Everything You Need to Know About Tax Planning
Javier Nieto - Sep 27, 2023 - Pure Living News
Before buying your house in Spain, do proper tax planning
“Marbella is currently experiencing a unique historical context. On one hand, the post-pandemic times have facilitated workplace mobility, which has been advantageous for businessmen and executives seeking primary residences on the Costa del Sol.
On the other hand, Andalucía’s unique tax situation is perfect as it exempts property owners from inheritance tax, making property a good investment, and from wealth tax; key conditions for luxury villa acquisition to be more in demand than ever.”
Miguel Manzanares – Manzanares Lawyers
Tax Planning – Questions of Interest
When should taxes be paid for the purchase of a property?
The payment of taxes for the acquisition of a property in Spain varies depending on whether it is the purchase of a first or second-hand property.
In the case of a second-hand property, the Property Transfer Tax (ITP) is applied, and the taxable base is established based on the sale price:
- Up to €400,000: 8% (for garages not adjacent to a dwelling, up to €30,000, an 8% rate applies)
- From €400,000 to €700,000: 9% (for garages not attached to a dwelling, from €30,000 to €50,000, a 9% rate applies)
- Above €700,000: 10% (for garages not adjacent to a dwelling, from €50,000 onwards, a 10% rate applies)
What expenses does the property buyer assume?
In our locality, the buyer is responsible for all expenses related to the transaction, including the costs of the Notary and the Property Registry, which amount to approximately €3,000 depending on the property’s value.
The lawyer’s fees, representing 1% of the property price plus VAT, as well as the real estate agency’s fees, should also be considered.
However, it is important to note that the buyer is not responsible for the municipal tax on the increase in land value (municipal capital gains) or the seller’s lawyer’s fees.
What taxes does the property seller have to pay?
The seller is subject to the Municipal Capital Gains Tax, commonly known as the Plusvalía Municipal, which taxes the increase in the value of urban land.
The amount to be paid for the Municipal Capital Gains Tax depends on the cadastral value of the property, the municipality in which it is located, and the period during which the seller has owned the property.
You can calculate this amount using the simulation tool provided by the Junta de Andalucía.
Taxes and expenses related to the purchase of a property in Marbella
Property Transfer Tax (ITP)
- Required for the acquisition of second-hand homes.
- 7% rate due to the special reduction in effect from April 27, 2021, until December 31 of the same year.
VAT and Stamp Duty (AJD)
- Required for the purchase of newly constructed homes.
- Includes 10% VAT and 1.2% Stamp Duty.
Notary and Registry Fees:
The notary fees are paid by the buyer when buying a property. Usually, fees are calculated according to the purchase price:
- 0 – 100.000 fees 0,4% of the purchase price.
- 100.000 – 400.000 fees are between 0,1% and 0,4%
- Over 400.000 EUR fees are 0,1%
Legal Costs (Legal Fees):
- Represent 1% of the total property cost plus VAT.
Plusvalía:
- To be borne by the seller.
- The amount depends on the cadastral value of the property, the municipality where it is located, and the duration of the seller’s ownership.
Required Documents for the Signing of a New Construction Property in Marbella
To complete the signing of the deeds of a new construction property, it is essential to present the following documents on the agreed-upon day before the notary:
- Previous title or deed.
- Energy Efficiency Certificate.
- Community certificate confirming up-to-date payments.
- Property Tax (IBI) payment receipts.
- Documentation related to the new construction, including the ten-year insurance.
- Occupation license.
- The management of all these necessary documents will be the responsibility of the client’s lawyer.
For foreign buyers, it is important to note that in addition to the Foreigner Identification Number (NIE), having a Spanish bank account is also necessary to carry out the property purchase.
If you wish to obtain more information, do not hesitate to consult our guide on Pure Living.
VAT and Costs example of one of our Properties
Here is an example of the costs associated with the purchase of a property in Benahavis. A luxurious Mediterranean-style five-bedroom villa with views of the sea, golf course, and mountains. The house offers luxury amenities, including an equipped kitchen, formal dining room, game room, and heated pool. :
1- Purchase price: €3,950,000
This is the sale price of the property in Marbella you are considering. It is the amount you agreed to pay to the seller.
2- Taxes if the property has been previously owned:
Property Transfer Tax (7% of the purchase price): €276,500
When you buy a second-hand property in Spain, you must pay a property transfer tax. This tax is a part of the purchase price and is calculated as a percentage of it. In this case, the tax is 7% of the purchase price, which amounts to €276,500. This tax is paid to the government.
Approximation of other purchase costs, as per the professional:
These are additional costs related to the purchase of the property that is generally required and may vary depending on different factors. Here they are broken down:
1- Legal Fees: €31,600
Legal costs, also known as lawyer’s fees, are borne by the buyer when acquiring a property in Spain.
These legal fees are typically paid once the purchase process is completed and are allocated to the lawyer who provided guidance during the transaction.
In most cases, legal fees range from 0.7% to 1% of the sale price of the property.
2- Notary Fees: €3,160
In the process of acquiring a property, notary fees are the responsibility of the buyer. These fees vary depending on the purchase price of the property and the number of clauses included in the deeds. When the purchase price exceeds €400,000, a 0.1% fee is applied.
Additionally, if the buyer decides to take out a mortgage, there will be additional notary fees depending on the number of clauses included in the mortgage deeds.
3- Registry Fees: €1,580
Property registries are offices responsible for maintaining a public record of real estate transactions, and you must pay fees to register the property in your name. Property Registry fees typically range around 0.4% of the purchase price, but they can vary and, in some cases, go up to 1%.
4- Cost of Bank Transfer/Cheque: €790
You may need to pay a fee for making a bank transfer or issuing a cheque to make payments to the seller or other parties involved in the transaction.
Total of additional costs to be paid: €37,130
This is the total of all the additional costs mentioned above. It is the sum of legal fees, notary fees, registry fees, and the cost of the bank transaction.
Total cost of purchasing a second-hand property in Marbella: €3,987,130
Finally, to calculate the total cost of purchasing the property, we add the purchase price (€3,950,000) and the additional costs (€37,130), resulting in a total cost of €3,987,130. This is the total amount you need to have available to buy the property.
Interview with Miguel Manzanares
To understand the legal and tax landscape behind property purchase, Pure Living Properties has reached out to Miguel Manzanares, CEO and Founder of Manzanares Abogados, with over 30 years of experience in the field, to gain more insights into tax planning.
What would you say is the differentiating factor that clients find in Manzanares Abogados compared to other law firms?
The main competitive advantage we have at Manzanares is the extensive experience of our professionals. It is essential to have good advice on real estate and construction law, as this will facilitate the process and mitigate risks in the future, so we cover all the requirements that the acquisition of property in Marbella or Ibiza entails.
In this context, what tools do you consider essential when buying a property?
Tax planning is what clients demand the most today. If there’s one thing we know is fundamental when buying a property, it’s this, and this is where we understand that we are experts in making life easier for our clients.
Additionally, we are in a unique moment in Andalucía for property purchase in terms of low taxation. Wealth tax and inheritance tax are disappearing.
Looking to the future, in what direction is Manzanares Abogados heading, and what are its objectives in this booming market?
Our strategy is to prioritize the quality of advice over the quantity of transactions, and to achieve this, knowledge and experience are key.
At Manzanares, we have over 70 professionals (90% of them are senior profiles) with experience in real estate law, who are loyal to our firm and have provided guarantees to more than 28,000 clients of up to 40 different nationalities who have trusted us for over 25 years.
In such a volatile and globalized world, staying true to our principles and having clear objectives has allowed us to position ourselves as a firm and build client loyalty year after year.
In Pure Living, we are dedicated to finding the most exceptional accommodation options for our clients. If you are interested in getting more details about the accommodations available in the area, please do not hesitate to get in touch with us or explore our website.
Javier is the founder and CEO of Pure Living Properties. Born and raised in Marbella in an entrepreneurial family who settled on the Costa del Sol in the 1960s, when Marbella’s real estate and tourism industry was just a fledgling market, Javier is an expert connoisseur of Puente Romano, which he calls home, and the Golden Mile, but also of the best areas, projects and companies, as their owners and developers have been among his inner circle since childhood.