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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

Spanish residency status – should you become resident in Spain?

April 6, 2009 // Posted in Mallorca resources, services and information (Tags: , , ) |  No Comments

This article is most likely to be of interest to people planning on moving to Mallorca permanently or semi-permanently. You probably realise that, assuming you are an EU citizen, there are no barriers to living or working in Spain. But most people who have holiday homes here are tourists and remain residents of the UK or whichever country they spend most of their time in and becoming a resident of Spain will not be a consideration.

However, if you’re in Spain for a total of 183 days or more in any one calendar year, officially you’ll be classed as a resident for tax purposes – this is called becoming a ‘fiscal resident’. This 183 day allowance includes the days when you are travelling to and from Spain.

Being a ‘fiscal resident’ means you’ll be liable to pay Spanish tax on your worldwide income, whether you’ve already paid tax in the UK or not. There is a double taxation treaty between the two countries which is designed to ensure you do not pay tax twice, so the amounts will be adjusted accordingly and this is something for which you should seek advice from your tax advisor. The best solution is usually either to become a resident so you pay tax in Spain and not in the UK, or keep a careful tally of the days you spend in Spain and don’t go over the 183 day threshold.

NB. Not being a Spanish resident does not mean that you do not have to pay tax on income earned in Spain. If you earn money here, for example from a rental income, you have to pay tax on that income. Being here for 183 days or more simply classes you automatically as tax or “fiscally” resident.

There are a number of benefits to being a resident of Spain:

  • Regarding inheritance taxes, as a resident if you leave your home to a spouse, child or close relative who is also a resident, you can probably avoid Spanish inheritance tax on 95% of the value of the property. There are conditions so you ought to seek the advice of your finance advisor relating to your own particular circumstance.
  • If you are 65 or over and have lived in your home for three years or more you do not have to pay capital gains tax at all when you sell.
  • You will be covered for full access to the Spanish healthcare system if you are a resident paying Spanish social security contributions or a resident pensioner receiving a UK state pension. (Bare in mind that if you become a Spanish resident or spend less than six months a year in the UK, you’ll lose your right to free NHS treatment.)

The process of becoming a Spanish resident

  1. The process for becoming a Spanish resident was simplified in March 2007. From this date you no longer require residence permits and can obtain residence status with just a quick visit to register at the National Police station.
  2. You should make an appointment in advance and make sure you take along your passport and a photocopy.
  3. If you’re registering for the first time you will also need to show your Empadronamiento, which is sometimes called the Padron Certificate. You can obtain this from the local Town Hall by taking the original of your sale or rental contract and your passport as identification. The Padron Certificate is to certify that you reside in the dwelling you wish to declare in the municipal census i.e. the local records of the inhabitants of the municipality.
  4. Once you’ve submitted the required documents you will be given a pay slip to take to the bank to pay the fee (this is approx €10). You then bring the payment receipt back to the police station where you will be issued with your certificate of residency (Certificado de Registro) and entered into the official register.

Non EU citizens

If you’re NOT an EU citizen you should contact the Spanish embassy in your home country BEFORE travelling to Spain to enquire about specific rules that apply to you. Regulations differ depending on the country concerned, so it’s important to check.

The NIE (Foreigner’s Identification Number)

April 6, 2009 // Posted in Mallorca resources, services and information (Tags: , , ) |  1 Comment

The NIE number is essentially equivalent to the UK National Insurance number. It is simple to get one and is required for all foreigners who are living in Spain or who are commercially active here. You will find that the number is requested quite often for such things as:

  • Opening a bank account
  • Buying, selling or insuring a property
  • Arranging credit terms or a mortgage
  • Paying taxes
  • Being paid for employment
  • Applying for a business permit
  • Registering with social services
  • Applying for a driver’s licence

Getting an NIE Number

An EU citizen applying for their certificate of residence certificado de registro will be issued an NIE number at the same time. If not you can apply for one as follows:

1) To apply directly yourself, you should apply to the foreigners department Oficina de Extranjeros of a national Spanish police station comisaría. No appointment is necessary although it is best to get there quite early in the day.

The address and contact details of the Oficina de Extranjeros for Mallorca are:

OFICINA DE EXTRANJEROS DE ILLES BALEARS
C/ Ciudad de Queretaro, s/n Polígono Levante
07006 – Palma
(Balears, Illes)

Tel: +34 971 989 170
Tel: +34 902 022 222

(Horario: De lunes a jueves de 9.00 a 17.30 y viernes de 9.00 a 14.00.)

The items you will need to take are:

  • Valid passport and photocopy
  • Two passport sized photographs
  • Address in Spain
  • Documentation stating the reasons for applying for the NIE

An application form, the NIE para residentes en el extranjero form EX14, is filled out and signed. You can download the Solicitud de NIE EX14: here but make sure you do not sign the form until in the presence of an official.

Once this is all complete the processing of the application usually takes 3 weeks to 1 month.

2) An alternative that we recommend for being quicker and less hassle is to ask your lawyer or gestor to process this for you. For further information on Gestors please click here.

The Gestor / Gestoria in Mallorca: who are they and what do they do?

April 5, 2009 // Posted in Mallorca resources, services and information (Tags: , , , ) |  3 Comments

The position of a gestor is not one that exists in the UK so is often not readily understood. You may have heard it in the context of tax returns or other administrative procedures, and you may at some point have been advised to visit one, so here is an explanation as to what a gestoria is and what the gestor does .

A gestor is, essentially, an administrator. They exist as an interface between the you and the authorities or public services. As well as handling the processing of your finances and submission of tax returns they will happily perform a range of other activities. The administration relating to your car, insurance, getting utilities accounts and so on.

In many respects you could liken them to administrators in a legal practice or accounting firm, and your gestor may well work within such a company, or they may be independent. Either way you will most likely deal direct with them on straight-forward matters such as the above.

The value of their service is in saving you the time and hassle of undertaking such tasks yourself. They know the intricacies of Spanish administrative bureaucracy, as well as knowing with whom to speak to get things done quickly.

The services of a gestor are most likely to be of interest to people moving to Mallorca. They will charge a fee for their services but they will save you huge amounts of time and ensure things are done quickly and properly. They will estimate up front how much each task should cost.

If you run a small company in Mallorca then the gestor can also do your company accounts. For larger companies a contable or accountant is more suitable, although some gestors are also contables whilst others are also abogados (lawyers). A gestor however is not a licensed professional in their own right. They are administrators with experience and good contacts.

If you would like an introduction to an experienced and well-reputed Gestor please email us and will will help out.

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.