Notarial System & Costs
Spain has a Notarial system for property transfers and sales, and so both vendor and purchaser appear together before a Public Notary to transfer money and keys, and for buyers to sign their new title deeds. Notaries are independent legally-qualified officials who are ultimately responsible for both the legal form of the Escritura (Title Deed) and the declarations of taxes and costs due on the transaction.
As part of your purchase procedure, the Notary will verify that the property you are buying is legally owned and registered to the vendor, that it is free of all costs and charges, and that it comes with vacant possession. S/he will be able to offer an official translation of the documents involved in your completion, if required. If you are unable to sign in person, then you can allocate a representative by specific Power of Attorney to sign at the Notaria on your behalf. What Notaries do not do is confirm the specific legality of the property being transferred. It is possible to transfer, legally, a property that is actually illegal, and so it is still necessary to undertake a full and independent conveyance beforehand.
After completion, the taxes due on the transaction must be filed with the tax authorities, the Escritura submitted to the Land Registry, and the costs disbursed. These costs, known as gastos, are paid by the purchaser in Spain, and up to 10% should be mentally allocated on top of an agreed purchase price: any over-allocation will be refunded at the end of the procedure when the final Escritura is returned a few months later. These gastos include the Notary’s and land registry fees, as well as, primarily, taxes, which will either be 7% or 6.5% depending on whether the property is new or resale. Gastos are normally paid when the Escritura (title deed) is signed at Notary.
Tax. Either 6.5% ITP (Impuesto sobre Transmisiones Patrimoniales, a transfer tax) for resale properties, or 7% IGIC (Impuesto General Indirecto de Canarias, equivalent to VAT) on new properties: this IGIC was 5% but was increased as part of measures announced in April 2012 – see HERE. For new properties only, a document registration tax (AJD – Impuesto sobre Actos Jurídicos Documentados) equivalent to stamp duty of 0.75% will also be payable.
In August 2011, a reduction in IGIC on new properties was announced for properties costing less than €150,000 and which are primary/habitual residences. IGIC in these circumstances is 2.75%, a rate intended to assist those who are struggling in the economic crisis, rather than investors, hence the conditions imposed. It will remain in place until 31 December 2012.
Notary Fee. This will vary depending on the value of the property, and should be between 500 and 1000 Euros. The minimum charge is around 300 Euros.
Land Registry. Your new property must be registered in the municipal land registry (Registro de la Propiedad), and the fee should be around half of the Notary fees, except for garages or parking spaces, where the fees will be around the same as the Notary fees.
In addition to these expenses, there is another issue for buyers, and sellers, to consider: plusvalía. Plusvalía is a tax on the increase in assessed value of the land on which a property is situated during a vendor’s period of ownership. Its proper name is Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana. It is calculated both on the surface area of the plot as well as the difference in its Valor Catastral (rateable value) between the point of previous sale and your own purchase. Plusvalía is usually in the region of a few hundred Euros, but can rise to several thousand Euros if a large amount of land is involved or the previous owner has held title for many years. Or, rather, this used to be the case. In many municipalities it remains at a few hundred Euros, but in my most recent experience in 2013, Arona’s plusvalía has quadrupled at least: the average amount is now €1,200 for an average sized apartment owned for six or so years. The amount is often not known much in advance of signing, and sometimes not until afterwards, because it is calculated by the municipal authorities, some of which only produce the figure after completion. By law, the vendor is required to pay this tax, though in the Canaries, it has frequently been negotiated so that the purchaser is responsible. Over recent years, however, with an increasingly tough market and a tightening up of all procedures, vendors are much more likely to agree to pay Plusvalía as they are legally required to do.
Once you have bought your property, there will be certain ongoing costs to maintain it legally. These include utilities bills, annual local and national taxes, and community fees if your property is part of a complex.
You should allow for:
Water. This is usually paid directly to the relevant Water Board and is charged according to metered usage. Occasionally, it will be paid via a community who will meter usage internally.
Electricity. This is normally paid directly to the relevant Electricity Company and is also charged according to metered usage. Very occasionally, it too will be paid via a community who will meter usage internally.
Rubbish (Basura). This is usually paid directly to the municipal authority and is charged annually or half-yearly depending on municipality. Occasionally, it will be paid via a community where it will be included in the community charge.
Rates (IBI: Impuesto sobre Bienes Inmuebles). These are usually payable in May/June, or September/November in Adeje. The rate depends on the size, location and age of your property, and is calculated at around 0.45% of Valor Catastral (rateable value), or the chargeable base rate, base liquidable, if different to the Valor Catastral after a local rates revision.
Community Charge. This is payable by owners of properties which are part of complexes governed by the Law of Horizontal Division, under which a Community must be legally established. At an AGM of owners, the community will approve and adopt a budget which will depend on the various facilities and features of the complex, e.g. lifts, swimming pools, gardens, security, lighting, etc. The budget will be divided amongst the owners according to their quota, which is determined by a recognized formula: in simple terms, it is mainly based upon square metreage. The resulting community charge is paid into a communal fund which is disbursed by a Certified Administrator appointed by the Community who acts in accordance with all instructions arising from decisions made by the owners at Annual or Extraordinary General Meetings.
Income Tax (Impuesto sobre la Renta). Residents and non-residents owning property or investments in Spain are obliged to file annual tax returns. The basic Income Tax rate has been raised from 24% to 24.75% as a result of the Government’s austerity measures: the increased rate was originally intended only for 2012 and 2013, but it was announced on 26 April 2013 that it will remain at the elevated rate for 2014 as well. It is applicable to declared and notional rental income. This notional rental income is assessed on non-residents even if they do not let out their properties; it is based on an assumption of a certain level of undeclared rental income deemed to be 1.1% of the property value (or 2% if the Catastral Value has not been updated since 1994), the value being defined as the highest of the price declared on the Escritura, or the Valor Catastral, or the value deemed by the municipal authority if the Escritura price is not accepted.
Wealth Tax. This annual tax was reduced to zero in 2008 by the introduction of a 100% tax deduction, but due to Spain’s economic situation, the deduction has been abolished from 2011. This means that the tax, which we were able to treat as effectively abolished, has now reappeared. It is restored, however, on a temporary basis only, and according to the legislation itself will be in place for 2011 and 2012 only. It is paid yearly in arrears, so 2011′s assessment will be due to be paid in 2012. The tax rate ranges between 0.2% to 2.5%, depending on net wealth over a threshold of (now) €700,000 per taxpayer, so for a couple, this is €1.4 million! For non-residents it is applicable only to Spanish assets, so it will only be payable by the very wealthiest of property owners.
If you have any questions on the above, please post a comment on the Q&A on owning property in Tenerife page HERE, which is where previous questions have been moved.