Spain remains the number one choice in the UK for buying property abroad despite its much publicised problems with overbuilding and illegal land grabs. It’s accessible, has great weather, an impressive EU-funded infrastructure and combines long sun-soaked costas with historic vibrant cities.
Although prices have generally dropped by 40 per cent from a peak in 2007, prime holiday hotspots like southwest Mallorca have fared far better says Marcus von Busse, MD of Engel & Volkers Spain. “Buyers from across northern Europe are back buying property and the best areas of Ibiza are registering price increases. And while areas of mass development including parts of Murcia in the South East should still be avoided, there is still good value to be had in strong locations like Tenerife and the Costa Brava.”
Typical Property Prices.
Prices peak in the main cities - Barcelona and Madrid – and in the traditional second home markets of Mallorca and Ibiza. Allow €650,000 for a two-bedroom apartment in the centre of Barcelona, and €350,000 for a three-bedroom sea-view apartment in Tenerife say Engel & Volkers. Their average sale in South West Mallorca is €1 million with seafront villas costing upwards of €2 million.
New-build apartments have been subject to the biggest price falls across Spain. The Mallorcan government has attempted to stimulate this sector of the market by temporarily halving VAT.
The Purchasing Process.
Prospective buyers must obtain a NIE – a fiscal number for foreigners or an NIF for Spanish residents. These can be obtained from a police station by presenting your passport. Employ a bilingual lawyer experienced in Spanish property law. They should check there are no outstanding charges on your property and that it has full title – Escritura Publica – by checking the Registro de Propiedad.
Both buyer and seller sign the preliminary contract – Contrato Privado de Compravento. A deposit of 10% is normal.
The final contract - Escritura de Compravento – is signed in front of the notary when the buyer pays the full amount including all taxes and costs. The notary then deposits the deeds with the Land Registry.
In 2010 the Spanish government introduced new measures to further tighten the legal framework for property purchases.
Cost of Buying Property.
Buying costs are higher in Spain than in the UK, typically around 10 per cent of the total purchase price. The main charges are:
- Notary fees of 0.5% and lawyers fees of 1%.
- Property Transfer Tax of 7% on resale property and VAT (IVA) of 8% on new-build property which includes Stamp Duty of 1%. VAT on land or commercial property is 16%.
- Estate agents charge between 2% and 5% although this is often included in the property price.
Running Costs and Taxes.
A local property tax, the IBL is issued by the local municipality, generally between 0.5% and 1% of the rateable value.
Income tax rates range from 24% to 45%.
Capital Gains Tax is 19% to 21%. Main residences are exempt from CGT if the funds are reinvested in another property.
Spain has a double taxation treaty with the UK but Inheritance tax is not included. Specialist advice is vital.
If you earn rental income on a Spanish property you are liable to pay tax on this income regardless of where you are resident. This means you are also required to file a Spanish tax return. In the Balearic Islands it is illegal to rent your property for short holiday lets without an official licence.
It is common practise in Spain for vendors to make the declared purchase price lower than the actual price paid to avoid paying as much CGT. Buyers should not agree to this because when they come to sell they could bear the vendor’s CGT liability.