Buying a home on one of the Balearic Islands can be a very exciting time. Viewing different styles of property, researching and experiencing the local areas and envisaging a care free life in the sunshine all add to the fun of this experience. However like any home buying experience there are also other factors that need to be considered to smooth the path to purchasing your dream property in the sun – factors such as costs, legalities, sales contracts etc.
If this is your first time buying a property on one of the Balearic Islands, you should be aware that the procedure and process is quite different in comparison to the UK. Good advice is always to seek out the services of an independent English Speaking Lawyer on your chosen Island who has experience in advising UK clients in relation to property purchases.
However, to give you an overview of the process of buying a property on one of the Balearic Islands we have compiled a simple guide addressing some of the questions you may have regarding this process:
What costs are involved when buying a property in the Balearics?
There are various costs and taxes which you will need to pay when buying a property in the Balearic Islands that need to be taken into consideration in addition to the purchase price.
Generally in addition to the purchase price of your chosen property you will be required to pay costs of approximately 12-14% of the purchase price. These costs include:
For the purchase of an ‘off plan’ or new build property from a developer you will be required to pay IVA tax which is the equivalent of VAT. This charge is applicable for residential properties that have been previously unoccupied and building plots of land
This is currently set at 10% of the purchase price for new residential properties (villas, apartments etc.) and 21% for building plots of land, plus in the Balearics they also charge an additional 1% to the town hall.
For properties which are considered ‘second hand’ so bought as a resale from a private individual, you will you will not be required to pay IVA tax but will have to pay a transfer tax termed Impuesto de Transmisiones Patrimoniales (ITP). This tax is paid direct to the particular local authority in which the property is located and is akin to UK Stamp Duty Land Tax.
In the Balearic Islands this rate is different to that charged for properties on the Spanish mainland in that the percentage chargeable increases in stages from 7-10% dependent upon the price of the property that you are wishing to purchase. ITP rates increase progressively from 8% to 11% as follows:
Up to €400,000 8%
From €400,001 to €600,000 9%
From €600,001 to €1,000,000 10%
Over €1,000,000 11%
If you are purchasing your property in the Balearic Islands using a mortgage arrangement you may also be required to pay stamp duty on the value of the mortgage. This tax varies by region but is generally between 0.5% and 1%).
- Property valuation
There will also costs associated with a valuation of your chosen property which are generally in the region of €500 plus the costs related to the mortgage itself. These costs will of course vary from lender to lender, but are approximately 1%.
- Legal Fees
Legal fees are those charged by your lawyer in association with executing your purchase and are usually charged as a percentage of the purchase price, typically at 1-2%. You may also incur the additional cost of a Power of Attorney if this is required and your appointed legal firm will advise you the fees for this.
- Notary Fees
Notary Fee charges are fixed by law and the amount will depend on the extent of the legal provisions of the Title Deeds for your particular property. Generally these total approximately 0.5%-1% of the purchase price. It should be noted that Notary fees increase if you are funding your property purchase through a mortgage.
- Land Registry Fees
The fee payable for Land Registry Fees will very much depend upon the value of the property and the area it is in, but you would be well advised to allow 0.5%- 1% of the purchase price to cover these fees.
- Banking costs
In order to pay for your property in your chosen Balearic Island you will usually be required to present a bankers draft or transfer. To do this you will need to set up a Spanish bank account and transfer the funds across from your home country bank account.
The cost of these transfers can be as much as 5% along with the cost of the Spanish bankers’ draft up to 0.5% of the cheque’s value.
What is the procedure for buying a property in the Balearic Islands?
Before you begin to buy a property in the Balearics you are legally required to obtain an NIE number/certificate (Nnumero de Identificacion de Extranjeros). This is your Spanish identification and tax number and it is mandatory for all non-residents to obtain prior to signing the Deed of Sale (Escritura).
When you have found the home of your dreams there are three main steps involved:
Acceptance of your offer and preliminary negotiations
When your offer to buy your chosen property has been accepted by the owner, they will be contacted on your behalf. This will be to initiate negotiations regarding the terms and conditions of the sale. The sale price will be formally agreed, along with other conditions, such as any fixtures and fittings included, renovation work that needs to be done to the property prior to purchase completion, ongoing maintenance work, completion date etc. At this stage you are not legally bound to continue with the purchase if you should change your mind.
The Private Arras Contract (Contrato privado de arras)
Prior to this stage your lawyer should undertake all the required checks on the property such as checks at the local town hall, tax office and land registry to ensure that the property that you wish to buy is free from any problems and to also make sure that the seller actually owns the property.
You can then proceed to the second stage of the pre-sales agreement and holding deposit termed the Private Arras Contract (Contrato privado de arras). This is a simple agreement between the buyer and the seller in which the seller agrees to sell the property and you agree to buy the property at the price agreed.
This contract will contain all the relevant details such as a description of the property, the purchase price, the payment structure and the completion date. At this stage you will be expected to make a holding deposit which is usually around 10% of the agreed sales price normally paid to the Seller’s bank account.
Within the Private Arras Contract there is usually a clause stating that if after this point you breach the contract you will automatically forfeit your deposit. However, if on the other hand the seller breaks the contract, they are required by law to pay you twice the amount of the deposit paid less any legal fees that may be applicable.
Completion of the Public Deed of Conveyance (Escritura de compraventa)
Before you can proceed with the completion of the purchase of your property you will need your NIE number. On the agreed date of purchase completion the balance of the purchase price plus all fees payable including taxes, duties, notary’s fees etc., must be paid by the buyer in full. Payment has to be made by banker’s draft or bank transfer, so therefore you will need to have set up a Spanish bank account and to have transferred the money from your UK bank.
When both you and the seller are happy with the terms of the contract such as the price of the property, names of buyer and seller, amount of the deposit and the date of completion of the purchase, the Escritura de Compravento will then be prepared by a Spanish notary (‘notario’).
This is the conveyance document that transfers the legal ownership of your chosen Island property and it must be signed in the presence of the notario. The main function of the notario is to certify Spanish documents and agreements ensuring that they fulfil certain legal criteria and to enable the authorities to collect the relevant taxes. The notario does not advise or protect the interests of the buyer or seller, and you should ensure that you are represented by your appointed lawyer.
You can then either choose to sign the Spanish title deeds document in person in front of the notario or can arrange a Power of Attorney to sign on your behalf. If you do choose to sign in person an English speaking lawyer must be present to translate and explain the contents of the deeds to you. The notario will usually read the contents of the deeds aloud in Spanish and may not agree to sign the deeds unless he is happy that either you speak Spanish and understand the contents.
Should you require a Power of Attorney, your lawyer will no doubt be able to prepare this on your behalf. You can put the Power of Attorney into effect by signing this in Spain in the presence of a Spanish notary, through the Spanish consulates in the UK, or through a British notary public with a ‘Hague Apostille’.
Once the deeds are signed on behalf of the buyer, seller and any mortgage lender, the balance of the purchase price and any duties and taxes due will need to be paid. It is the buyer’s responsibility, to ensure that all due property taxes are paid before the property transfer is registered. Once all is paid the property will be transferred into your name with the Spanish Land Registry, the Registro de la Propiedad. This protects the rights of the owners of a property by inscribing the title deeds to the property in the local land register. The notario may offer to register the property transfer for a fee, and may notify the registry office that the sale has taken place.