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Costs associated with buying and owning property in Mallorca

July 20, 2009 // Posted in Property finance in Mallorca (Tags: , , , , , , , , ) |  No Comments

This article is to offer some guidance on the costs you should consider when buying a property in Mallorca. Please note these are for guidance only. Your personal tax situation will depend on your status and you should always seek the advice of a professional in matters that are of financial importance to you.

Purchase taxes and other one off purchase costs

As a guide you should allow 10% of the final purchase price to cover purchase taxes, legal and other associated costs. Most of this (7%) is property transfer tax. For more detail on these costs please see our main website feature on buying a property in Mallorca.

It is worth noting that much of these purchase costs can be off-set against any future capital gains tax when you come to sell the property. This is also noted in more detail on the same page on our main website.

Ongoing costs

There are basically four areas of cost to consider:

1) “Property Income Tax”.

This is a tax for non-residents and is based on “assumed income”. The tax is calculated at a rate of 25% of the assumed income which is obtained by multiplying the cadastral (land registry) value of the property by approximately 1.2%.

By way of example, a property with a registered value of Euro 400.000 would give rise to a tax liability as follows:

Taxable base (assumed income) : 400.000 x 1.1% = €4,400
Tax on that income at 25%: €4.400 x 25% = €1.100

2) I.B.I . (Impuesto Bienes Inmuebles)

This is a real estate tax levied by the local town hall to cover services to the municipality. It is much like the UK Council Tax. The amount varies by area but is usually less than the council tax would be for an equivalent property in the UK.

There used also to be a wealth tax but this has been abolished – see : abolition of wealth tax in Mallorca.

3) Utilities. Gas, water, electricity and phone services will obviously vary according to usage. The cost “per unit” is generally marginally higher than in the UK and, whilst heating costs might be lower, air-conditioning and pools can consume more electricity than you are used to.

To be on the safe side estimate overall costs to be a bit higher than you would estimate for a similar property with similar usage in the UK. It should also be possible to get copies of previous bills for a property you are buying in order to plan budgets more accurately.

4) Maintenance. It is best to set this around the same level overall as you would expect in a similar property in the UK.

If your property is in a community development with communal facilities such as a pool maintenance will be covered within a monthly community charge. These vary according to the facilities provided and the standard of upkeep. Generally they are Euro 100 to Euro 350 per month.

When you are considering buying a property in a community you should be able to get an exact figure in advance.

Further useful information:

≈ Tax and finance advisers in Mallorca
≈ Lawyers in Mallorca

Capital gains tax in Mallorca: off-setting buying and selling costs on Mallorca properties

April 28, 2009 // Posted in Property finance in Mallorca (Tags: , , , , , , , ) |  No Comments

This article is to highlight a point that many people do not realise relating to the cost of buying a property in Mallorca. Overall the costs are higher than in the UK. Mostly they are made up of taxes, then there are legal costs and notary fees. In all we recommend you allow 10% on top of the final agreed purchase price in order to cater for these costs.

In addition to this, you should consider the future costs for if and when you come to sell the property i.e. the estate agent fees and capital gains tax. Estate agent fees are generally 5% or 6% of the sale price – again, a lot compared to the UK, but unavoidable if you want the best agents with the biggest client-base working to sell your property.

There is, however, a very important factor that mitigates significantly against these costs – many of these costs can be offset against the tax you are liable for on any capital gain you make when you come to sell.

Specifically, all of the buying costs including taxes and legal costs can be offset against capital gains tax. So can the estate agent fees on sale of the property.

It is also possible to offset the costs of substantial home improvements. This would not apply to simple redecorating but an extension or refurbishment is likely to quality.

The capital gains tax rate for non residents is now the same as for residents at 18%, so more or less in line with the UK. All-in-all, if buying, selling and any improvement costs are offset against this as above, the cost of buying and selling property in Mallorca is probably about the same, or slightly less, than in the UK.

In order to do this it is essential that you keep invoices and receipts for all payments. This is also another reason to have good tax advisor as they will be able to tell you exactly which costs you can offset and which you cannot. They will stand far more chance of saving you money if you speak to them at the outset when you purchase your property rather than as an afterthought when you come to sell it.

≈ See more on tax advisors and accountants in Mallorca

≈ See more on the buying process and associated costs

≈ Capital gains tax in Mallorca

Capital gains tax on properties in Mallorca

March 12, 2009 // Posted in Property finance in Mallorca (Tags: , , , , , , , ) |  1 Comment

Both residents and non-residents are required to pay capital gains tax when they sell a property in Mallorca. It used to be advantageous to buy properties through a company in order to avoid this, but this is not the case now as the advantages are less and it can complicate the sale of the property. So this is something we recommend strongly against unless there are very clear reasons as to why this is the preferable structure to adopt.

The good news is that the tax rate is now lower than it used to be. Non-residents used to have to pay a higher rate of 35%, but this has now been standardised to be in line with the residents’ rate at 18%.

The tax is calculated as the difference between the acquisition value and the sale value of the property. These figures are worked out as follows:

Acquisition Value

The value is based on the stated value in the Deed of Purchase plus those taxes and disbursements which are related to the purchase (primarily VAT, Transfer Tax, Inheritance tax (if applicable), Notary’s fees, Stamp Duty and Land Registry fees).

This value is then recalculated according to a formula that is reviewed every year by the Government. This basically reduces the taxable value by increasing amounts according to the length of ownership.

Sale value

The value of the sale is calculated as the purchase payment received less any disbursements – this includes taxes related to the purchase and which have been paid by the vendor (Plusvalia tax, Estate Agent’s fees and Notary’s fees). Disbursements can include some types of post completion works carried out on the property.

So, in essence, both the Acquisition value and the Sale Value are moderated in your favour. As with all tax matters we advise that you need to seek the advice of a tax expert during the initial purchase process and, ideally, prior to making the option payment on the property, ion order to be sure that you fully understand the ins-and-outs and that you plan your management of the property in the most tax-efficient way.

Obviously if you are paying this tax in Spain you do not have to pay it again in the UK. There is a double taxation treaty between the UK and Spain which means that tax cannot be levied in one country and then again in another. The gain on the property is being made in Spain so this is the correct place to apply the tax liability.

If you would like to speak to a tax expert regarding any of the above please email us and we will put you in touch with our partners in Palma. They will be happy to give initial advice free of any charge.