Buying Property In Spain: A Guide For Foreigners

Panoramic sight of the Alhambra Palace and the Albaicin district in Granada in Andalusia, Spain.

How To Buy Property In Spain

Spain has been a top global expat destination for decades. About 60 million tourists visit the country every year—an impressive figure for a country with a population of only 47 million. A few reasons for its enduring popularity are its excellent weather, its rich, laid-back, and welcoming culture, and the diverse lifestyle options on offer for retirees, remote workers, young families, and party lovers. Property is cheaper than in most parts of Western Europe and outside major cities and away from the ocean can be great value. Before buying property in Spain, though, there are several crucial steps you should know…

How To Buy Property In Spain

The process starts by deciding on budget and lifestyle. You’ll need to consider if you want to buy a second-hand property or a new-build or off-plan property. There are advantages for either option. See my recent article on the benefits and drawbacks of buying off-plan here.

The steps for purchasing a property are as follows:

  1. Make an offer on the property of your choice.
  2. Sign a reservation agreement and make a deposit of between 3,000 euros to 12,000 euros into escrow to take the property off the market for 30 days.
  3. Your lawyer conducts a title search on the property.
  4. Once satisfied, you sign the purchase agreement and pay a 10% to 20% down payment.
  5. If the seller wants to back out of the deal at this stage, he legally has to pay you double the deposit back as a penalty.
  6. When closing the deal, you sign the title deed in front of a public notary.
  7. You pay the rest of the purchase price and other closing costs. This can be done by your lawyer if you’re not in Spain at the time.
  8. The notary then delivers the deed to the Land Registry office and your new deed is produced months later.

To buy property in Spain. You’ll need a foreigner identification number called an NIE. You apply for this in person in your closest Spanish embassy. You must also register your ownership with your local town hall.

Exchange Rate

The U.S. dollar is currently strong, which makes buying properties sold in euros relatively cheaper. You can avail of much better exchange rates than those available through your bank by using exchange rate services like Moneycorp.

Taxes And Closing Costs

The property tax, or impuesto de bienes inmuebles (IBI), is paid to the local council.

If you aren’t a resident and don’t rent out your home, you’ll be assessed a non-resident rental tax at a rate of 1.1% of the local council valuation multiplied by the non-EU resident income tax rate of 24% (1.1% x 24% = 0.00264%) or 264 euros per 100,000 euros.

If you rent out your property, you must pay taxes at a rate of 24% of the income after expenses if you’re a non-EU citizen and at 19% if you’re an EU citizen.

When you buy in a development, you’ll have to pay community fees or HOA fees.

If you are non-tax resident in Spain, you only pay taxes to Spain on income you earn in Spain.

Living in Spain for over 183 days per year makes you a tax resident. Other triggers to tax residency include your principal business, principal residence, or spouse and family residing in Spain.

If you’re tax resident in Spain, you pay a wealth tax on your worldwide assets, and if you’re not, you pay taxes if you hold assets in Spain valued at over 700,000 euros. The tax is 0.2% for assets valued at up to 167,000 euros and rises incrementally up to 3.5% for assets over 10 million euros.

Here’s the income tax schedule for Andalucía tax residents as an example…

Regional National Total
0 to 12,450 euros 9.5% 9.5% 19%
12,450 euros to 20,200 euros 12% 12% 24%
20,200 euros to 35,200 euros 15% 15% 30%
35,200 euros to 60,000 euros 18.5% 18.5% 37%
60,000 euros to 300,000 euros 22.5% 22.5% 45%
300,000 euros and more 24.5% 22.5% 47%

Pensions are taxed progressively between 8% and 40%.

Capital gains tax for non-residents is 19%. For residents it’s 19% to 26% depending on the amount.

Becoming a tax resident allows you free health care and exemptions on inheritance and property taxes.

Spain has a double taxation agreement with the United States, Canada, and the U.K., so any taxes paid in Spain can be deducted from anything you might owe back home.

Closing costs in Spain are usually about 11% to 14%, which includes a transfer tax that varies by region from 6.5% to 10%, notary fees of 0.5%, registration fees of 0.4%, and legal fees of 1%. A 10% sales tax (called VAT) is charged on new buildings, but this drops the stamp duty down to 1.5%.

The Spanish tax system is complicated with significant implications if you become a tax resident. You should always get proper tax advice from a registered attorney.

Risks When Buying Property In Spain

Buying property that has not been properly registered with lands department can be a nightmare to fix. This is why you need a lawyer to handle your transaction.

If you’re buying off-plan, ensure the developer provides bank guarantees against each staged payment, as this insures you against the developer going bankrupt.

These three types of property surveys are common in Spain: condition reports, building surveys, and structural reports.

Whether you’re buying off-plan or a second-hand property, get a survey done before your final sign-off on the purchase.

Structural reports are more comprehensive and are usually only required for old buildings, strange construction methods or unusual alterations, or property in a dilapidated condition.

Financing Options

Spanish banks offer non-residents mortgages at 60% to 70% LTV, while residents can get an 80% mortgage.

Mortgages are available until you reach age 75. It’s best to get a mortgage broker to assist you to get the best interest rate possible.

An older person who requires financing might need someone to act as guarantor or co-owner on the mortgage. If the guarantor is a child of the mortgagee, inheritance tax advantages become available.

Mortgages are currently available to foreigners in Spain at a fixed long-term rate starting at 2.2%, but interest rates are on the rise. Mortgage fees can be about 2% to 4%, which is a significant consideration.

Getting A Visa

Westerners can stay in Spain for 90 days out of every 180 days without a visa.

If you want to stay longer, you must apply for a visa in your country of residence. Contact your local Spanish embassy for the list of requirements.

The Non-Lucrative Long Stay Visa is available to anyone who can show passive income of at least 400% of the IPREM value per year. For 2022, this equates to 2,316 euros per month or 27,793 euros per year. If you have a spouse or children under 18 joining you, an additional 579 euros in income per month per person is required.

This visa doesn’t allow you to work in Spain but can lead to permanent residency eligibility in five years if you keep renewing it. To renew this visa, you must spend at least 183 days per year in the country, which makes you a tax resident in Spain.

The Self Employment Visa is the option for individuals who want to open a business in Spain. You must register for local social security and local taxes, including VAT and income tax. This visa includes your spouse and dependents.

The Investment Visa can be granted to anyone who invests 500,000 euros in Spanish property, and it’s a fast track for permanent residency.

Spanish Realtors

The quality and professionalism of realtors in Spain varies hugely. There is no requirement for realtors to become members of professional bodies like the AIPP, which can make it harder to seek help in the event of an issue.

Many realtors don’t speak English, but if you’re serious about a property, they can usually get someone to translate for you.

Some realtors charge both the buyer and seller 3% to 5% for selling the property.

Be aware that realtors might be paid a commission of up to 18% for selling you an off-plan property. This staggering addition to the cost of your property needs to be carefully considered.

With shocking commissions like these, I usually advise my clients to not buy off-plan and instead buy a good-quality second-hand property. This property will come to you at its true market value and not be overinflated by outrageous sales commissions.

Legalities Of Buying Property In Spain

Anyone can own any type of property in Spain. Foreign buyers account for about 12% of all property transactions in the country. Over 20% of buyers purchase in popular tourist or beach areas.

You’ll need a local lawyer to conduct a full title search and confirm the property has a license of first occupation and that the boundaries are correct. They usually charge 1% to handle the transfer.

No matter what you might be told, it’s not possible to legally avoid future stamp duties or transfer taxes by holding your property in an offshore company or other tax avoidance structures.

Con Murphy
Editor, Overseas Property Alert

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