Insider’s Guide to
Real Estate Investment in Spain
Buying property overseas can feel like a bold move. But when you are outside your comfort zone, surrounding yourself with the right professionals is key to a successful transaction. Hiring a lawyer when buying a property in Spain is a must!
One important step is to find an independent lawyer with the following characteristics:
- Is registered with an official Spanish Bar Association.
- Specialises in Spanish land and property law.
- Speaks your language and, of course, Spanish.
In this article, we cover the most important legal aspects to be taken into consideration when buying property in Spain and answer the most frequently asked questions.
Taxes applicable when buying a property in Spain
The taxes which you will have to pay when buying property in Spain depend on a number of factors, such as the area in which you are buying. For this reason, it is important to analyse each transaction individually and carefully.
In the case of new-build properties which means that you will be the first owner of the property, the purchase is subject to 10% VAT plus 1.5% stamp duty (2% stamp duty for a purchase over € 1 million).
In the case of pre-owned properties, the buyer must pay the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales / ITP). This is a progressive tax and in the Balearic Islands it is structured as follows:
- from € 0 to € 400.000 at a rate of 8%
- between € 400.001 to € 600.000 at a rate of 9%
- between € 600.001 to € 1.000.000 at a rate of 10%
- between € 1.000.001 to € 2.000.000 at a rate of 12%
- from € 2.000.001 at a rate of 13%
The calculation of the Property Transfer Tax is based on the purchase price confirmed in the deed of sale. For example, for a property with a purchase price of € 1.600.000,and keeping in mind that the tax is progressive the transfer tax would be €162.000. The tax must be paid within 30 days of the transfer of ownership.
Parking spaces are subject to a different scale, as is the purchase of land or commercial premises.
Each purchase must be studied and adapted to the specifics of each transaction; the information provided here is of a general nature only.
Taxes after the purchase:
- IBI (Impuestos sobre Bienes Inmuebles) – Municipal Property Tax
- Wealth Tax on the purchase price of the property
- Non-resident income tax
- Waste removal
What to consider before buying a property
Obtain a NIE number: A NIE number is a Spanish identity number for foreigners. All foreigners who have professional, social, or economic interests in Spain are issued with a NIE number. The NIE number is an important document that must be presented when buying a property. This number also serves as a tax identification number. Qualified legal assistance will make your life much easier and take the stress out of the process by applying quickly and efficiently on your behalf.
Consider obtaining a mortgage for your property purchase: When purchasing a property in Spain with a mortgage you can reduce Taxes, maintain liquidity and diversify your investment. Another fact to bear in mind is that equity release is not so accessible in Spain, so it is always advisable to mortgage at the time of purchase.
Find the right professionals: Finding an experienced property lawyer and a professional mortgage broker based in Spain will save you both time and money, as it is a common mistake to underestimate the property purchase process in a foreign country.
When hiring a Spanish real estate lawyer like Mercadal Abogados, they will represent you from A to Z and on the day of the completion at the notary, they will ensure everything is correct and in your best interest. Many clients believe that the Spanish notary system offers adequate legal protection when buying a home. However, the notary is a representative of the government, and it is not their responsibility to ensure that the contract you have with the seller is in your best interests. Their only responsibility is to oversee the completed transactions and signatures.
When understanding the advantages of buying a property in Spain with a mortgage, you should contact a professional and experienced mortgage brokerage firm that knows the market and can give you proper financing advice. The team of mortgage advisors at Lionsgate Capital will always ensure you obtain the best mortgage in Spain tailored to your needs and circumstances at any given time.
The main steps in the purchase process
In a nutshell, it is a four-step process:
- Purchase Decision: Your lawyer will check all relevant information, land registry, cadastral information and all documents relating to the property.
- Draft Contract: Your lawyer will draw up a bilingual or, if necessary, a trilingual contract containing the terms and conditions to be signed, subject to agreement with the seller. Technical and urbanistic due diligence must be carried out to verify the status of the property. The first 10% of the price must be paid to secure the deal.
- Signing the deed of sale at the notary‘s office: This step is compulsory in Spain. The remaining 90 % of the price must then be paid to obtain full ownership and possession of the property.
- Taxes and registration: The property will be registered in the Land Registry in the name of the new owners and the relevant taxes must be paid.
How long will the process take?
Usually between 2 or 3 months from start to finish. The reason for this is that you first need the NIE number before the contract and due diligence can be carried out and finally before you can go to the notary.
What to consider after the purchase has been completed
Once the purchase has been completed, your lawyer will usually offer a service to take care of the administrative changes, all in Spanish, such as electricity, water, internet, community fees, alarm, etc. and to set up a direct debit on your account.
Insurance: It is advisable to hire an insurance specialist to help you manage all, or at least most of the risks.
Planning Permission Guidance: If you want to renovate or extend your property, your lawyer will be able to obtain specialist advice from architects and surveyors to determine what alterations can be made to the building and to identify any structural defects.
Safe Holiday Rental: If you are buying a property with the intention of renting it out, you need advice on the legal permits required and the application process; your lawyer will need to draft a lease contract to protect your interests. Ownership of the holiday let license – if the property has one – will have to be transferred to the new owner and your lawyer will advise you on every step of the transaction.
If you are looking for a property lawyer in the Balearic Islands, Mercadal Abogados will be able to advise you from start to finish in your language, ensuring transparency and understanding, providing discretion and trust, offering a bespoke and individual service, with the security of your investment as their top priority.
In-depth knowledge of the Spanish property market enables both Mercadal Abogados and Lionsgate Capital to have a fruitful collaboration providing all their clients an outstanding and complementary service.
Article by Francisco Mercadal
Managing Partner of Mercadal Abogados
Mercadal Abogados is a boutique legal practice with a team of three English and German-speaking real estate lawyers and three managing assistants, who work with clients from all over the world.
