Value Added Tax and Transfer Tax
All property deals are either subject to VAT (known as IVA in Spain) or Transfer Tax (known as ITP). Only one of these taxes is applied, not both.
Transfer Tax is applicable on second hand properties. The first 400,000€ of property value attracts 8%, the next 200,000€ attracts 9%, and all value after this attracts 10% Transfer Tax.
VAT is applicable on new property (i.e. with newly issued property deeds) at 10% and on land where construction has started at 21%. VAT is payable on the whole amount in the contract.
It is the Notary who will decide whether it is Transfer Tax of VAT that is payable (although the tax office has the right to appeal).
It is fair to assume that your tax bill will be 10% (a little less if buying a small apartment or small plot of land.
In Ibiza, the normal fee that a solicitor would charge is 1½%, although this could be more if the transaction is not straightforward. Alternatively, you may use the services of a Gestoría. A gestoría is a private agency that draws upon the in-house services of accountants and solicitors and deals with all the beaurocratic government departments (that are all too common in Spain) on behalf of ordinary members of the public. A gestoría will normally charge around 1%.
Should you not wish to make a journey to Ibiza on the day of completion then you may wish to grant a Power Of Attorney so that your solicitor (or someone else acting on you behalf) can sign the necessary documents and make the necessary payments from your bank account. This will incur an extra fee, but you will probably save more than this on flights and hotel bills.
Notary’s Fees and Stamp Duty (Land Registration fee)
There is the Notary who will check that all the documents are in order, that the parties to the contract are who they say they are, and who will witness the signing of the contract. The fee for this will be about 1% (which will include the 0.5% Land Registration fees), but will be higher if there is a new mortgage to be registered at the same time. The Notary cannot give you (and is not allowed to give you) advice; any questions you may have should be directed towards your solicitor who is there for that purpose.
For a new property with new title deeds, there is a 1.2% Stamp Duty.
You will normally be expected to pay the Plus Valia. (This is a capital gains tax levied by the local town hall and will vary upon the locality and on how long ago the land was previously sold). A typical amount would be 800 euros, although if you are buying a resale property that has been owned by a family for many years, this could be significantly higher. In theory, this tax is the responsibility of the seller of the property. However, because non-payment of this tax results in a charge being placed by the state upon the property (which the new owner would then have to clear), it is now the acceptable norm for the payment of this tax to be (quite legally) contracted to the buyer so that the buyer will know the status of this payment on conclusion of the purchase. In the event that the seller is offering to pay this tax, your solicitor may advise you that you should pay this instead and request that the price of the property be reduced by the same amount.
Connection to Utilities
You should allow 150 euros each for the connection charges for the water and electricity. Occasionally, if there is a lot of work required in order to achieve connection, then the cost could be closer to 300 euros each.
After Sales Fee
Unlike some estate agents, we do not charge for our after sales service.
These are separate fees and will need to be paid for separately by you (or your solicitor on your behalf if you have set up a Power Of Attorney).
Let us take an example. Supposing you buy a property for 1,000,000 euros. The approximate costs will be:
|Item||Amount in Euros|
|Legal Fees (Solicitor)||15,000 €|
|Value Added Tax (IVA or ITP)||100,000 €|
|Notary’s Fees||10,000 €|
|Plus Valia||800 €|
|Connection of Utilities||300 €|
|After Sales Fee||0 €|
Rule of Thumb
As a rule of thumb the cost of buying a property are just under 13% of the property contract value for tax and costs. This is just an example and each sale is different.