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Property Buyer’s Guide (5)

Notice: Rimontgó recommend specialist advice, not only in legal and juridical aspects, but also fiscal and other areas related to the real estate sector. To that effect, our clients may get in contact with us if they want to ask for our database of professionals who can offer them personal care.

Taxation when buying a property

1. TAXATION WHEN BUYING A PROPERTY

1.1 Taxation when purchasing a property to a company.

1.2 Taxation when purchasing a property to a private individual.

1.3 Taxes and costs buried in a mortgage.

1.TAXATION WHEN BUYING A PROPERTY

The purchase of property in Spain is subject the main Spanish indirect taxes: Value Added Tax in Spain (hereinafter, IVA) and Transfer Tax and Stamp Duty in its two variants, Property Transfer Tax and Stamp Duty (hereinafter TPO and AJD respectively).

The tax to be paid upon purchase will vary depending on the nature of the transferor. This means that it will be treated differently if the seller is a company or a private individual. In general terms, if you are buying new property the seller will be a company and if you are buying second-hand property the seller will be a private individual.

1.1 Taxation when purchasing a property from a company:

If you are buying from a company, you need to consider which type of property you are purchasing. The company is liable to VAT and therefore, unless exempt in which case the exemption will satnd, the VAT will be added to the agreed sale price.

The purchase of non-constructible plots is VAT exempt and all second and final transfers of a property are exempt, bearing in mind that the first transfer is considered as the sale of a newly constructed property realized by the developer or the sale following the complete refurbishment of a property.

Thus, if you are purchasing a newly constructed property (considered by the law as the first transfer) you will be liable to pay VAT to the seller.

However, the law admits remission of exemption under specific circumstances, but in all cases when the purchasing party is acting as a company or professional body.

The current VAT rates are as follows:

  • – Super-reduced rate amounting to 4% for the purchase of subsidised housing.

  • – Reduced rate amounting to 10% for the purchase of buildings, housing, garages and annexes.

  • – Standard rate amounting to 21% for all transfers of assets where a different tax rate is not applicable. Eg. Commercial premises.

    Besides VAT, which is paid directly to the company selling the  building, the transfer of ownership will also remain subject to the Stamp Duty Tax (AJD).

    In the Valencian Community the following tax rates apply:

i. 1,5% in general terms.

ii. 0,1% for the first title deed of a property used as principal residence.

iii. 2% in the cases where remission of exemption to VAT has been filed.

1.2 Taxation when purchasing a property to a private individual;

In this case the tax to be withheld is the Transfer Tax in its variant of Property Transfer Tax (TPO).

This tax is not to be paired with VAT, which means that under no circumstance you will be liable to both taxes on a single property.

When IVA exempted, all transfers of property between private individuals and the purchase of property to a company will be levied with TPO.

The applicable tax rate is 10%, except for the purchase of subsidized housing, where the applicable tax rate is 8%. Opposite to VAT, the party liable to tax is the lawful acquirer.

If the private individual is a non-resident with no permanent establishment in Spain, the acquirer is obliged to withhold and remit 3% of the agreed valuable consideration by way of account payment in respect of the tax to be paid by the non-resident and remit such payment to the Treasury Department.

1.3 Taxes and costs buried in a mortgage.

If you apply for a mortgage with your bank for the purchase of the property, besides notary charges, registry fees and other management costs, you will need to settle the Stamp Duty as well as other taxes derived from you relationship with the bank:

  • Stamp Duty (AJD): There are several options:

Property other than subsidized housing: In this case, the execution of the mortgage taxes AJD, which is a 1,5% of the Mortgage Responsibility (quantified by the bank in the Mortgage Deed).

Subsidized housing: In this case the Mortgage Deed is exempt from the AJD as well as ulterior cancellation of the same, which is also exempt.

Principal residence: If the property is to be the principal residence of the taxpayer and it is so stated in the Deed, the AJD amounts to 0.1% of the value of the mortgage responsibility.

  • Surveyor’s Valuation: In general terms, it is a requirement imposed by the bank to perform a valuation on the property to be purchased by a registered valuation company, in order to establish the maximum value of the mortgage and the terms and conditions of the same. Usually, the bank grants a loan based on the valuation but under no circumstance the mortgage value can exceed the purchasing price of the property. The cost of such valuation may range from 180-400€.

  • Other costs: The bank may charge an opening commission, which is normally quantified by a percentage on the capital borrowed.Household insurance: In accordance with Law 2/1981, the mortgagor is obliged by the mortgagee to contract a household insurance for the property. Such household insurance is to cover the building/structure, but not the contents (which alternatively can be covered by the insurance by means of an extension of the insurance contract)It is also recommendable, but no compulsory, to contract a loan repayment insurance covering the outstanding capital to be paid in the event of death of the holder.

Chapters: 1234 – 5 – 67

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