Sounds so glamorous, 'I have a place on Mallorca.' After people ask, ‘Where is that?’
When my husband and I purchased our first home in Andratx Village for the equivalent of US$60,000 in 1990, the prices to renovate were much less expensive. So were the choices in materials and quality. Taxes were super low and there was no red tape in opening a bank account or wiring funds. We had a post office box that was only checked a few times a year and the post office personnel were good about holding our mail from the IRS. We were official residents of Spain but traveled a lot.
Purchase Tax #
Today, owning a home and the associated legalities are more of a burden. I will not lie – owning a property on Mallorca has hidden costs in the form of taxes that feel like they can strangle you if you are practical and like to budget your funds. To start, there is the purchase tax the buyer has to pay when closing the deal. How much depends on the type of property:
- For a new house, it's 10% VAT if it's private (raised from 4% on January 1st, 2010); for a commercial property or plot you pay 21%. A so-called "Stamp Duty" of 1% comes on top in both cases
- For a second-hand home, instead of VAT and Stamp Duty the buyer is charged a transfer tax, the Impuesto sobre Transmisiones Patrimoniales (ITP), which, since 2013, has gone up in the Balearics to between 8% and 10% depending on the property value (8% for the first 400,000€ 9% for the next 200,000€ and everything after 10%)
Affordable Mallorca Tip: If buying property from a seller who is not resident in Spain, you have to withhold 3% of the purchase price and pay it to the tax authorities. Failing to do so means the tax authorities will consider your property the asset backing the seller's capital gains tax liability.
Please, also take into account extra costs such as
- Estate agency fees: approx. - 5% of purchase price, but make sure to ask!
- Legal fees - we strongly advise to hire a lawyer, but beware: some charge up to 1.5% of the purchase price. Better negotiate a fixed price or hourly rate before signing a contract
- Notary fees: 0.5 to 1% of the purchase price
- Registry inscription fees: to be on the safe side, calculate another 1% of the purchase price
Bank Fees #
To buy property in Spain, you will most certainly need to open a bank account with a Spanish bank to transfer money from abroad. Bank fees might be another surprise. We strongly advise you to check with your bank. As fees will be automatically deducted from your account, also make sure to keep enough money in the account for this so you aren’t overdrawn when the electricity, internet, mobile phone, insurance and water bills are deducted.
Home Tax #
As the owner of property in Spain, you are annually charged a home tax by your local town hall, the so-called IBI (Impuesto de Bienes Inmuebles) due in November. How much depends on the municipality you're in, the catastral value of your property and whether it is classified as urban or rural/agricultural. The rates vary between 0.4 and 1.1% of the catastral value.
At the same time as the IBI, you will receive a bill for the domestic refuse collection which also depends on the type of property you own.
Personal Income Tax for Residents/Non-Residents #
Non-residents owning property on Mallorca must pay an annual income tax called "Impuesto Sobre la Renta de No Residentes (IRNR). How much depends on whether you rent it out or not.
If you do not rent out your property and have no other source of income in Spain, you pay 25% of 2% of its catastral value. E.g. for a catastral value of €400,000 the taxable base (2% of the that amount) would be €8.000, and the tax (25%) is €2,000
If you rent out your property, you have to file an income tax declaration and pay tax on it. How much depends on your particular circumstances and whether there is a double-taxation treaty between Span and your country of origin, although non-residents often pay a 25% flat rate of the gross income earned from their Spanish property.
Of course, you can contract with a Gestoria (Administrator) to handle all this for you. This, of course, also comes at a certain cost but will save you the hustle of it all and the anxiety in missing deadlines.
Residents have to file a tax declaration for their income during the year. The rate charged depends on your level of income.
Community Fees #
For properties that are part of buildings or complexes in which zones shared by multiple owners, there is a legal obligation to form a "Comunidad de Propietarios" (community of owners). If this applies, keep in mind that you will have to pay a community fee for the upkeep of the shared areas and any other services the community might agree to contract out (pool and garden service, cleaning of staircases, electricity bill for communal areas, etc.).
To Sum it Up #
The costs of buying and owning property on Mallorca can be quite considerable. Make sure you do your maths – if you feel you can't afford it, better rent than buy.
DISCLAIMER: All information contained in this article is based on personal experience and opinion and may change due to changing laws and regulations and/or based on where in Spain you are.
By Memphis Holland
2 June, 2021