There are many questions which a new buyer may have when purchasing their first home either in Mallorca or in Spain. We are here to ensure that the buying process is both simple and runs as smoothly as possible through each aspect of the buying process. We aim to provide you with as much information prior to buying the property of your dream.
Is it difficult to buy a home in Mallorca?
The answer is simple: No, it is not ! Of course there is paper-work to be signed and handed over, but it is very much the same process as when buying a property in your own home country. We work alongside a very reputable property lawyer who is an expert in this field and speaks fluent English, and Spanish.
When you have found the property you wish to buy, the procedure is as follows:
Initially make an offer. You might wish to get an official valuation from your bank,(we can recommend reputable banks) so that you know that the purchase price matches the market price. This can take anything from 2-7 days. Please note that in the event of obtaining a mortgage this will be done via the bank automatically.
DO YOU NEED FINANCE?
If you require a mortgage for a purchase in Mallorca, and you’re a non-resident you’re normally given anything between 60% – 70% of the purchase price or valuation, whichever is greater, for a first property and 50% for a second one. A resident of Mallorca can obtain up to 80%. The owner will require a deposit of 10% of the purchase price, to secure the property and take it off the market.
Mortgage fees – Remember that if you are taking out a mortgage on the property there will ban arrangement or “set up” fee. These vary but as a guide, you should allow around 1% – 2% as detailed above – for the banks arrangement fee and other associated costs. The bank will confirm the mortgage arrangement costs prior to agreeing the mortgage so that you are clear on this exact figure from the outset.
The following documentation is required by Mallorquin banks:
- copy of passport (-s)
- copy of your P-60 form (if you are employed)
- last 3-6 months payslips or proof that you are self employed
- proof of any other income (pension-fund, life-insurance, other investments)
- last six months statements plus a bank reference from current bank
- if you are renting a property, the last 3 months paying in slips
- if you have a mortgage with another bank, full details of repayment-scheme
At the moment rates are very low and there are some great deals available, it is not uncommon to see rates around 2% being fixed for as long as 25 years, these of course can vary due to the market change.
If you are self-employed or a limited company, copies of the last 3 years audited accounts must be presented, as well as a certificate from the accountant confirming salary/dividends/net profit figures for the last 2 years. A copy of your last tax-return must also be presented. Please remember that the more proof of earnings that you can provide, the higher percentage the bank will consider lending you.
If you are granted a mortgage, a bank account will be opened and an official valuation will take place.
Be aware that you should also build into your calculations the cost of transferring money to Spain. There are companies who deal specifically in transferring money between countries and can be significantly cheaper than exchanging just through the banks.We can advise you of the best deals and put you in touch with reputable companies.
Normally an option-contract is signed by the vendor and the buyer. This type of contract is more binding than a verbal contract as it commits both parties to sell and purchase with the conditions stipulated in the said contract. The drawing up of the contract is normally drafted by the buyers lawyer and states the deadlines and the payment or payments to formalise the said contract. Thanks to this, the seller is obliged to sell and the purchaser to buy or to the economic compensation. Normally a deposit of 10% is established which will be deducted from the final price, when the purchase takes place. If the purchase is not carried through because of the buyer’s decision, the deposit will not be returned. On the other hand, when the transaction is not carried through owing to the decision on the part of the seller, usually if there has been a sale of the property to a third person, the aforementioned deposit is returned plus an additional 5% of the deposit. A judicial demand can be made for the payment of this amount if this condition is not fulfilled and if it is reflected in the contract, or the fulfilment of the option can be demanded if it is so stated in the contract.
It is important to understand all the points in the option-contract and that it specifies exactly what will be included in the sale (furniture, fittings, car parking space etc ).
When this contract has been signed by both parties the property is taken off the market.
Meanwhile the lawyer will have requested a copy from the property-registry department at the local council to check the ownership of the property is in order and to see if any debts are held against it.
The final signing of the deeds (in Spanish “Escritura de Compraventa”) is always signed at a Spanish Notary office. The buyers will get a copia simple (reduced version of the deeds) after signing. However, the official Deeds are normally delivered 3-6 months later, once all taxes and dues have been paid and the Deeds have got their legal stamp.
Registration is when the new owner registers at the Land Registry Office, as the owner of the property. It is very important to lodge the registration in the new owner’s name, as the deed contains a full description of the property, together with the list of possible charges, mortgage information and existing easements at the time, as well as the price and payment method.
The Notary is who, following his catalogue actions, will verify the identities of the buyer and seller, corroborates the registered details, controls the last payment of IBI (taxation on property) and, if the property is part of a community of neighbours, he insures that the new owner is aware of the community payments and that they are also up to date on the day of signing, having confirmed this in advance by the President of the community via a stamped notification. It is important to know that it is possible to grant power of attorney, in the presence of a Notary, to another person albeit a legal entity or relative, or a person of trust to stand in for transferring the title deed when the buyer, purchaser or both are unable to be present at the operation.
COSTS WHEN BUYING PROPERTY IN SPAIN
In addition to the actual cost of the property there will be a number of on-costs that you must take account of when planning your house-buying budget. We recommend that you allow another 13-15% of the total property price for additional administrative costs and taxes.
Spanish Notary (starts at around 800 euros)
These are the costs for drawing up the deeds in Spain called the “Escritura”. In general, Spanish law states that these costs should be distributed by the signing parties, meaning that the sellers should take care of the original costs of the deeds “escritura” and the buyer for the copies. However, Nowadays it is normal that the buyer pays for all these costs.Notary fees are based on the selling price stated in the deeds of the property. As an example, you pay around 675 euros for a property of 100.000 euros. But for a property of 1 million, you might have to pay 1000 euros.
Spanish Land Registry (starts at around 400 euros)
New build – IVA (VAT) 10%, Stamp duty (AJD) 1.5%*
Resale – ITP (transfer tax) 10%*
A solicitor should provide you with a personalised quote and at the end of the process you should receive an itemised list of exactly how much these additional expenses have cost you.
If you are purchasing through a real estate agent, their fee is paid by the seller. Furthermore in Mallorca, the seller pays the plusvalia (capital gains tax).
All in all, the charges are approximately 10-12% of the value of the property.
RUNNING COSTS OF THE PROPERTY
Annual property tax (IBI), garbage-collection (basuras) and incineration (tratamiento de residuos) are paid yearly to the town hall. A resident, as well as a non-resident property holder in Spain pays income/wealth tax once a year.
If you live in a complex, there will be a quarterly or yearly payment to be made for upkeep and running of the community (comunidad). Many communities include the water within the community-charges. Of course electricity, phone, insurances, etc. are additional.
TAXATION – TAX CONSIDERATIONS
It pays to understand the tax rules. You will be able to enjoy your new home all the more when you know you and your heirs will not face unnecessary bills.
Spain classes you as a resident for tax purposes if you spend more than 183 days in one calendar year there, or if your “centre of economic interests” (your economic or professional base) or your “vital interests” (your spouse and/or dependent minor children) are here.
Expatriates also need to follow the tax residency rules of their home country and its double tax treaty with Spain, to be sure that you are paying tax in the right country.
As a Spanish resident, you will be liable for income, capital gains, wealth and succession taxes on your worldwide assets.
General income is taxed at scale progressive rates and is a combination of state and regional rates. Each Autonomous Community can vary the regional portion and in Islas Baleares the total tax rates range from 19% to 44%. Pensions are generally taxed at the scale rates.
Savings income is taxed separately, with no regional variations, and consists of interest, dividends, capital gains on the sale/transfer of assets, and income from life assurance contracts and purchased annuities. It is taxed progressively at 19.5%, 21.5% and 23.5%.
Besides income taxes, Spanish residents are also liable to an annual wealth tax where they are taxed on the value of their worldwide assets. In Islas Baleares, each individual receives a €800,000 allowance, plus (for residents) €300,000 for the main home. Tax is applied progressively up to 2.5% in Islas Baleares.
Non-residents pay tax only on the assets they have in Spain.
Besides the corresponding tax returns, Spanish residents must also declare overseas assets and rights worth over €50,000 on Modelo 720.
Expenses and taxes incurred from the purchase of a property in the Balearic Islands.
If the SELLER IS NOT A COMPANY BUSINESSMAN (is an ordinary person or an inactive dormant Company):
-The buyer must pay to Balearic Hacienda the TRANSFER TAX ONEROUS (ITP) applying a scale from 7% to 10% on the value of the property
So for example:(these may vary slightly your gestor will advise you as to exact amounts).
In the Balearics, it is 8% for properties under 400.000 euros, 9% for properties between 400.000 and 600.000 euros and 10% for properties of more than 600.000 euros.
As well as this tax, other expenses resulting from the purchase will have to be paid (notary, registration of the property, transference, lawyer if so desired, etc.) which could mean between an approximate 0.5% and 1.00% on the value of the property. The costs and taxes would be somewhat higher if the purchase is financed with a mortgage loan, around a 1.75% of the amount of the loan.
-To the required taxes approximately between a 0.5% and 1.00% for costs involved in the acquisition of the property (a little more when the purchase is financed with a mortgage loan, depending on the amount).
With this, the sellers that are not residents intend to obtain a certain tax advantage (and even not contribute in Spain for the gaining made from this sale) and the purchasers can expect to save the tax for the purchase, provided that they meet certain requirements, particularly that there are several purchasers and that no one buys more than a 50% of the company. In all events, it is an operation that has important legal and taxation risks for the buyer, for which reason, it is desirable to make a thorough study beforehand.
IBI PROPERTY TAX is a tax that is paid annually to the Town Hall and can be about 0.4% to a 1.1% on the CADASTRAL VALUE of the property (value which initially should be a maximum of half of the market price of the property).
INCOME TAX FOR NON-RESIDENTS: If the property has been purchased directly by a non-resident, this tax will have to be paid every year. If the property is of own personal use, a fictitious rent will have to be calculated of 1.1% of the cadastral value, and pay a 24.75%. If the property is rented out, a 24.75% will have to be paid on the rents, although for the residents of the Common Market, the necessary costs can be deducted and this 24.75% be paid on the net return on lease.
If the property has been bought by a non-resident entity, this tax of 24.75% will also have to be paid, if it is rented out, and also on the rented market price if the property is given to linked people (partners, administrators, etc.).
SPECIAL TAX ON NON-RESIDENT PROPERTY
If the property has been bought by a non-resident entity, it will be subject to this tax and should be submitted annually. The property will be totally exempt from the payment if with the annual declaration if there is a certification that the entity resides in a country which has a Double Taxation Imposition with Spain with an interchange of information (such as Germany) and that the persons in the last resort are owners of the company also reside in a country with a Double Taxation Imposition with Spain.
If not, a 3% of the cadastral value of the property.
INCOME TAX FOR NON-RESIDENTS
If instead of selling the property, a company is sold (Spanish or not) which directly or indirectly is the owner of the property, initially, taxation on the gains obtained will have to be paid in Spain, as this is Spanish law. However, the Double Taxation Impositions prevail over the Spanish law, and so for example, if the vendor resides in Germany with the existing agreement, the taxes will have to be paid in Germany and not in Spain, but with the new Agreement which could come into force in the year 2013, the taxes will have to be paid in Spain.
TAXES RESULTING FROM THE TRANSFER OF A PROPERTY in Spain for INHERITANCE
At present, with assets in Spain (properties, money, companies, etc.), if the deceased or heir are not residents, this tax has to be paid to the State Finance, applying a progressive scale from 7.65% to 34% of the actual value of the property, provided that the heir or heirs are direct family (from father to son or grandchildren, between spouses, etc.).
A lot more has to be paid if the inheritance is in favour of a non-direct family (brothers, nephews, etc.) or in favour of strangers. However, in case of inheritance between direct families who are residents in Spain or the Balearic Islands, a maximum of 1% Inheritance Tax is paid.
This implies a clear discrimination for the non-residents, and so on the 7th March 2012; the European Commission brought an expedient before the Common Market Court of Justice, (Issue C-127/12) against Spain. For this reason it is possible, in the medium term, that the regulations referring to non-resident direct family inheritance will be modified in Spain, so that they will not have to burden themselves with such an elevated Inheritance Tax.
With the intention of avoiding this elevated Inheritance Tax, some non-residents buy properties through non-resident entities (for example, German companies) or through Spanish companies participated in turn by non-resident entities. Other non-residents try to reduce the tax by buying properties with mortgage loans so that the debt can be deductible in the inheritance.
MUNICIPAL CAPITAL GAINS
For the direct transfer of urban hereditary properties, the heir will also have to pay this tax to the corresponding Town Hall.
At the time of formalizing a transfer of this kind, it is important to take into account a number of very important details.
If you are a non-resident in Spain the first step in the purchase-process is to obtain a NIE-Number (Número de identificación extranjero) which will be your tax identification number in Spain. Mallorca Solutions can assist you with this. If you are not on the island when applying, a notarized copy of your passport must be presented and it could take 20-30 days to get the number through. If you are on the island you will have to go to the Police-department for non-residents with a copy of your passport and the original passport. As there are a few formalities, we suggest you contact us for assistance!
The NIE- number must be presented at the final signing of the deeds.
Habitual Residence in Spain – Legally it is considered habitual residence in Spain when an individual lives for more than 183 days of a year in Spanish territory or the main nucleus or the base of their activities or economic interests, directly or indirectly, are rooted in Spain.
WILL – It is highly recommendable that a non-resident person who has purchased a property in Spain makes a Will before Notary with respect to their assets in the Kingdom of Spain. It is not only highly recommendable but also a fairly simple operation which resolves many problems, particularly bureaucratic ones, in case of death of the title holder or holders. The laws re Inheritance in Spain are not so straightforward and can sometimes be complicated.