Comprehensive Guide to Buying Property in Mallorca
What to expect when purchasing property on the island
When you’re dreaming of owning a property in Mallorca, it’s easy to focus solely on the purchase price. However, to fully understand your investment, you must consider the additional costs associated with buying a home on this beautiful island. From taxes to professional fees, these expenses can significantly impact your budget. Here’s an in-depth look at what you can expect when purchasing property in Mallorca.
.jpg)
By Iris Grünewald of Balearic Properties
12/8/24
Understanding Property Purchase Taxes
The type of property you buy in Mallorca directly influences the taxes you'll pay. For those purchasing a new property, a 10% Value Added Tax (IVA) is applied. However, if you’re buying a resale property, the main tax to consider is the Property Transfer Tax, known as Impuesto de Transmisiones Patrimoniales (ITP).
The ITP is progressive in the Balearic Islands, meaning the rate increases as the property price rises. Here’s how it’s structured:
For properties priced up to €400,000, the tax rate is 8%.
For those between €400,001 and €600,000, the rate rises to 9%.
Properties priced between €600,001 and €1,000,000 incur a 10% tax.
A property priced from €1,000,001 to €2,000,000 is taxed at 12%.
Anything over €2,000,001 is taxed at 13%.
For example, if you purchase a property valued at €1.2 million, the tax would be calculated as follows:
The first €400,000 would be taxed at 8%, amounting to €32,000.
The next €200,000 would be taxed at 9%, adding €18,000.
The following €400,000 would incur a 10% tax, resulting in €40,000.
Finally, the remaining €200,000 would be taxed at 12%, contributing €24,000.
This brings your total ITP to €114,000, a significant sum that should be factored into your overall budget.
Additional Transaction Costs to Consider
Beyond the primary taxes, there are other essential costs associated with buying property in Mallorca. Notary fees and the property registration fee are among these. The notary fee, which formalizes the purchase, typically ranges between €600 and €2,000, depending on the property’s value. Meanwhile, registering the property with the local authorities usually costs between €300 and €1,200.
Another cost to keep in mind is the Actos Jurídicos Documentados (AJD), commonly known as stamp duty. This is generally 1.5% of the property’s value and is applicable when purchasing a new property or if you’re taking out a mortgage.
Engaging Legal and Professional Services
Engaging a lawyer when purchasing property in Mallorca is essential. Legal fees generally are 1% plus Vat ( 21% ) of the property’s purchase price, depending on the complexity of the transaction. While this might seem like an additional expense, having legal expertise on your side is very important to navigate the intricacies of Spanish property law and ensure a smooth transaction.
Ongoing Property Costs in Mallorca
Once you’ve purchased your property, there are ongoing taxes and fees to consider. The annual property tax and annual rubbish fees, known as Impuesto sobre Bienes Inmuebles (IBI) and " basura". The town council fee is a local council tax based on the official value of the property, or valor catastral. Regarding wealth tax, significant changes have been introduced this year. Spanish wealth tax has effectively been eliminated for most residents and property owners in the Balearics. From this year onwards, only those with assets above €3 million per person will be liable for wealth tax, providing significant relief for many property owners on the island.
For those planning to rent out their property, income tax on rental income is another consideration. Residents of Spain face income tax rates ranging from 19% to 47.5%, although a 60% reduction is available for long-term rentals. Non-residents from the EU/EEA pay 19% on their net income, while those from outside the EU/EEA pay a flat rate of 24% on gross income.
Capital Gains and Succession Taxes
If the time comes to sell your property, capital gains tax is another factor to consider. If you’re a resident over 65 and the property is your main home, you are exempt from this tax.
If you are resident; and you have gain selling your property taxes are progressive : Benefits between 6.000 Euros and 50.000 Euros will be taxed with 21%, benefits between 50.000 Euros and 200.000 Euros will be taxed with 23%, benefits between 200.000 and 300.000 Euros will be taxed with 27% and everything above with 28%.
For non residents; When you come to selling your property, if you make a gain you’ll have to pay Capital Gains Tax. You’ll be liable to Capital Gains Tax in Spain on the net gain that you make. That gain will be taxable in Spain at the rate of 19% if you’re a resident of an EU Member State, and at 24% if you’re resident of a non EU Member State.
Additionally, when selling a property, you may have to pay the Plusvalía Municipal Tax, a local land tax based on the increase in land value. This tax applies to all sellers, regardless of whether they are residents or non-residents.
Succession tax is also a consideration if the property is to be inherited. In the Balearic Islands, the tax rates vary significantly depending on the relationship between the deceased and the beneficiary, ranging from 1% to 20% for close relatives and 7.65% to 35% for others.
Navigating the Purchase Process
It’s important to note that Spanish tax laws can change, so staying informed is essential. Engaging professionals throughout the purchasing process is crucial to avoid unexpected costs and ensure a smooth transaction.
At Balearic Properties, our goal is to guide you through every step of buying your dream home in Mallorca, and connecting you with the best professionals on the island. With our expertise and local knowledge, you can make informed decisions and secure the best possible deal on your island property. Whether you’re purchasing a holiday villa or a permanent residence, we’re here to help you navigate the complexities and enjoy a seamless buying experience.
What to expect when purchasing property on the island
When you’re dreaming of owning a property in Mallorca, it’s easy to focus solely on the purchase price. However, to fully understand your investment, you must consider the additional costs associated with buying a home on this beautiful island. From taxes to professional fees, these expenses can significantly impact your budget. Here’s an in-depth look at what you can expect when purchasing property in Mallorca.
Engaging Legal and Professional Services
Engaging a lawyer when purchasing property in Mallorca is essential. Legal fees generally are 1% plus Vat ( 21% ) of the property’s purchase price, depending on the complexity of the transaction. While this might seem like an additional expense, having legal expertise on your side is very important to navigate the intricacies of Spanish property law and ensure a smooth transaction.
Ongoing Property Costs in Mallorca
Once you’ve purchased your property, there are ongoing taxes and fees to consider. The annual property tax and annual rubbish fees, known as Impuesto sobre Bienes Inmuebles (IBI) and " basura". The town council fee is a local council tax based on the official value of the property, or valor catastral. Regarding wealth tax, significant changes have been introduced this year. Spanish wealth tax has effectively been eliminated for most residents and property owners in the Balearics. From this year onwards, only those with assets above €3 million per person will be liable for wealth tax, providing significant relief for many property owners on the island.
For those planning to rent out their property, income tax on rental income is another consideration. Residents of Spain face income tax rates ranging from 19% to 47.5%, although a 60% reduction is available for long-term rentals. Non-residents from the EU/EEA pay 19% on their net income, while those from outside the EU/EEA pay a flat rate of 24% on gross income.
Capital Gains and Succession Taxes
If the time comes to sell your property, capital gains tax is another factor to consider. If you’re a resident over 65 and the property is your main home, you are exempt from this tax.
If you are resident; and you have gain selling your property taxes are progressive : Benefits between 6.000 Euros and 50.000 Euros will be taxed with 21%, benefits between 50.000 Euros and 200.000 Euros will be taxed with 23%, benefits between 200.000 and 300.000 Euros will be taxed with 27% and everything above with 28%.
For non residents; When you come to selling your property, if you make a gain you’ll have to pay Capital Gains Tax. You’ll be liable to Capital Gains Tax in Spain on the net gain that you make. That gain will be taxable in Spain at the rate of 19% if you’re a resident of an EU Member State, and at 24% if you’re resident of a non EU Member State.
Additionally, when selling a property, you may have to pay the Plusvalía Municipal Tax, a local land tax based on the increase in land value. This tax applies to all sellers, regardless of whether they are residents or non-residents.
Succession tax is also a consideration if the property is to be inherited. In the Balearic Islands, the tax rates vary significantly depending on the relationship between the deceased and the beneficiary, ranging from 1% to 20% for close relatives and 7.65% to 35% for others.
Navigating the Purchase Process
It’s important to note that Spanish tax laws can change, so staying informed is essential. Engaging professionals throughout the purchasing process is crucial to avoid unexpected costs and ensure a smooth transaction.
At Balearic Properties, our goal is to guide you through every step of buying your dream home in Mallorca, and connecting you with the best professionals on the island. With our expertise and local knowledge, you can make informed decisions and secure the best possible deal on your island property. Whether you’re purchasing a holiday villa or a permanent residence, we’re here to help you navigate the complexities and enjoy a seamless buying experience.