Category: Property

  • Foreign property buyers in Spain may face 100% tax burden

    Foreign property buyers in Spain may face 100% tax burden

    The Spanish Prime Minister, Pedro Sánchez, has announced that his government will limit the purchase of properties in Spain to non-resident non-EU nationals. It seeks to increase the tax burden for this type of purchases up to 100%. Let us take a look at the few details we have about this announcement.

    To whom does the new measures apply?

    EU nationals will not be affected by it, as under EU law they have to be treated as Spanish citizens. Therefore, only non-EU nationals can be the affected subjects for this hypothetical tax increase. This means, for example, British, U.S., Brazilian or Chinese citizens. In addition, they must be non-residents. Thus, a British citizen who is a lawful resident of Spain will not be affected by the measure.

    How will it be implemented?

    It is not yet clear how they will apply this new 100% tax burden. Newly built property carries VAT at 10%, and under EU law they cannot increase VAT rate base on who purchases the property. They may introduce a new additional tax just for non-resident non-EU nationals.

    As for pre-owned property, VAT does not apply, as it carries a property transfer tax which between 6 to 10% depending on the Autonomous Community where the property is located. This tax is charged by regional governments, and it is unlikely that those in the hands of opposition parties (most of all at this time) will agree to such a discriminatory increase. Again, this could be sorted by creating a special tax as for new-built property.

    Can the new measure be challenged?

    Firstly, if the government finally goes ahead and established the proposed tax, they have to do it through legislation, which must be scrutinised and passed by Congress. At this point it should be remembered that the current government is a minority government, and needs the support of external parties in order to pass any legislation. This would be a very controversial measure, and we are yet to see if some of the conservative parties who must support it in order to be passed will effectively do so. While far left parties are more likely to support the government, I doubt the Basque Nationalist party or the Together for Catalunya party, will support this proposal.

    On the other hand, this seems to me more like a populist announcement intended to distract the attention from serious judicial problems surrounding some government members, including the PM’s wife and the Attorney General, both under investigation for criminal offences. We have seen this kind of manoeuvres lately with an aim to put the focus somewhere else and grant the support from the radical left.

    There also is some talk in legal circles about the proposed measure breaching article 63 of the Treaty on the Functioning of the European Union. This article prohibits all restrictions on the movement of capital between Member States and between Member States and third countries. I am yet to see how increased taxation places a restriction on the movement of capital, but some tax lawyers think it does, so there could be a path to challenge the measure.

    Anyway, before any further analisys we must see the proposed measures in writing, in the form of a bill introduced to Congress. It is then when we will be able to fully understand their implementation and devise potential ways to challenge them.

    What is the current situation then?

    Any intention announced by the government need to be passed as legislation before they are applied, so, for the time being, this is just an announcement without any practical consequences for those who are in the process of purchasing Spanish property.

    Provided the measure is finally implemented, there are workarounds to it, such as obtaining legal residence in Spain. You can do this just for the purpose of purchasing the property, even though you do not have any intention of making Spain your country of permanent residence.

    If you need further legal advice we can work with you on this or other matters and ensure you always get the best deal.

  • Cost of Property in Spain

    Cost of Property in Spain

    Whether you are considering moving to Spain or have already moved, owning property will become your strongest bond with the country and, possibly, your largest investment.

    We have heard too many horror stories about foreigners losing their Spanish property due to various legal issues. In many of those cases what I call DIY buyers were the victims. Not having the right professionals on your side may cost you dear. Property buyers ofter get in touch with an estate agent and let them do all the paperwork. This may prove cheaper, but has quite a lot of drawbacks.

    To begin with, estate agents are not regulated in Spain. In fact, anyone without formal training can be an estate agent. Lack of regulation affects their fees, as it is written nowhere whether these are paid by the seller or the buyer, and how much they will charge. Besides this, you need to take into account that in practice most estate agents will be working for both the seller and the buyer. This means they lack any incentive to act in your interest and, in fact, will mostly seek a quick sale so they can cash their fees as soon as possible.

    Another aspect of buying property in Spain is the costs involved. According to Zoopla, in the UK estate agent fees range from 1% to 3.5% of the sale value. When you are used to that kind of fees, Spain will be shocking, as the average is 5% of the sale value. Also, whereas in the UK estate agent fees are paid by the seller, in Spain it is not so clear, and you will find that it is not uncommon to see fees paid by both the seller and the buyer. I recently witnessed the sale of a €120,000 property where both seller and buyer paid a €5,000 fee each. The estate agent made a healthy €10,000 from a property sold for €120,000!

    Taxes are another money blackhole when buying Spanish property. Whereas in the UK properties up to £250,000 are exempt from stamp duty (reduced to £125,000 from April 2025), there is no such exemption in Spain, and newly built property carries VAT at 10%. Add to this the so called “Documented Legal Acts Tax” which ranges from 0.5% to 1.5% (in the most popular areas for foreign residents, Valencia at 1.5% and Andalucía at 1.2%). For pre-owned property VAT is replaced by a Property Transfer Tax ranging from 6% to 10% (again, in popular expat areas such as Valencia, 10%, and Andalucía, 7%). On top of this you also pay the Documented Legal Acts tax as in newly built property.

    For illustration purposes, a €300.000 property could cost you an additional €7,500 in estate agent fees (in the assumption they charge 5% and costs are shared between seller and buyer) plus €34,500 in taxes. That is a shocking €42,000 on top of the €300,000 purchase price. Allow for approximately an extra €2,000 for deeds and registry costs and that is the final price you have to pay.

    Beyond high purchase costs, recurring costs must be taken into account. We can separate these in two different categories: taxes and private fees. Among the latter, the main fee will be that of service charges. These usually apply to flats in a block of flats, and depend on the services available and the size of the property. They should, nevertheless, be clearly reflected on your purchase documents, potentially ranging from €30 to €150 per month. The owners’ association may decide by a majority to increase the fee or raise funds for specific purposes, hence, increasing what you pay.

    There is also a tax similar to Council Tax in the UK, and it will be assessed on the cadastral value of the property (a monetary value that authorities give each property, usually lower than market value). Different councils, though, have different rules for the valuation, but nevertheless this particular tax will usually be lower than UK Council Tax.

    We have looked at how estate agents work in Spain (and this includes UK estate agents established in Spain) and the costs involved in owning Spanish property. In future posts we will discuss the purchase process, what must be checked about a property before committing to buy it, and whether we are buying at a fair market price.

    In the mean time, if you are seriously considering buying a property in Spain, we can offer genuine legal services towards ensuring that you get what you pay for and become the owner of a trouble-free property.