Having established your eligibility for a Visa or Spanish Residency there are still some important steps to take before you start looking at properties. Of course understanding your budget is a significant part of this planning process.
You are likely to know how much money you have available to spend (if you are in need of a mortgage I will be addressing this separately in Chapter XX) but in order to understand how far your budget will stretch you will need to familiarise yourself with the various taxes, fees, and charges that you'll encounter throughout the process. These can include taxes based on the property type (new-build or resale), notary fees, land registry fees, legal fees, bank charges, and currency exchange costs. Each of these components can contribute a substantial percentage to the total cost of your property purchase and all together they can take up as much as 15% (and sometimes even more) of your total purchasing budget.
Understanding these costs is not only important for budgeting purposes but also for making informed decisions about the type and location of the property you buy. Some taxes are set at an autonomous community level and so, just like with the rules for holiday rentals, they can be different depending on your location within Spain. Also knowing the difference in tax rates between new-build and resale properties in your chosen area can help you determine which type of property best aligns with your financial goals. Similarly, being aware of potential bank charges and currency exchange costs can guide you in selecting the most cost-effective methods for transferring funds and managing your finances.
Typically you will be told to allow 12-15% of the property value to cover the associated costs of buying a property in Spain, and this is a fair estimate when you are searching in some of the areas that are most popular with foreign buyers. While I don’t think it’s worth spending the time calculating the cost of every property you see online, it is a worthwhile exercise to work out what the costs would be for a property within your budget in the area you are interested in, especially if your budget is relatively low. As you will see some of the costs, like legal fees can be fixed, or have a minimum fee. Notary fees and Land Registry fees rise with the value of a property, but not proportionately and they too have a minimum rate. This means that the lower the price of the property, the higher the associated costs are when calculated as a percentage. In some cases the costs may work out to be considerably more than the upper estimate of 15%. Likewise in some areas, notably Madrid, your costs will likely fall below than the lower 12% estimate.
One of the roles of your lawyer will be to provide a breakdown of the costs of purchase, however this only tends to happen when completion of the purchase is imminent. Knowing how to estimate the costs yourself can relieve a potential worry at what can be a stressful time.
Throughout this chapter, we will break down each of these costs in detail, providing you with the information you need to create a comprehensive budget for your Spanish property purchase. We'll discuss the various taxes applicable to different property types and regions, estimate the fees you can expect to pay for notary services and land registry, look at ways to transfer money as efficiently as possible and ways that you can minimise costs when you approach completion.
By the end of this chapter, you'll have a clear understanding of all of the costs involved in buying a property in Spain and be well-equipped to plan your budget accordingly.
Remember, while the additional costs associated with buying a property in Spain can be significant, they are a necessary part of the process, while the avoidance of purchase taxes used to be commonplace the “Hacienda” (the Spanish Inland Revenue) is now extremely vigilant. I will explain how the authorities have cracked down on illegal practices and how you can avoid being fined by inadvertently following bad advice. Similarly I have seen some terrible money saving advice being given out on social media and even by agents, that sometimes will cost you far more than you save through indirect expenses and that can also expose you to huge risks. There are some corners that simply should not be cut and I will highlight those too.
Finally, before we get into the technical detail I want to highlight the importance of double checking these figures with your lawyer. While researching the tax rates for all of the regions I found many websites showing incorrect figures, these included websites that should be considered reliable, like Idealista (Spain’s equivalent to Rightmove) and various legal sites. The only way I could be certain that I was giving the correct information was to check the official websites of all 17 communities and, given that each community presents their information differently (and some completely illogically) this task took me most of a day to complete. Unfortunately, any one of those communities could update their tax regime at any moment making the information in this book incorrect. I have added links to the information sources in the resources section however the sources are, of course, in Spanish however there are translation tools readily available.Taxes on Property Purchases
Taxes make up a significant portion of the additional costs you'll need to budget for. The type of taxes and their respective rates will depend on whether you are purchasing a new-build property or a resale property.