Good advice, absolute transparency, competent document review and clear answers from experienced property experts: these are all mandatory conditions for a successful property purchase in Mallorca. Your advisor should not only be well informed about taxes, laws, market developments and post-Brexit regulations, but also about the customs and bureaucratic operating principles specific to the island. In the following document, we have listed the most important steps that need to be kept in mind during the purchase of a property in Mallorca.
Initial contact: through conversation we will develop a detailed search profile that corresponds to your wishes. Location, property type, budget and fiscal aspects are decisive factors here. At this point we will already inform you about the desired location and its development.
Property selection: we will prepare an exclusive selection of properties according to your search profile. You will receive detailed property information in the form of an exposé.
Viewing: when a preselection has been made, we will arrange the viewing appointments and, upon request, pick you up from the airport or hotel in order to make your viewings as convenient as possible. We also offer virtual showings (e.g. in times of closed boarders and travel restrictions like during the corona-pandemic or if you simply can not travel at the moment).
Offer and negotiations: once you have found a property that you like, we will submit your purchase offer and make every effort to negotiate the best possible terms for you.
Legality and document review: if the purchase price is accepted, the documents and properties can, upon request, be reviewed for their legality and technical and structural state (by real estate appraisers, architects and lawyers) in order to provide you with legal security and to confirm your purchase decision.
Contract: we will help you through all the steps, regardless of whether you conclude a reservation contract, option contract or private purchase contract. A reservation contract is worth considering if you, as the buyer, need a few more days for consideration but do not want to lose the property to another interested buyer during this period. During purchase, or transition to an option contract, the generally low reservation fee is usually reimbursed.
For a reservation over a longer period of time, an option contract takes effect under which the buyer is granted the right to purchase the property within a certain time limit without any third parties coming into play against the payment of an option fee. Normally, the option fee amounts to 10 % of the purchase price. Such a contract can be necessary if longer preparations are required, for example if the financing for the property still needs to be settled or if architects still need to carefully examine the structure.
Brokerage: usually, a commission amounting to 5−6 % plus VAT is paid by the seller. However, in rare exceptions the buyer bears this cost. Generally, you will be notified of this in advance.
Notarial purchase agreement: notarial certification is a mandatory prerequisite for entry in the land register. Above all, this is in the best interest of the buyer who certainly does not want to assume any debts from the previous owner. Furthermore, the certificate once again includes an exact description of the property as well as the purchase price. The notary not only compares the previous land register entry with the information provided by the seller, but also makes sure that any arising community costs and taxes have been settled. The notary communicates the certification to the property register by confirmation in writing (via fax or email) and therefore guarantees legal security. However, entry of the new owner in the land register can only take place following payment of the real estate transfer tax. Usually the purchase price minus payment is paid by a bank-certified cheque. Commission is also paid to your agent in the form of a separate bank-certified cheque at the notary appointment.
Financing: Spanish banks are financing approx. 70−80 % of the estimated value or the purchase price, depending on which of the two values is lower. However, this often only applies to EU nationals. All buyers from outside of the EU can currently finance up to 60 % depending on their income and guarantees. It is advisable to also consult your home bank. During our many years of serious broker activity in Mallorca, we have built up the best and most trustworthy relationships with the local financial institutions and mortgage brokers and can help you with a quick arrangement.
Taxes and purchase costs
One-off taxes: when buying a property, you must pay either value added tax (IVA in Spanish) or real estate transfer tax (ITP in Spanish). Value added tax is applicable if you are buying a property as a company. This amounts to 21 % when purchasing land for building and commercial properties. During the first-time purchase of new owner-occupied flats, or single or multiple family dwellings, only 10 % is incurred.
For all purchases that are not subject to value added tax, the real estate transfer tax (ITP) takes effect. This refers to a regional tax which varies according to region and is currently calculated on the Balearic Islands as follows:
•for the first 400,000 euros of the purchase price, 8 % is incurred
•between 400,000.01 euros and 600,000 euros it amounts to 9 %
•between 600,000.01 euros and 1,000,000 euros, the purchase price is taxed at a rate of 10 %
•purchase prices over 1,000,000 euros are taxed at 11 %
Generally, it is advisable to consult a tax advisor about your individual tax situation in order to purchase in a tax-optimised manner.
Buying property in Spain after Brexit
The Brexit has not changed the right to purchase property in Spain and the cost of purchasing is not different to any other nationality. However, the cost of currency exchange may affect the cost in some way. If you plan to rent out your property, whether short or long term, your tax rate is currently 24% whilst EU residents pay 19%. It is also no longer possible to deduct allowable expenses of the rental income. You will be able to set off the tax paid in Spain against your UK tax bill for the same income. Any other taxes you are obliged to pay in relation with your property in Spain remain unchanged.
UK Citizens can travel to Spain any time as tourists as long as 90 days in a 180 days period. Should you plan to stay longer you will need to apply for a permission. For more information please consult the Spanish tourism information online.
Annual taxes and fees
Property tax IBI (Spanish: Impuesto sobre Bienes Inmuebles): property tax is paid annually at the end of the year. This usually amounts to between 0.4 and 1.1 % of the value, depending on the community. The amount also depends on whether or not the property is developed.
Income tax: also, non-residents who purchase a Spanish property and use it themselves have to pay income tax. Personal use is interpreted as income and is taxed. In this case, 1.1 % of the cadastre value is taken as a basis for which taxes at 24 % become due.
Annual wealth tax: Residents in Spain are liable to wealth tax on their world-wide assets every year, non-residents only for their Spanish assets. Wealth tax in the Balearics range from 0.28% for taxable assets up to 170.000 euros, to 3.45% for assets over 11 million euros. However, a tax allowance is effective for up to 700,000 euros per person (if a couple owes the property). For the complicated topic annual wealth and inheritance tax, we recommend you seek a personal consultation with a qualified solicitor or tax advisor.
Legal security: when purchasing large properties in Mallorca, it is advisable to engage a solicitor regardless of whether it is a classic real estate transaction or an investment. We would be happy to make recommendations. The essential Spanish tax number (NIE), which foreign buyers need to have, can be provided by "Gestorias" (service agency) or by local Spanish law firms.
After sales service: following a successfully concluded property purchase, there are usually a lot of things that still need to be done. You certainly want to enjoy all the amenities and must therefore register with telephone, internet, water and power providers, or transfer an existing registration. You may even need a reliable property manager to which you can entrust your property without worrying should you not be there permanently. We would be happy to make non-binding recommendations for all of these matters.
Interior design: if you want, we can supply all of the interior design work from one provider. Our selected partners of renowned local designers and interior architects can stylishly implement your ideas.
If you want to leave your luxury property purchase in Mallorca in the best hands and do not want to leave finding an agent to chance, then we are your point of contact. We provide you with reliable advice before, during and after the purchase. Benefit from more than 20 years of experience, personal customer service and our high-quality standards.
Subject to change without notice, 2020
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