Our smart guide for buyers and investors.
How to purchase real estate in Ibiza? To purchase a property is a bold move, to do this in a foreign country can be scary. Here some assistance for this important decision. Every day we get these questions from our customers: “How do I buy that property in Ibiza?”, “How much will this process cost?” and “How long will it take?” In this article we will provide an all-encompassing rundown of the question. We’ll explain the process, how to make sure what you are buying and the legal aspects before signing the title deed, taxes and costs involved in the purchase. We cover also the yearly maintenance costs and taxes once the property has been bought.
We will provide practical suggestions if you’re new to property purchase, new to Ibiza or both. However, as every case is different, we strongly advise you to contact a local and independent lawyer who can assist you throughout the process, and who will ensure that your money and your rights are fully protected.
Step 1 - Assess Your Budget: What is Possible for me? To be able to select a property you need to assess your budget. You can either buy your property outright from funds you have or with the assistance of external funds: usually a real estate mortgage provided by a bank. Then, to get the asking price of the properties, you should deduct from your budget a sum to fix small things, say at least 5.000 for an apartment or 10.000€ for a villa . To initiate new design projects to ameliorate or personalize the property is another story, you can check the article about renovation in Ibiza.
Maybe you will move some or all of your belongings to your new property in Ibiza. In this case you will deduct these costs from your buying budget too. And finally, there are the process costs we discuss in this article, say for the moment 11% of the buying price. Armed with your resulting budget your are good to start the journey !
Step 2 - Select your property
For most buyers this is the fun part. We suggest you visit in person at least 3 properties. Consider that there are properties more adapted if you want to live in Ibiza the whole year, or spend the summer here, or the winters, of if you want to rent the property in the Summer to short-term tourists stays. Once you have a favorite you should go a second time on site at a different time of the day to experience various sun exposures.
See the properties PURE Real Estate Ibiza has currently on offer.
Step 3 Checks
Once your interest in a property is solid, you will select and draft-in a local lawyer familiar with Spanish real estate law.
Ask your real estate agent the paperwork of the property:
- a recent extract of the National Property Registry (nota simple)
- a recent extract of the Cadaster
- the authorization to live in the property (cedula de habitabilidad)
- the notary contract of the former sale of that property (escritura)
- copy of the last paid property tax
- copy of utility bills : electricity and water
- possible touristic license (short-term holiday rentals) Depending on the requirements of the seller, your real estate agent can ask you to issue a Letter Of Intent (LOI) to allow him to hand-out a copy of the documents. This LOI can be a short and simple email mentioning: the property name, the agent who presented the property to you and your interest to purchase the property in the foreseeable future. In any case, once you have got the documents, you will give these to your lawyer who will check the papers in detail and certify their validity. You can also ask your lawyer to contact the lawyer of the seller, requesting the legal documents of the property. Your lawyer will check: - that the property abides to the planning law, as well as any extensions or amendments built after the original building license.
- the title deeds of the vendor to confirm, among other things, ownership, charges, and that the property is accurately described.
- any registered debts, charges, liens and encumbrances in the land registry, and the situation of the property with respect to property tax and community fees, and any other running expenses.
- that the seller has presented the last and current receipt for the council tax (IBI).
Step 4 - Place Your Offer Once your lawyer agrees that your chosen property is legit, you can place an offer towards the asking price, conditions subject to a contract. Fingers crossed the seller will accept your offer!
Step 5 - Apply for a NIE number Now that your offer has been accepted by the seller, if you are non-resident in Spain, you have to apply for a Spanish NIE number (Identification Number for Foreigners). This is mandatory when you purchase any property in order to be recorded as an owner in the land registry. You will need to apply and obtain the NIE number personally at the police station, unless you grant power of attorney to someone to act on your behalf like your lawyer or an accountancy firm (gestoria). Note that the NIE number does not imply you are living in Ibiza, and your NIE it is not a social security number to get any benefits.
Step 6 - Raising a private contract It is now the time to determine the terms of payment. You lawyer will raise a private contract that will be signed with the seller. At that time there will be a deposit paid by you, the buyer. The amount paid upon signing a private purchase contract is normally 10% of the sales price.
In Spain normally the purchase price is paid directly to the seller in a bankers draft from your Spanish bank account. For the deposit it can happen to use a bank´s escrow account or accounts of the solicitors or notaries. There are various types of possible private contracts:
- “Option to Purchase” contract, where the seller is obliged to sell and the buyer can buy but is not obliged to buy, although he will lose the deposit he has paid
- “Private Purchase Contract”, which ties both parties. The seller can oblige the buyer to complete the purchase
- a deposit contract “Arras Penitenciales”, where if the buyer pulls out he loses the deposit, and if the seller pulls out he has to reimburse the buyer with double the deposit paid. It is important that this private contract includes all necessary provisions to preserve your rights as the buyer. The contract normally provides for a term between one to three months for completion and signing of the public deed in a Public Notary, where the balance of the purchase is paid and the vacant possession of the unencumbered property is granted. The funds for the payment of the taxes and expenses of the purchase are normally sent to the buyer´s lawyer account, who will take care of these payments after completion of the purchase. Once agreed with you and your lawyer, your contract proposal is sent to the seller´s lawyer for review. There can be some changes requested by the seller, which will be handled by your lawyer. Finally, once the selling party agrees, you have a deal!
Step 7 - Opening a Spanish account You as a buyer should open a bank account in Spain, where you will send the funds for the purchase. Note that, as per the European anti-money-laundering process, your bank, your lawyer and the Notary all have a legal requirement to check the origins of the funds for any real estate purchase. A process also known as KYC "know your customer".
Step 8 - Finally: meeting at the Notary for the Sales!
1.Change of Ownership Costs
After a successful signature and payment meeting at the Notary, your lawyer will follow-up to get the owner change registered. In order to get registration of the public purchase deed, all relevant tax forms must be completed and paid into the Spanish Tax Authorities. Here a run-down of the Tax implications and costs:
If VAT applies, then the ITP transfer tax does not apply.
VAT – Value Added Tax For any new building, as a first occupancy, there is a VAT of 10%. For second-hand properties there is no additional VAT as it was already charged once at the first occupation.
In the case of purchasing a plot of land, the tax to be paid is 21% VAT with certain exceptions.
Note that the tax office can appraise a property if the sales price is deemed under the tax value.
ITP – Property Transfer Tax
In Ibiza the property transfer tax ITP (Impuesto sobre Transmisiones Patrimoniales) is a graduating scale from 8% to 13%, depending on the sales price (as per the sales contract). Note that these percentages have changed on January 1, 2023 :
From 0 to 400.000 8%
From 400.001 to 600.000 9%
From 600.001 to 1.000.000 10%
From 1.000.001 to 2.000.000 12%
From 2.000.001 onward 13%
There is a different tax rate for car parking spaces (urbanistically qualifying in the Property Registry as such a parking)
From 0 to 30.000 8%
From 30.001 onward 9%
2. Notary and land registry fees
This should be approximately between 2.000 and 6.000 Euro in total. This will depend on the value of the purchase and the number of pages and complexity of the notarial deed.
3.Capital Gain Tax CGT or “Plusvalía Municipal” Tax
This is a local tax paid by the seller based on the increase of the property value. In case the seller is non-resident in Spain, it is advisable for the buyer to withhold it from the purchase price and pay it into the tax office on account of the seller. NEWS: on October 26th 2021, the Constitutional Court of Spain annulled some of the articles of the Local Tax Law. Specifically, it classified as unconstitutional the articles related to how this tax is calculated. There are now two methods to calculate the tax. and the seller can choose the calculation system that most benefits him financially:
- Objective mechanism: the calculation is the difference between the cadastral valueof the property in the year of acquisition and its value in the year of sale.
- Real mechanism: the calculation is the difference between the purchase amount and the sale amount. So How much?The Tax Coefficients are decided individually by each municipality, they vary according to the years passed between the purchasing and the sale. However, although each city council is free to establish them, they may not exceed limits set by the Public Treasury.
4. Seller´s Withholding Tax
If the seller is non-resident in Spain, the buyer must withhold 3% of the purchase price, and pay it into the tax office within 30 days, on account of the capital gains tax of the seller. If the seller has not made a gain, or a lower gain than the amount withheld, he will reclaim the reimbursement to the tax office.
Step 9 - Yearly maintenance costs and taxes The final step will be to change the utility contracts for services and supplies of the property to your name, as well as the property tax, setting up direct debits of all payments drawn to your Spanish bank account. Yearly maintenance costs and taxes once the property has been bought: Income Tax as a non-resident As a non-resident in Spain, you will pay non-resident income tax in Spain. This is a presumed income tax, paid annually before the end of every year, assuming the property has not been rented. The tax is calculated on the number of days the property has been held in the past year. The tax is equivalent to 1,1% of the cadastral value. In case the property has been rented the tax rate for non-residents is 19% for residents in the EU/ EEA countries, and 24% for residents of other countries. This tax has to be paid after every quarter, before the 20th of the following (20th January, 20th April, 20th July and 20th October).
Wealth Tax
The Wealth tax is calculated on the purchase price (if this amount is larger than the town hall appraised value, which it is 99% of all cases). If you have contracted a mortgage, the tax is based on the net value of the asset in Spain: purchase price after deductions of the mortgage. The first 700.000 € are exempt of the tax. From then onward, there is a graduating scale starting at 0.2% and going up to 2.5% as follows:
Up to 700.000 € tax free (0%) from 700.000 € to 867.129 € the tax is 0,2 % on the part over 700.000 € from 867.129 € to 1.034.252 € the tax is 0,3 % on the part over 700.000 € from 1.034.252 € to 1.368.499 € the tax is 0,5% on the part over 700.000 € from 1.368499 € to 2.036.999 € the tax is 0,9% on the part over 700.000 € from 2.036.999 € to 3.373.999 € the tax is 1,3% on the part over 700.000 € from 3.373.999 € to 6.047.998 € the tax is 1,7% on the part over 700.000 € from 6.047.998 € to 11.395.996 € the tax is 2,1% on the part over 700.000 € from 11.395.996 € and above the tax is 2,5% on the part over 700.000 € Property taxes - IBI
Council tax IBI (Impuesto sobre Bienes Inmuebles) depends in the cadastral value of your property. It is paid in one annual payment in September. The tax rate is decided by each Town Council (ajuntamiento). The rate is the same for all properties within a municipality. Expect a tax of around 1.500 € annually for a property worth two million euros. Trash Collection Fee Lastly, there is a Municipality household Trash Collection fee. This is a smaller fee paid once a year around 200 € to 300 € per villa and less for an apartment.
Property Insurance Spanish property owners are legally obligated to have home insurance to cover the value of the property. Life insurance is not mandatory but many lenders require borrowers to take out life insurance policies sufficient to pay off the outstanding mortgage balance.
You may also want to consider getting mortgage insurance, which would protect you if you can’t make mortgage payments. Having an active life insurance policy and a mortgage insurance policy before applying for a mortgage may provide access to better interest rates.
The key takeaways are:
- Proper legal documentation is key to a successful property purchase in Ibiza
- there are mandatory taxes to buy and keep a property in Ibiza
You should now be ready to confidently go about buying a property in Ibiza. We wish all buyers a smooth process and afterwards lots of happy hours enjoying Ibiza in their new property!
Feel free to contact us for any question we are happy to help.
Disclaimer - No Investment Advice
Please make sure that you note the following important information: PURE Real Estate Ibiza is not an investment advisor. We are not regulated by the Financial Services Authority. Our articles and content are a discussion forum about real estate. We access, publish and discuss public information. This is not a place for the giving or receiving of financial advice, advice concerning investment decisions or tax or legal advice. No content in our articles constitutes - or should be understood as constituting - a recommendation to enter in any financial transactions or to engage in any of the investment strategies presented in our content.
For more information about Real Estate in Ibiza please visit our website: www.pureibiza.com
Feel free to contact us we are happy to answer any of your questions!
