What are the transaction costs when buying a property in Mallorca?

From taxes to legal fees, it's crucial to understand the costs involved when buying a home

Mallorca, with its stunning landscapes and vibrant culture, has long been a coveted destination for property investment. Before diving into the real estate market of this Balearic gem, it’s crucial to understand the various costs involved in both selling and buying a property. From taxes to legal fees, each expense plays a significant role in the overall transaction process of buying a home.

What the experts say

It may seem like a good idea to do things on your own to save on fees from various brokers and advisors, but this is a false economy. The Spanish legal and tax system is complex and often not so logical to property buyers that are not familiar with these systems. Often, people get caught out, even if they try to do things correctly. More often than not, taking the advice of a qualified local specialist will not only save on costs but a lot of valuable time and potential wasted energy for the client.

The costs of buying a property in Mallorca

When purchasing property in Mallorca, buyers should prepare for several expenses, including:

Purchase Fees

When purchasing property in the Balearic Islands, you’ll face two main taxes: VAT or purchase tax. If the property is brand new, you’ll pay a 10% VAT plus 1.5% AJD. For other properties, the purchase tax ranges from 8% to 13%. Paid by the buyer, this Property Transfer Tax (ITP) is calculated based on the property’s purchase price. In Mallorca, the transfer tax stands at 8% for properties up to €400,000, and then increases in increments for properties exceeding this threshold.

For new build properties, you’ll also need to cover stamp duty, or Actos Jurídicos Documentados (AJD), which is usually 1.5% of the property’s value in the Balearics. If a property is subject to Property Transfer Tax (ITP), it doesn’t also require AJD.

Each year, you’ll need to pay the local council tax, known as IBI. This tax is based on the official property value and is comparable to an annual property tax in other countries, though in Spain it is very affordable and does not usually exceed 2,000 euros per year. The Basura is the local council tax charged specifically for rubbish collection and is also very affordable.

Notary Fees

Buyers are responsible for notary fees, which typically is 1% of the purchase price and cover the certification of the sale contract. The notary typically charges between 600€ and 2,000€, depending on the property’s final purchase price.

Legal Fees

The complexity of the transaction and required services influence legal fees, which buyers should budget for accordingly. These tend to be charged at around 1% of the property value, but can sometimes be negotiated. Non-EU citizens may also need to consider Visa options if they wish to reside all year in their new property in Spain. Fees to apply for these using a specialist range from 500-2.000 euros.

Property Registration Fees

A fee is incurred to register the property with the Land Registry. Registering the property generally costs between 300€ and 1.200€.

Mortgage Fees

If a mortgage is necessary, additional fees such as valuation fees, arrangement fees, and mortgage deed fees may apply as well as broker costs if not applied for directly at the bank.

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Fees for legal Spanish residents

Annual Wealth Tax applies to worldwide assets for residents and only Spanish assets for non-residents. This is particularly relevant to high-end properties.

Rental Income

If you decide to rent out your property in Mallorca, you’ll need to consider the income tax implications on the rental earnings. These tax rates vary depending on whether the property owner is a legal resident in Spain.

The costs of selling a property in Mallorca

Selling a property in Mallorca involves several expenses that sellers should anticipate. Here’s a breakdown of the key costs:

Real Estate Agent Fees

Typically, sellers bear the burden of real estate agent fees, which are negotiable but generally are 5% plus IVA of the sale price. Collaborating exclusively with one agency might yield a discounted commission rate.

Capital Gains Tax

If the property’s value has appreciated since its purchase, which most homes do on the island, sellers are liable to pay capital gains tax on the profit. EU residents face a tax rate of 19%, while non-EU residents are subject to a rate of 24%.

When a non-resident sells a property in Spain, the buyer must withhold 3% of the sale price and remit it to the tax authorities to cover the seller’s capital gains tax obligations. If the retained 3% exceeds the actual tax liability, the seller may eventually receive a refund after all taxes are settled, although this process can be lengthy.

Conversely, if the seller’s tax liability surpasses the 3% retention, the Spanish tax authorities may pursue the seller for the remaining amount owed, although such action is unlikely. The 3% retention does not extend to cover the seller’s obligation for the ‘plusvalia’ tax, which must be settled with the municipal authorities upon the property’s sale.

Plusvalía Tax (Land Value Added)

Plusvalía is a local tax in Mallorca that applies to the increase in the land value of urban properties when they are sold. It’s based on the property’s administrative value, known as the “Valor Catastral,” which is often lower than its market value. The tax amount depends on how long the seller has owned the property: the longer they’ve owned it, the higher the tax. Typically, the seller pays this tax, but sometimes sellers of resale properties try to make the buyer cover it instead. The amount varies based on factors like location, size, and value of the property.

Legal Fees

Employing a solicitor to oversee the sale typically incurs fees of around 0.5% of the sale price, though this can vary based on the transaction’s complexity.

Spanish Energy Certificate

Sellers must obtain an energy certificate for their property, with costs varying based on the property’s size. As a general rule of thumb:

  • Up to 100m2: 200€ + IVA
  • Between 100m2-200m2: 300€ + IVA
  • Between 200m2-300m2: 400€ + IVA
  • Over 300m2: 500€ + IVA

Frequently asked questions about buying property in Spain

Who pays notary fees in Spain?

Usually, the notary fees in Spain are covered by the buyer, but this can be discussed and negotiated between the buyer and seller.

How to avoid Capital Gains Tax on my property in Spain?

While it’s challenging to completely avoid capital gains tax in Spain, there are strategies like reinvesting the proceeds in another property within a certain timeframe or taking advantage of exemptions available for primary residences. Consulting with a tax expert is advisable to thoroughly investigate these avenues and determine the most suitable approach.

How much is the Plusvalía tax?

This local/municipal tax is levied on the increase in the value of the land since the property was last sold. The amount varies depending on factors like location, size, and value of the property.

Navigating property taxes on your new property in Mallorca

Successfully navigating the real estate market in Mallorca requires a solid grasp of its financial landscape. Whether you’re buying or selling, understanding the costs involved is crucial for a seamless experience. From taxes to legal fees, every expense plays a role in your investment and warrants careful consideration. With thorough planning and expert guidance, acquiring or selling property in Mallorca can be a fulfilling journey, offering a slice of Mediterranean paradise.

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