Once you've found the perfect property, and established the price and conditions of purchase, your agent will prepare a letter of intent to be signed by both parties. The letter of intent outlines the conditions of sale and the reservation period, during which your lawyer checks the legal details of the property and draws up a private purchase contract. If you haven't appointed a lawyer by this point, now would be a good time to do so. Anyone intending to sell or buy property in Spain (or has to pay taxes of any kind to Spanish Inland Revenue) needs an NIE by Spanish law for tax purposes. Applying at your nearest consulate is more expensive than obtaining an NIE in Spain, but may still be advantageous for many non-resident property-buyers.
What is an NIE?
NIE is an Identity Number for Foreigners (Numero de Identidad de Extranjeros). The modern NIE is actually just a piece of paper with your name, number, and an official stamp.
Until recently, foreign non-residents in Spain could buy and sell property without an NIE, and once it became necessary for them to have one, it could be obtained by their legal representative. However, recent legislation has made it necessary for anyone paying money to the Spanish Inland Revenue (Hacienda) to have a Spanish identity number, and to obtain it in person someone else has been named as their legal representative.
In consideration of various factors, it is necessary for international property buyers to anticipate unavoidable additional expenses when buying a house in Spain. These include the services of legal advisors, translators, taxes, possible mortgage expenses, and most importantly, the services of a notary. The notario is responsible for drawing up the deeds (escritura), the tax due (registro catastral) and registering the names of the new owners in the Spanish property register (registro de la propiedad), and the tax register (registro catastral). The tax register charges fees to the vendor and purchaser, in compliance with a fee schedule set by the government.
Property taxes in Spain
When buying a house in Spain it is important to estimate the taxes you will have to pay, not only when you actually purchase your Spanish property, but also local taxes and housing rates which are paid on a yearly basis by all home owners in Spain. Annual Spanish housing rates vary depending on the value and location of the property, but here is a rough guide to all the tax expenses you will need to take into account when deciding what house to buy.
Taxes payable at the time of the purchase
Re-sale purchase tax: House buyers of re-sale property (as opposed to brand new) are required to pay the Impuesto de Transferencia de Propiedad - Transfer Tax - which is currently 7%.
New Properties purchase tax: Buyers of brand new houses in Spain are liable to paying 7% IVA (VAT) if the house is finished or under construction at the time of the purchase, plus an extra 0.5% stamp duty. However, if you buy land, commercial premises or space in parking garages, then the VAT rises to 16%.
Increased patrimony tax payable to Spanish Treasury: When property is sold in Spain, the seller owes capital gains tax. According to Spanish fiscal regulations, the buyer withholds 5% of the total purchase price to protect against the seller taking the money without following through on his/her end of the bargain. This amount represents a capital gains tax on the profit made by the seller at the time of sale, and constitutes the difference between the current (official) sale price and the price paid by seller when he/she originally purchased the property + the value of any reforms and improvements carried out since then.
The capital gains tax is payable to the Spanish Treasury (Tesoro Público) and is 5% for non residents of Spain and 3% for residents; however, this is only the advanced deposit. The estimated amount retained at the moment of sale is payable once all documentation has been presented to the local registry and the new deeds are available. Therefore, property sellers not living in Spain will have to arrange for their lawyer or gestoría to arrange the necessary paperwork and to formalize the full tax payment a few months after the sale. The final amount could be as much as 30% of the profit made on the sale, so if there is a substantial difference between the selling price and the price that was originally paid, it may be worthwhile to apply for residency prior to selling the property in order to be eligible for the reduced percentage for residents (nationals of EU member states are automatically granted residency, although the paperwork can be a bit tedious). Please note that an NIE is required to pay this tax. Any seller over the age of 65 who has been a legal resident in Spain for the past three years is exempt from paying this tax. Residents and non-residents who purchased the property they are now selling before December 1986 are also exempt from the capital gains tax.
Plusvalía Tax: The Plusvalia Tax is set by the local authorities and is based on the increase in the value of the land from the date the owner acquired the property to the time of sale.
The local authorities determine the amount of plusvalía owed for each house purchased in Spain, depending on where the property is located. The market value or sales price of the property does not have an effect on the plusvalía tax.
As a general rule, the seller pays the plusvalía tax. However, this will vary depending on the sales agreement. The tax is calculated according to the ratable value of the property and the number of years it has been owned by the vendor.
Overall cost of purchasing property in Spain
You can estimate that taxes and fees will add up to about 10% of the overall value of the property you are purchasing.
