a dwelling and 7 per cent on agricultural land ( terreno rústico). IVA is also 16 per cent on the building of a swimming pool or other sports facilities (e.g. tennis court) that isn’t constructed at the same time as a dwelling.
Legal Document Tax
There’s a tax on ‘documented legal acts’ ( Impuesto sobre Actos Jurídicos Documentados/AJD) of 0.5 per cent in the Basque Lands and Navarra, 0.75 per cent in the Canaries and 1 per cent in the remaining regions, which is levied on new properties and is payable in addition to VAT (see above). Some regions (e.g. Galicia and Murcia) reduce AJD for first time resident buyers.
Land Tax in Spain
Land tax ( Impuesto Municipal sobre el Incremento del Valor de los Terrenos, usually called plus valía) is a municipal tax on the increase in the value of land (excluding any buildings), since the last change of ownership. Traditionally, it’s paid by the vendor, as he’s the one who has made the profit, although in some areas it’s common practice for the buyer to pay it. The amount of tax due depends on the population of the municipality in which the land is located and the number of years the vendor has owned the land, and bears no relation to the value of any buildings on the land. Plus valía is low on modern properties such as apartments and townhouses in urbanisations, where land values have increased little since the properties were built and little land is involved. It can, however, be high if you buy a large plot or a detached house with a few hectares of prime building land which hasn’t changed hands for decades. As taxes vary so widely, it’s impossible to give a simple guide to the amount you might have to pay. If you’re liable for plus valía, you can find out how much it will be before signing a contract by enquiring at the local municipal tax office ( recaudación municipal). Most developers of new properties insist that the buyer pays the plus valía tax and this will be stated in the contract, although a new law making this illegal is due to be passed in 2006.
Spanish notary’s Fees
The fees for the notary ( notario) who officiates at a sale are fixed by law and are based on a sliding scale depending on the sale price, except for when the deed doesn’t include one (i.e. when the property is a gift), when there are fixed fees for each document. The fees are usually from e320 to e700. If you’re buying a plot in order to build a house, you must pay fees for two deeds; one for the land and another for the building.
Legal fees for the conveyancing involved in a sale are usually around 1 to 1.5 per cent of the purchase price for an average property. The actual fee may depend on the work involved, although there’s usually a minimum charge, e.g. e1,000, and it may be negotiable on ‘expensive’ properties. Fees, which should be agreed in writing beforehand, are much lower if a lawyer is engaged to vet the sales contract only. Legal fees are payable only after you’ve received the final escritura pública after registration at the property registry office ( Registro de la Propiedad), although many lawyers demand a pre-payment ( provisión de fondos). Engaging a lawyer and paying legal fees is optional, but it’s highly recommended.
Deed Registration Fee
This is usually between e180 and e500, although the first amount paid is a deposit and is often over-estimated, so you may receive a small refund.
If you employ a surveyor to inspect a building or plot of land, the fee depends on the type of survey, any special requirements and the value of the property or land. A homebuyer’s survey and valuation costs from €500 to €2,000.
Selling Agent’s Fee
The selling agent’s fee is usually between 5 and 10 per cent (up to 35 per cent in rural areas) of the selling price, depending on the cost of the property and the type of contract, and is paid by the vendor. However, it’s usually allowed for in the asking price, so in effect is paid by the buyer. Agents often add their fee to the price required by the seller and therefore you may see the same property advertised by a number of agents at different selling prices.
If you buy a new property you must usually pay for electricity, gas and water connections, and the installation of meters. You should ask the builder or developer to provide the cost of connection to services in writing. In resale properties, you will probably have to pay for the cost of new contracts, particularly water.
In addition to the fees associated with buying a property, you should also take into account the running costs. These include local property taxes (rates); annual wealth tax, income tax on deemed letting income and a fiscal representative or tax consultant’s fees; rubbish tax; community fees for a community property; garden and pool maintenance (for a private villa); building and contents insurance; standing charges for utilities (electricity, gas, telephone, water); plus a caretaker’s or management fees if you leave a home empty or let it. Annual running costs usually average around 2 to 4 per cent of the cost of a property.
This article is an extract from Buying a home in Spain. Click here to get a copy now.