# Buying Property in Spain



## AuMargaret (Feb 3, 2015)

I post this thread to advise about the tax cost of buying and selling a house in Spain.
I bought a house in Chiclana in March 2017 costing 135,000 Eur. The tax charge on the purchase was more than 17,000 Eur. In fact the total cost of the house purchase was over 20,000 more than the purchase price of 135,000! 
Having lived in the house since I purchased it, I made a lot of changes including a new kitchen, solar hot water system, A/C, painting throughout and so on.
I have just sold the house for 150,000 Eur. 
During the sale process I learned that the agents must retain 3% of the sale price for tax. I have been advised that the agent cannot even begin the process of submitting a claim form to find out if I will get anything back from the retained money for 4 months. I was also advised that this process can take up to 12 months! The ONLY tax office dealing with this type of tax is in Malaga, hence why it takes so long.
The costs of doing the changes to the house cannot be taken into consideration when submitting the claim. The only things taken into account are the agent's fee, Notary fee, and the initial taxation.
The other thing I have learned is that the annual rates and taxes on the property (known as IBI) must be paid for by the person who owns the house as at January 1st. It is not divided up between the buyer and seller during the settlement/Deed.
Be warned. Taxes in Spain on house purchases are not real great.


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## Lynn R (Feb 21, 2014)

AuMargaret said:


> I post this thread to advise about the tax cost of buying and selling a house in Spain.
> I bought a house in Chiclana in March 2017 costing 135,000 Eur. The tax charge on the purchase was more than 17,000 Eur. In fact the total cost of the house purchase was over 20,000 more than the purchase price of 135,000!
> Having lived in the house since I purchased it, I made a lot of changes including a new kitchen, solar hot water system, A/C, painting throughout and so on.
> I have just sold the house for 150,000 Eur.
> ...


Margaret, whilst I agree that the costs associated with buying and selling property in Spain are very high (and having sold one and bought another just last year, believe me I sympathise) but there are just a couple of points in your post which do not have to apply in all cases.

Firstly, the 3% retention in respect of Capital Gains Tax. If a vendor is tax resident in Spain and has lived in the property for at least 3 years, they can obtain a certificate of fiscal residency from the Agencia Tributaria and submit this to the notary at the time of sale - which I did. This means that the 3% is not held back, and any gain made on the sale is simply reported on the vendor's next annual tax return. In my case there was a very small gain, but as I had purchased another property in Spain (and the same would have applied had I bought one in any other EU country), reinvesting all of the sale proceeds, then there was no CGT to pay.

Secondly, your point regarding the IBI bill for the year of sale. Yes, legally it is the position that the person who owns the property on 1st January is responsible for paying the IBI bill for the whole year, but it is not true to say that it cannot be split proportionately between the vendor and the buyer if they both agree, so I think you were badly advised by your lawyer there. I sold my old house in May and bought the new property in late June, and in both cases I agreed to split the cost of the IBI bill - the lawyer for the buyer of the house held back one third of the amount of the bill to cover my share, and the vendor of the new property paid the bill in full, presented it to my lawyer and I then paid my half of the bill to him.


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## Lynn R (Feb 21, 2014)

I am also puzzled as to why the initial taxes you paid when purchasing the property should have been so high - €17k on a property bought for €135k, you said? Property transfer tax is 8% in Andalucia in respect of resale properties valued below €400k, so you should not have paid more than €10,800 (unless the tax authorities considered that the official value of the property was higher than the amount you paid and imposed a complementary transfer tax charge).

Transfer tax explained in Andalusia | Velasco Lawyers


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## booksurfer (Apr 21, 2018)

AuMargaret said:


> I post this thread to advise about the tax cost of buying and selling a house in Spain.


I'm not quite sure why though?

The total property purchase transaction costs in Spain are on average between 12-15% of the purchase price. For you, that means a transaction cost of 16,200-20250. Which seems pretty much what you've paid. 

The 3% retention is for future capital gains tax liability. This stops you skipping the country with your money and not paying your tax liability. You will pay capital gains tax on the difference between your purchase price and your selling price ofset against the 3% you've paid, the balance if any is due will be returned to you.


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## booksurfer (Apr 21, 2018)

Lynn R said:


> I am also puzzled as to why the initial taxes you paid when purchasing the property should have been so high...


There are other costs on top of the transfer tax that need to be made, notary fees, registration fees, etc.


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## Lynn R (Feb 21, 2014)

The other thing which needs to be said, I think, is that none of this is a secret. Anyone contemplating buying a property in Spain who can read and use the internet can and should find out about all aspects of purchasing, including taxes, before they get anywhere near actually viewing properties, so that they know what they may be letting themselves in for. There is a ton of information out there, including plenty of explanations in English if that is the prospective purchaser's first language, so none of these things need come as an unwelcome surprise after the event.


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## Lynn R (Feb 21, 2014)

booksurfer said:


> There are other costs on top of the transfer tax that need to be made, notary fees, registration fees, etc.


I know that, but the OP said the tax charge on the property she bought was €17k, and the total additional charges were over €20k on top of the purchase price. I assumed, therefore, that the €3k plus difference accounted for the notary and legal fees, etc.

€17k in transfer tax on a €135k property in Andalucia, when the tax rate is 8% on properties valued at up to €400k, seems far too high.


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## booksurfer (Apr 21, 2018)

Lynn R said:


> I assumed, therefore...


There you go!

The OP hasn't made it at all clear exactly what is and what is not included in the amounts she's paid.

If she paid €20k total for purchasing a €135k property, that's within the 12-15% average for property purchase.

There's quite a lot of additional costs to go on top of that 8% transfer tax that easily push it up to 15%.

I don't think you can assume that when the OP says she paid €x amount in tax, that, that is correct.


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## Lynn R (Feb 21, 2014)

booksurfer said:


> There you go!
> 
> The OP hasn't made it at all clear exactly what is and what is not included in the amounts she's paid.
> 
> ...


The 12-15% average buying costs include those regions of Spain where the rates of transfer tax are much higher than in Andalucia. No way would notary, legal and registration fees add another 7% on top of the 8% ITP that should have been paid in Andalucia. I think we must take the OP at her word when she says she paid €17k in tax, unless and until she tells us otherwise.


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## booksurfer (Apr 21, 2018)

Lynn R said:


> The other thing which needs to be said, I think, is that none of this is a secret.


Yes, precisely.

The purchase costs of Spanish property is common knowledge, not just on other websites but on these forums.

Quite how or why anyone might think that purchasing a property, paying for improvements and then selling it in a year is not going to hurt them financially is beyond my comprehension.


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## booksurfer (Apr 21, 2018)

Lynn R said:


> The 12-15% average buying costs include those regions of Spain where the rates of transfer tax are much higher than in Andalucia. No way would notary, legal and registration fees add another 7% on top of the 8% ITP that should have been paid in Andalucia.


Really?

Transfer Tax - 8%
Capital gains tax provision - 3%
Legal fees, abogado fees 1-1.5%
Notary costs 0.5-1%
Land registry and registry inscription fees, 1%

And that's using Andalucia's lower 8%.


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## Gran Erry-Bredd (Nov 1, 2016)

AuMargaret how could you. Wouldn't the story be more interesting if you said you had become a property developer and this was your first go at it.


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## Lynn R (Feb 21, 2014)

booksurfer said:


> Really?
> 
> Transfer Tax - 8%
> Capital gains tax provision - 3%
> ...


The 3% capital gains tax retention is not counted as part of the buying costs, though, but as part of the selling costs. Without that, the total buying costs for a sub €400k property in Andalucia should be nearer 11% which accords with what I have paid (twice) when buying here (first in 2003 and again in 2017).

And as I pointed out earlier in the thread, if a vendor can produce a certificate of fiscal residency from AEAT and the property has been their main residence for at least 3 years, then they will not be subject to the 3% retention against CGT liability anyway.


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## booksurfer (Apr 21, 2018)

Lynn R said:


> The 3% capital gains tax retention is not counted as part of the buying costs, though, but as part of the selling costs.


Yes, i agree, but It still gets paid up front on purchase and therefore goes towards the total buying costs that the OP is talking about.

When I'm quoting 12-15% purchase costs, I'm doing so from a non-resident perspective as most of the people who ask these questions are, unlike yourself who doesn't have to pay this, non-residents and therefore needs to be factored in to the total purchase costs.

I have shown, clearly, what is constituting that €20k purchase cost the OP mentions and as far as I'm concerned, there's nothing irregular here at all, on the contrary, it looks perfectly normal.

If on the other hand you wish to continue disagreeing and consider the amount paid as too much, that is entirely your prerogative to do so. We will have to agree to differ.


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## Lynn R (Feb 21, 2014)

booksurfer said:


> Yes, i agree, but It still gets paid up front on purchase and therefore goes towards the total buying costs that the OP is talking about.


If we take the OP's case, if she bought the property from a non-resident for €135k, then the 3% would have been retained from the amount due to be received by the vendor, not added on to the €135k she paid. Therefore it does NOT count towards the total buying costs.


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## Lynn R (Feb 21, 2014)

As the OP has not yet come back to give us a breakdown of the costs she incurred on buying the property, I took a look back through her previous posts. It appears that she, as the buyer, paid a commission of just under €5k to the estate agent when she bought the house. Now, I have heard that certain estate agents (Tecnocasa amongst them) do charge commission to both the vendor and the buyer, but I don't believe this is normal and I would certainly never agree to pay it as a buyer. No wonder she found the buying costs excessive.

http://www.expatforum.com/expats/sp...ng-spain/1338490-estate-agents-minefield.html


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## booksurfer (Apr 21, 2018)

Lynn R said:


> If we take the OP's case, if she bought the property from a non-resident for €135k, then the 3% would have been retained from the amount due to be received by the vendor, not added on to the €135k she paid. Therefore it does NOT count towards the total buying costs.


Sigh.



> *Income tax provision when buying from non-residents*
> 
> If the seller is not resident in Spain, *the buyer* has to withhold 3% of the purchase price and pay it to the tax authorities (application form 211). If this is not done the property will be considered by the tax authorities as the asset backing the capital gains tax liability of the seller.


!

The Cost of Buying and Owning Property in Spain

In other words, you pay (THE BUYER) the 3% capital gains tax provision up front at purchase time, so come sale time, you can't just sell your property and skip the country without paying the tax authorities their capitals gains tax.

I really don't now how else to express this to you.


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## Lynn R (Feb 21, 2014)

booksurfer said:


> Sigh.
> 
> 
> 
> ...


Do you understand what is meant by "the buyer has to withhold 3% of the purchase price"? if the purchase price is €100k that means that the buyer or their lawyer pays the vendor €97k. They keep the €3k and pay it to the tax authorities as the retention against the vendor's potential CGT liability. It does not mean that it has cost the buyer an additional €3k on top of the purchase price. It seems that it is you who has great difficulty in grasping this.


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## Lynn R (Feb 21, 2014)

A link which, I think, explains what I am saying.

http://www.abacoadvisers.com/spain-explained/taxes/news/capital-gains-tax-in-spain


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## The Skipper (Nov 26, 2014)

Lynn R said:


> Do you understand what is meant by "the buyer has to withhold 3% of the purchase price"? if the purchase price is €100k that means that the buyer or their lawyer pays the vendor €97k. They keep the €3k and pay it to the tax authorities as the retention against the vendor's potential CGT liability. It does not mean that it has cost the buyer an additional €3k on top of the purchase price. It seems that it is you who has great difficulty in grasping this.


Lynn, you have the patience of Job! Were you a primary school teacher before retirement!?


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## Lynn R (Feb 21, 2014)

The Skipper said:


> Lynn, you have the patience of Job! Were you a primary school teacher before retirement!?


Funny you should say that, people often say to me "I bet I know what you used to do for a living, you were a teacher, weren't you?". Nothing could be further from the truth, I can't stand kids and was a long way down the queue when patience was being handed out.

I am glad you joined the thread, though, I was beginning to seriously doubt my sanity.


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## talc66 (Jul 3, 2018)

*Purchase Tax*

For the purchase of an ‘off plan’ or new build property from a developer you will be required to pay IVA tax which is the equivalent of VAT. This charge is applicable for residential properties that have been previously unoccupied and building plots of land

This is currently set at 10% of the purchase price for new residential properties (villas, apartments etc.) and 21% for building plots of land, plus in the Balearics they also charge an additional 1% to the town hall.

For properties which are considered ‘second hand’ so bought as a resale from a private individual, you will you will not be required to pay IVA tax but will have to pay a transfer tax termed Impuesto de Transmisiones Patrimoniales (ITP). This tax is paid direct to the particular local authority in which the property is located and is akin to UK Stamp Duty Land Tax.

In the Balearic Islands this rate is different to that charged for properties on the Spanish mainland in that the percentage chargeable increases in stages from 7-10% dependent upon the price of the property that you are wishing to purchase. ITP rates increase progressively from 8% to 11% as follows:

Up to €400,000 8%
From €400,001 to €600,000 9%

From €600,001 to €1,000,000 10%

Over €1,000,000 11%

/SNIP/


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