Step-by-step guide to buying a property in Mallorca | Costs & Taxes (2023 Updated)
Acquisition costs need not be a touchy issue in the sales process of a Mallorca property
When you are calculating how much you can spend on your dream Mallorca property for sale you must also consider the overheads of the purchase. These costs obviously depend upon the actual sales price.
It is so easy to obtain a cost break-down, as far as purchasing a property for sale in Mallorca these taxes are applicable:
- Notary fees and charges of the property register
- 10% VAT on the purchase of new properties, known as IVA
- ITP - Purchase Tax for purchase of a resale property
- 1.5% stamp duty which may occasionally arise known as AJD (Actos Jurídicos Documentados)
In the case of pre-owned properties, the buyer must pay the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales / ITP). This is a progressive tax and in the Balearic Islands it is structured as follows:
up to 400.000 € purchase price: 8% real estate transfer tax
400.001 € to 600.000 € purchase price: 9% real estate transfer tax
600.001 € to 1.000.000 € purchase price: 10% real estate transfer tax
1.000.001 € to 2.000.000 € purchase price 12% real estate transfer tax
2.000.001 € and above: 13% real estate transfer tax
Example: purchase price of a property > 1.000.000 €
In this case the applicable real estate transfer tax will be calculated as follows:
On the proportional amount of 400.000 € a tax charge of 8 % = 32.000 €
On the proportional amount of 600.000 € a tax charge of 9 % = 54.000 €
On the proportional amount of 1.000.000 € and over a tax charge of 11,5 % = 90.000 €
Real estate transfer tax: 90.0000 €
A transaction that is subject to ITP is not also subject to AJD, however when mortgages are involved, then AJD is applicable. The notary will charge his fee which is between 600€ and 2.000€ - again subject to the final purchase price of the property for sale. The fee to register the property is generally approx. between 300€ and 1.200€.If a lawyer is engaged, which we do strongly recommend, the fees are usually between 0.5% and 1% of the purchase price of the house for sale. However, this also depends on the complexity of the transaction.
The tax implications when buying a property in Mallorca are as follows:
Capital Gains Tax
Residents in Spain at the time of purchase, the gain is added to your other investment income and gains for the year and taxed using the ‘savings income’ rates: 19% up to €6,000; 21% to €50,000 and 23% above this. If the time comes for you to sell your Mallorca property, the gain will be subject to tax in Spain.
If you (as a Mallorcan resident) are aged over 65 when you sell a property that has been your main home, you will not have to pay tax provided certain requirements are met. For residents in Mallorca, capital gains tax is charged at a flat rate of 19%.
When selling a property, you may also have to pay the Plusvalía Municipal Tax, which applies to residents and non-residents alike. This is a local land tax payable on the increase in the value of the land (excluding buildings), with the amount varying according to the size of the local population and length of ownership.
Purchase and Local Taxes
When buying property in the Balearics, you will need to pay either 10% VAT (Impuesto sobre el Valor Añadido (IVA)) if it is a new build, or a purchase tax of 8% to 11.5% (Impuesto sobre Transmisiones Patrimoniales) for others.
You will also need to pay Actos Jurídicos Documentados (stamp duty) which is generally 1.5% of the property value in the Balearics.
Each year you will also need to pay the local council tax known as Impuesto sobre Bienes Inmuebles (IBI) on Spanish residential property, with the amount based on the official value of the property (valor catastral). Payable at the same time to your local council as the IBI is the fixed fee for rubbish collection.
Annual Wealth Tax
If you are resident in Spain, you are liable to wealth tax on your worldwide assets every year. If you are non-resident, only your Spanish assets will be assessed for this tax. So this is always something to consider when buying a property in Spain, particularly high end properties.
Wealth tax rates in the Balearics range from 0.28% for taxable assets up to €170,472, to 3.45% for assets over €10,909,915 (as at April 2019).
Both Spanish residents and non-residents receive a €700,000 personal allowance, and if you live in Spain you receive an extra allowance of up to €300,000 for your main home. So resident couples who own a property in joint names could have a total tax-free allowance of up to €2 million.
If you rent out your Mallorca property you will be subject to income tax on the rental income.
The general scale rates of income tax apply for residents, ranging from 19% to 47.5% in the Balearics (as at April 2019). For long-term lets you could get a 60% tax reduction against the net rental income.
Tax for non-residents depends on where you live:
- EU/EEA residents currently pay a flat 19% tax rate on the net income, after deduction of some expenses.
- Non-EU/EEA residents pay 24% on the gross rental income (non deductible expenses).
In March 2019, the European Commission initiated an infringement procedure against Spain, asking it to eliminate this discriminatory tax treatment for non-residents. But it may be a few years before this results in any change, if indeed it does.
Tax on rental income (notional)
If you own a property in Majorca, villa or apartment which is not used as your main home, tax is also payable on ‘supposed rental income’ for the period a property is not rented out. It is generally based on 1.1% of the valor catastral (2% if the value has not been revised within ten years). This is added to other general income for the year and taxed at the progressive income tax rates for Spanish residents. It is taxed at 19% for EU/EEA residents and 24% for others.
Tax rates depend on who the beneficiary is, and the amount inherited or gifted. On the Balearic Islands, taxes for direct descendants and ascendants range from 1% to 20%; for others they vary between 7.65% and 35%.
There are a few personal tax reductions: €25,000 for close relatives; €8,000 for other relatives and €1,000 for non-family.
Owning property through a Spanish S.L. company
Owning Spanish property through a company was tax-efficient in the past, but recent tax changes have diluted the benefits in Spain.
Properties owned by an S.L. company in Spain attracts savings income tax on profits in general and is liable for wealth and succession taxes without being eligible for any of the main home allowances. Spanish corporation tax may also be due in some cases. Therefore, you need to carefully weigh the pros and cons to determine if this approach would be suitable for your property investment.
Important information re. Spanish taxes
Spanish purchase taxes may change. Any of the described information facts concerning taxation are based upon our understanding of current 2020 Spanish tax law and practices which may be subject to change.
It makes sense to employ the assistance of professionals throughout the purchase process of your dream Mallorca property. You don’t need to worry about any “hidden” costs because you have the most experienced and reputable company by your side!