What costs are involved in purchasing an off plan investment property?

Buying Process
Once you have decided on the Investment Property that best suits your requirements, the buying process is very simple and straightforward:-

Initial reservation deposit secures the property.

Balance of deposit required within 30 days together with signing of private purchase contract.

The costs involved in a property purchase are described fully below, however in the majority of off plan purchases the only costs that will be added to the deposit is the IVA (VAT) with the remaining additional costs (including legal fees) only being payable upon completion.

Overall Purchase Costs
Buying a property in Spain involves a large amount of paperwork, with this comes a number of costs. As a guideline, it is normal practice to add 10% to the declared purchase price (or the deposit in an off plan scenario). A breakdown of this cost follows:-

Transfer Tax (ITP)
Before a title deed can be registered into a new owner’s name, or a deed issued for a newly constructed building, transfer tax has to be paid by the buyer, it can come in two forms and is calculated on the declared purchase price (relative to the deposit only) on the title deeds :
7% IVA (VAT) and 0.5-1% stamp duty (AJD) is payable on a new property purchased from a developer or promoter.

Land Registry Fees
In order to have the property deeds inscribed in to your name at the registrar you can expect to pay between 120 and 300 euros, the scale is fixed by law and is approximately 30% lower than the notary fees.

Notary Charges
These are also set on a fixed scale by law.

Legal Fees
Probably the best investment you will make, buying without a lawyer’s advice could cost you dearly. As you would expect in an extremely buoyant market there are numerous unqualified experts willing to offer broad sweeping statements as answers to sometimes complex questions. At Investment Property Spain we feel very strongly that our clients should have access to the correct legal advice and more importantly the advice should be from an independent, fully qualified source. We are in a position to recommend a firm of solicitors that are extremely well qualified, serious about maintaining their independence from us, operate on a fixed fee basis and IP Spain receive no financial incentive for recommending them. The Legal fees for purchasing an average property are fixed at €1200 plus IVA with increased fees being applicable only if the investment property is “non standard”. You are of course welcome to appoint any solicitor of your choosing.

The majority of companies operating within the investment property market charge between 1.25 and 1.5% of the purchase price for Legal Fees. What you will find however is that the “true legal fees” are on a fixed cost basis and the excess will be used to pay an extra commission to the agent for introducing the solicitor to the client. In our view this does not offer the client the level of service that they deserve.

Taxation on Profit

Capital Gains Tax
Legislation introduced in 1991 (effective 1st January 1992) reinforced the requirement for non-residents having an economic interest in Spain to appoint a Fiscal Representative, resident in Spain, to assist in the administration of the non-resident’s tax affairs in Spain The requirement that a Fiscal Representative be appointed was relaxed at the end of 1993 in cases where the only asset in Spain is a dwelling. Thousands of foreign investors or simply holiday home owners in Spain have sold their sunshine property for high profits in today’s real estate boom. These profits are subject to Spanish capital gains tax, a fact not often mentioned by estate agents. The taxes payable were not new but a considerable number of non-residents have in the past not paid them, largely due to ignorance of the taxes and the difficulty of obtaining information in Spain.

To make sure that the tax was paid, Spanish Tax law was amended to five per cent of the total purchase price being paid directly to the tax agency when the seller is a non-resident. This means that only 95 per cent of the price is paid to the seller’s account. The other five per cent goes directly to the tax man as payment of capital gains tax liability.

Rental Income Tax
As is the case with buy to let in the UK, those who rent out their property are required by law to pay tax on that income even if actually collected in the UK, although in practice this has proved hard to enforce.

The solution for the Spanish government was to assume that all non Spanish property owners rent their properties (whether they do or not is immaterial) and to tax this “rental income”. The government assign a taxable value to the property based upon the purchase price and then present an annual tax bill of 0.5% of this value.
e.g. If the property has a taxable value (purchase price) of €200,000 then the tax bill will be €1,000 per year.

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