How Investors Beat the 25% Buying and Selling Taxes in Spain?
There is no doubt Spain is one the best Lifestyle destinations in the world to live and relocate with amazing lifestyle destinations like Barcelona, Ibiza, Mallorca, Marbella and more. Whilst there is a great deal of foreign ownership most property purchases should be classed as Lifestyle and certainly not for Investors.
In simple terms you cannot make money buying and selling properties in Spain as there can be as much as 25% buying and selling costs. This means on a 400,000 Euros property purchase you need to sell at 500,000 Euros or more just to break even. Some people might consider themselves to be investors but in reality they are what I would call Lifestyle Investors. In that they will buy a property use it for Holidays then rent it out when they are not using it. They have the possibility to make some good additional income but that’s not the real focus of their investment. if it was they would probably buy a buy to let property in London or Paris.
Buying Costs in Spain
So each individual region has its own property taxes so the amount of property tax you pay differs in each region you buy a property. For the purpose of this article I will base it on what is charged in Marbella and Costa del Sol.
NEW PROPERTY TAXES IVA
The VAT (IVA) on new developments is 10% based on the purchase price. Then add another 1% of the purchase price for stamp duty. These taxes are paid by the buyer and are paid at the time you pay the deposit for the property you want.
ITP TAX FOR RESALE PROPERTIES
If the property you wish buy in Costa del Sol has been lived in before, then you pay a tax for the transfer called Impuesto Sobre TRANSMISIONES Patrimoniales or ITP. In this case there is no VAT or stamp duty to pay on the property, only ITP, which varies from region to region but in Andalucía starts from 8% up to € 400,000. Next 300,000 € is subject to an ITP by 9% and after it is a blanket charge of 10%
So, to give you an example case of a 1 million euros property you would calculate the ITP like this: – (€ 400,000 x 8% = 32,000 €) + (€ 300,000 x 9% = 27,000 €) + (€ 300,000 x 10% = 30,000 €) = total of € 89,000.
OTHER BUYING COSTS
So in addition to this you will normally have legal costs of around 1.2% of the purchase price and if you take finance the Mortgage will have Stamp Duty, Arrangement fees that can add up to around 3% of the purchase price. You will also have Notary fees up to 1% of the purchase price but this goes down as a percentage the more the property costs.
So if you buy a new property in Spain you could have buying costs anywhere between 12.7% to 16% of the purchase price. On a resale property that could be 10% to 14% depending on the price you pay.
Selling Costs in Spain
Primarily you will have 3 costs when selling. The first being commission to the selling agent normally 5%, it may be possible to get this down to 3% in very Spanish areas such as Madrid and Barcelona. Secondly you with have legal costs and 1.2% but if you negotiate you may get this done as there is a lot less legal work done by the sellers Lawyer than the buyers Lawyer. Finally, you have Capital Gains Tax which you pay on the profit that you make on the property, 21% for first 6000 Euros of profit, 25% above 6000 Euros of Profit and 27% above 50,000 Euros of profit. So if you were to sell at a 25% profit that would likely add over 5% to the buying costs.
So in essence you could have to pay up to 11% in selling costs in Spain.
So you can see that buying and selling costs can easily come out at 25%, sometimes more and sometimes less.
So How Can Investors Beat Such High Round Trip Taxes?
Gray Stuart has a solution for this and that is to become a property developer rather than a property trader. In essence the Investor becomes what they call in Spain a Promotor and the concept is a very simple one.
The first step is to set up a Spanish company as a promotor, Gray Stuart through its professional contacts with Lawyers, Accountants and Architects can arrange that for you.
The next stage is to find a plot of land where you want to build this amazing villa and then find an architect to put the project onto the plot
Then find a contractor who has a proven track record of building on time and on budget
Then engage an Estate Agent or Marketing Company to market the Villa to future buyers who don’t want to be promotors.
Finally, you enter into a contract with the buyer for at least 100% profit on your total project costs with all expenses fully tax deductible making the ROI even better. Also the investor gets the benefit of the beneficial tax breaks offered to Promotors. Investors will obviously have to pay some tax but with the best Spanish Tax Advisors on the planet this is kept to the minimum.
Bespoke Villas Turnkey Service for Investors from Gray Stuart.
In simple terms our company can manage and oversee the whole project for you. Basically we have found the best Lawyers, best Tax Advisors, Best Architects and Best Constructors who build on time and on budget and put them altogether for the benefit of our investors and offer a complete turnkey service from start to finish. This is a very serious business and therefore even though Spain is a great deal of fun you need the best and most serious people available to you.
So what do we recommend to make 100% profit. Generally, you are talking about a minimum of 2 Million Euros worth of Investment. As the profit margin is much higher on Luxury villas. For example, a villa that costs 2 Million in total to build could be sold for 4 Million but a house that costs 500,000 might only be sold for 800,000. In essence it’s about economies of scale.
We appreciate that not everyone has 2 Million Euros to invest so later in 2020 after Covid-19 has gone away we will be offering a pooled investor service where we will be inviting up to 10 investors a project to become involved. We will also be offering guaranteed returns for investors who might want a guaranteed exit strategy. However, that is for the future but our Bespoke Investor Turnkey Villa service is active today.
At the time of writing this article we have just embarked on writing and putting together a special villa and Bespoke Villa Turn Key Guide. So depending when you are reading this article this brochure may be available to you.
If you’re interested to know more about the best way to invest in Spanish property, then please feel free to contact Gray Stuart who will be happy to assist you.