The Buying Process

The Buying Process

The buying process in Spain explained.

Everything you need to know when buying property on the Costa del Sol.

Knowing the correct procedure when it comes to buying property in Spain is key to ensuring all legal bases are covered and the purchaser is fully protected against any license requirements or legal matters that may occur throughout the process.

Therefore our property experts at MFS direct are well versed in real estate here on the Costa del Sol and not only will provide you will finding your ideal property but can advise you along the way regarding the buying process.

Step 1

Reservation contract

After locating your ideal property and you would like to proceed, the first step in this process is creating a reservation contract.

This is a standard legal document and this is normal proceedure when purchasing a property in Spain. Its purpose is to reserve the property whilst background checks are performed by the laywers. The main content of this legal document are the T´s & C´s of the purchase and the information contained includes the following:

  • – The buyer and vendors details including full name and identification
  • – The property address and property price
  • – The date when both parties will sign a Private Purchase Contract (Step 2)
  • – Any special conditions i.e. subject to finance
  • – The deposit paid for reservation of the property

Note: A mortgage may be required, so arranging this during the interim period would be a good idea.
Step 2

Private purchase contract

The second step once all the due diligence and background checks ahve been completed by your lawyers and you have received and reviewed their report, and if you are still interested, is the creation of a Private Purchase Contract. This legally binding contract is once again between the vendor and the purchaser and contains the T´s & C´s of the purchase.

Being a legal document, this will be prepared by the lawyers and will cover the following:

  • – A vendors legal declaration confirming that they are the legal owner of the property whose intention is to sell their property
  • – The exact property address
  • – The precise specifications and breakdown of property size as stated in the “referencia Catastral” Government registration of the property
  • – The date of completion and transfer date

Buying costs in Spain.

There are a few reasons why property prices in Spain can vary. This can depend on the type or age of property, how the seller would like payment or whether finance is required to buy your ideal home.

As a rule of thumb, allow for an additional 10-13.5% on top of the purchase price. See below:

  • 10% IVA (Impuesto Sobre El Valor Añadido or Spanish VAT) for new builds, 8-10% IVA on re-sale properties, however this depend on its specific price category
  • 1% Notary Fee (Notarisation of the property cost)
  • 1% Legal Fees (a due diligence fee charged by lawyers)
  • 1.5% Stamp Duty Tax (A charge for the creation of legal documents on the property)

Stamp Duty in Spain.

Depending on where you are located in Spain can determine the stamp duty rate so this is something worth looking into prior to making any decisions, as it will affect the overall cost.

Andalucia Stamp Duty Rates
  • New Property 1.5%1.2% (as from June 2021 until the end of the year)
  • Resale Property N/A however on resale properties there is a transfer tax known as Impuesto Sobre Transmisiones Patrimoniales which you will need to pay instead. 7% is the normal rate however some areas can go as high as 11%. The Andalusia government has announced in June 2021 that the rate for Transfer Tax will remain at a flat rate of 7% until the end of 2021.

Land Value Tax.

Spain is divided into many regions and these have their own laws and regulations. This means the tax you pay will depend on the area in which you reside. This is especially relevant to properties where additional taxes will be due to pay to the local town hall.

One such tax is 'Plusvalía Tax', which is charged as a tax due to the increased value of the land on which the property was built. There maybe a variety of reasons for this happening such as local government infrastructure improvements.

This charge is reviewed on an annual basis, from the date when the property was originally purchased. Notice the use of property, that is because it´s regardless of whether it is a house or aparment, the same tax applies.

Calculating the plusvalía tax

In order to calculate the plusvalía tax, it is best to seek legal assistance. They will require the following information:

  • Exact Property Location
  • Most recent IBI receipt showing the land value or valor suelo
  • Property sale date and sale price

Note: Once the property is sold, the plusvalía tax is due 30 days after you have signed the sale at the notary.

* Impuesto sobre Bienes Inmuebles, orIBI, is a tax that every property owner in Spain has to pay

Capital Gains Tax. (CGT)

Captial Gains Tax is a tax which applies to many countries including Spain. CGT in Spain is due on all sales of property regardless of whether you are a resident or non-resident.

Capital Gains Tax for Non-Residents (Normally simpler for non-residents)

Non-residents flat rate is 19% on profits made from a sale. Calculating this is slightly more complex.

  • a) True Purchase Price - Calculated from purchase price (in the deed) with additional charges from the purchase which include VAT, Notary Charges,Legal fees, Land registry fees & transmission tax.
  • b) Final Sale Amount - Calculated from the most recent selling price minus charges during the sale i.e. legal fees. There is also allowance for costs incurred from structural reformations which can be deducted. For such allowances, proof of work and materials in the form of receipts is required. If alterations or reforms have been made and not been included in the Title Deed, then this will need to be updated at the point of sale.
Final Calculation

Final Sale Amount - True Purchase Price = net profit

Capital Gains Tax for Residents

As a resident in Spain, capital gains tax is incremental. Note: you are considered a tax resident if you spend more than 183 days in the country per year.

As a result, for a resident, you will owe the following in Spanish Capital Gains Tax:

  • a) 19% for the first €6000 profit
  • b) Profit between €6000 and €50000 taxed at 21%
  • c) Profit from €50000 upwards is taxed at 23%
Profit Up to €6,000 From €6,000 to €50,000 More than €50,000
Tax 19% 21% 23%

These taxes are of course obligatory and to ensure the correct calculations are made it is always best to consult a gestoria or lawyer to ensure the proper payments are made.