What is the property buying procedure in Spain?
Before you begin the purchase process, you will need to obtain a fiscal number (numero de identificacion de extranjeros) or NIE. The NIE is your all-purpose identification and tax number in Spain. It is mandatory for all non-residents to obtain prior to signing the Deed of Sale (Escritura).
Step 1 – Offer acceptance and preliminary negotiations
Once you’ve found your dream house and your offer has been accepted by the owner, your agent contacts the owner to initiate negotiations regarding the terms and conditions of the sale. During these negotiations, confirmation is obtained with regards to the sales price and other conditions such as renovations or maintenance works to be done to the house, furniture arrangements, selling date and more. Please note this is a non-binding process and if you decide not to continue with the purchase at this stage, you are not legally bound to do so in any way.
Step 2 – Holding deposit and pre-sales agreement
Once the buyer and the seller have agreed on the sales price and other terms and conditions of the contract, a Contrato Privado de Compraventa (preliminary sales contract) needs to be entered, stipulating the details of the property, the names of the buyer and the seller, the deposit, the agreed price and the date on or before which the contract must be completed.
At this stage we recommend to use the services of a solicitor as the contract is legally binding. We can recommend local solicitors who are experienced and practiced with the purchase of property, who speak both English and Spanish.
Once there is agreement on all the basic terms and conditions, the local market practice is to put down a holding deposit to reserve the property for an agreed period of time – normally around the 10% of the agreed sales price, to be deposited with the gestoria.
The deposit document (Contrato de Arras) includes the property particulars, price, deposit payment conditions and date of completion. Should the buyer breach the contract, the deposit is forfeited. Should the seller break the contract, they must pay the buyer twice the deposit amount, less any legal fees that may be applicable.
Step 3 – Sales contract
Before the purchase can be completed, buyers who do not hold a Spanish passport will need a Spanish tax number or NIE. This can be obtained with the help of the services of a gestoria as this saves time. On the agreed sales completion date, the balance of the purchase price plus all fees payable including notary’s fees, taxes and duties must be paid by the buyer. Payment is made by banker’s draft or bank transfer, so foreign buyers are required to set up a Spanish bank account and transfer the money from a bank in their home country.
Costs and taxes related to buying property in Ibiza
There are various costs and taxes over and above the initial property price that buyers in Spain must pay. The general ballpark figure for a purchase on the island of Ibiza is 12% of the property’s purchase price, including taxes and obligatory additional charges. These costs are broken down below as follows:
I. Taxes on property transfers (ITP) – Impuesto sobre Transmisiones Patrimoniales
When buying a property, you pay ITP tax (starting at 8%) or IVA (10%). These are state taxes, however they are also collected by the Autonomous Communities such as the Balearic Islands. It is the buyer who must pay the tax on property transfers, calculated according to the total value of the property being sold.
Impuesto sobre Transmisiones Patrimoniales (ITP) is similar to UK Stamp Duty and only applied to the purchase of second-hand properties while Impuesto sobre el Valor Añadido (IVA) is valued added tax (like VAT) applied to new builds – specifically, when the property is bought directly from the developer.
Tax rates increase progressively from 8% to 10% in the following way:
Up to €400,000 8%
Over €400,000 9%
Over €600,000 10%
II. Local property taxes (IBI) – Impuesto sobre Bienes Inmuebles
This tax is similar to council tax in the UK. Raised by the town hall (Ayuntamiento) in the area of residence, it is calculated on the basis of the rental value (Valor Catastral) of the property. The total amount charged is the rental value multiplied by the tax rate fixed in the locality. This tax is payable by the owner of the property once the property is registered in their name.
The vendor is obliged to present the last receipt for the payment of rates (IBI) to the notary or your lawyer prior to signing the Escritura. Your lawyer should also obtain a certificate from the Local Rates office (Racaudacion Provincial) to confirm all rates have been paid.
Where a second-hand property is bought, and the IBI has proven not been paid by the previous owner, the local town hall may charge unpaid IBI for up to a maximum of five years in arrears, with penalties of up to 20% for late payment.
III. Other costs
Buyers opting for a mortgage have additional costs to cover. There are the costs for property valuation (approximately 500€) plus the costs related to the mortgage itself. These vary from lender to lender but are approximately 1%.
Legal fees are usually between 1% and 2% (including VAT) and it is always advisable to use an independent lawyer to conduct requisite checks.
These expenses are always paid by the buyer and are usually between 0.5% and 1% of the purchase price declared in the deeds of sale.
Expenses related to inscribing the sale with the land registry are almost always paid for by the buyer and are calculated in relation to the purchase price declared on the deeds of sale – generally around 1%.
Buyers should note that the law establishes certain time limits for the registration of changes in ownership of property. The limit is two months after the signing of the Escritura. The same time limit applies to the registration of new buildings or renovations from the signing of the Escritura de obra nueva.
To pay for your property in Ibiza, you will usually be required to present a bankers’ cheque. In order to do this, you will need to set up a Spanish bank account and transfer the funds across from your home country bank account. The cost of these transfers can be as much as 0.4%, as can the cost of the bankers’ cheque.
Fees vary between 2% and 6% but standard market practice is 5% of the property’s purchase price (excluding VAT) in Ibiza. These fees are payable by the seller, unless otherwise agreed.