The costs of a sale or purchase

What expenses will a buyer or seller have, including taxes, identifying the economic effects that the purchase brings for the buyer if it is a new build or a second hand home and the costs which the buyer will face.

What costs should I foresee when buying a property?

If you are going to buy a property you should have in mind an additional 10-13% of the total price for expenses, fees and taxes. This will depend on the various aspects which we are about to explain.

We will begin by analysing the indirect costs:

The notary:
The notarial expenses are produced when the public deed of the purchase-sale is granted. Usually the buyer is in charge of this. Its cost is set by regulations and are referred to as notary fees. Here is a brief summary of what these expenses can assume in a purchase without a mortgage:

Property Registration:
These are the fees generated by registering the purchase-sale in the Land Registry. The buyer is obligated to pay these fees. They are also established by regulations and their amount depends on the price of the property.

Solicitor:
In the instance that the services of a solicitor is required, their rates can be extremely high. As a reference they should be between a 0.5% to a 1.5% of the value of the purchase. Berkshire Hathaway HomeServices Nova Mallorca can recommend the best solicitor for your purchase-sale in regards to the language and characteristics of the transaction.

Mortgage:
In the instance that a mortgage is needed for the purchase of a property, you should have in mind the costs created in regards to the requesting and development of a mortgage which will be paid to the bank. They are the assessment fees, notary and registry charges related to the writing of the mortgage lending contract. It is worth negotiating with the bank before signing for the loan.

Administration:
The administrator is the person who carries out the registration processes and the pending taxes. They do not charge a high cost but it should be taken in to account.

Taxes for buyers:

· 1 In the instance of newbuilds:

• Tax on the added value (VAT)

  In this instance the buyer should pay the seller VAT (tax concerning the added value) a 10% of the cost of the sale price. If it is social housing it is reduced to 4%. It is important to think about whether the property is going to be sold with a garage or storage area (a maximum of two annexes) which will be around 10% of the property, if the garage or storage area is to be sold separately it will amount to 21%

• Property Transfer and Documented Legal Act taxes (ITPAJD) in the form of Documented Legal Acts

  The presentation of the contract to the public deed is subject to this tax which in the Balearics is currently between 1,2% and 2% of the sale cost. Social housing is exempt of this charge.

· 2 In the instance of it not being a new build:

• Property Transfer and Documented Legal Act taxes, in the form of Documented Legal Acts

  The buyer must pay this to the Hacienda Balear, the ITP (Property Transfer Tax)
  Alternative to VAT for when buying second hand homes. In the Balearics it is between 4 and 13% depending on the amount of the property. There are also reduced costs for certain cases (social housing, large families, young people…)

What fees should I consider when selling a property?

We begin by looking at the indirect costs to then move on to the subject of taxes.

Community fees:
The seller must prove by means of a certificate issued by the community administrator or the President that they are up to date with payments.

Real Estate Agency fees:
In Mallorca the real estate agency fees which relate to the searching of a property, are paid by the seller and can vary between 5 and 6% of the value of the property. Real estate agencies with experience and a good reputation such as Berkshire Hathaway HomeServices Nova Mallorca include these costs the legal verification of the property and other administrative procedures.

Notary fees:
It is possible that the seller will need to hire an administrator to carry out the legal and tax procedures such as the payment of the Municipal Capital Gains which we will not be moving on to.

Real Estate Tax (IBI):
This is a tax which is paid annually to the Town Hall and is around 0.4% to 1.1% of the property value (amount which at the beginning should be as a maximum half of the market value). Before signing the deed the seller must confirm that this tax has been paid up to date. Sometimes the payment is divided, between the buyer and the seller in regards to who was the property owner during what months.

Other possible fees:
You should also consider the charges which come with requesting the habitability of a property such as the energy efficiency certificate, documents which are required for finalising the sale.

Sellers taxes:

• Tax on the increase of natural urban land (Capital gains)

  The municipal capital gains (not to be confused with fiscal capital gains) is calculated on the increase in value which the land which the property sits on has experienced in the past up to the time of the sale. It is calculated with the cadastral value and the number of years which the property seller has had the property (maximum of 20 years is taken in to account), if it is less than one year then it will not be calculated. It is paid by the seller and should be processed by the town hall within 30 calendar days from the date of the writing of the deed. It can vary from one town hall to another and can be calculated using the IBI. If it shows that there has been no increase in value (losses) between the purchase and the sale it may not be a requirement to pay it.

• Income Tax (known as IRPF)

  Property owners when selling a property must pay the ORPF or in the instance of non-residents, the Non-resident Income Tax for their equity gain, that is to say the difference between the transmission and the acquisition value.
  
  These costs will not be paid in the following cases:
  • When the sale is carried out by people older than 65 or who are in care.
  • If the total sum will be reinvested in to a new property within two years.

It is also important to know that there are tax deductions in the case of a sale for habitual residence, so the seller can deduct the investments and expenses caused by the purchase, notary expenses, real estate agency, municipal capital gain, by which it is advisable to keep all the invoices of expenses attributable to the purchase of the property. The bank interest derived from a mortgage loan is not a deductible expense.