This guide will cover all the information you need to know, including taxes, costs and some very useful tips. Our detailed guide to the procedure of buying a property has been written in a checklist format with some useful links and tips for your personal journey as a buyer. This easy to use guide can be kept for your reference every step of the way, and any additional personal advice can be obtained from one of our friendly team.
Municipal capital gains tax
- Personal tax/income tax
- Brokerage/agency fees
- Lawyers' fees
- Mortgage cancellation fees, if applicable...
In addition to the payment of Municipal Capital Gains Tax, the sale of a property will also require the seller to file and pay Personal Income Tax on the proceeds of the sale.
Municipal Capital Gains Tax
The "Impuesto de Plusvalia Municipal" is payable to the municipality where the urban land of the property is located each time an urban property (whether it is a house, garage, commercial premises or warehouse, etc.) is transferred.
It is levied on the increase in value of the urban land on which the property is located, and is calculated over the period during which the seller has owned the house or urban property up to a maximum of twenty years, after which the tax ceases to be applicable.
The tax is calculated on the basis of the increase in the value of the land on which the property is built according to the Land Registry. The amount of the tax will depend on how long the seller has owned the property since the last change of ownership. The percentage and the amount payable will be higher the longer the seller has owned the property (up to the twenty year threshold, as mentioned above).
The percentage is calculated according to the "cadastral value" of the land indicated in the last receipt, and is set differently by each municipality, ranging from a minimum of 5% to a maximum of 30% on the gain in cadastral value from the date of the original purchase to the date of sale.
The law establishes that it is the seller who must pay this tax in the case of the sale of a property.
Personal income tax
With the sale of a property, the seller must pay personal income tax on the capital gains obtained from the sale within 4 months of signing the public deed of sale, before the notary by means of the corresponding tax return. The gain or loss is calculated as the difference between the acquisition value and the current transfer value, minus the corresponding purchase and maintenance costs.
Tax rates for tax residents:
- 19% on gains up to €6,000.
- 21% on gains between € 6,000.01 and € 50,000.01
- 23% on gains above €50,000.01.
Tax rates for non-residents for tax purposes:
If the seller is a non-resident, the tax is a flat rate of 19% on the capital gain from the sale of the property. In addition, the buyer (whether resident or non-resident) is obliged to withhold 3% of the agreed consideration, which must be paid to the tax office within one month from the date of purchase.
Non-resident sellers should be aware of the international double taxation agreement that exists between Spain and other EU countries. Any tax on gains from the sale of a property already paid in Spain can be deducted from the tax due in the seller's country of residence.
Other expenses arising from the sale of a property:
- Lawyers' fees. Approximately 1% of the sale price, payable by the party seeking legal advice.
- Agency fees. Paid by the seller, unless otherwise agreed. The agent's commission varies between 4% and 6% of the final sale price (excluding VAT), although the standard in Ibiza is 5%.
The following is a summary of the information required from the seller in preparation for the signing of the title deed (and ideally already in preparation for the listing of the property, so that potential buyers can have quick answers to questions related to the documentation of the property).
Documents required for signing before the notary:
Original DNI or Passport
Original NIE (foreign residence/work permit).
Original deed of sale.
In the case of new constructions, the deed of registration of new construction.
Energy efficiency certificate. [This certificate became compulsory in 2013. You are required by law to have this document before you put your property up for sale before you put your property up for sale (or long term rental) - the cost varies between 100 - 500€, depending on the size of your property].
Mortgage information, if available.
Recommended, but not compulsory:
Municipal building permit.
Certificación municipal de fin de obra
Cédula de habitabilidad (certificate of habitability)
Last IBI (Property Tax) receipt.
Invoices and last utility bills: electricity, water, telephone, etc.
There are three notable phases in the sale of a house in the Balearics. The negotiation and agreement, the private contract and the payment of the deposit and, finally, the deed of sale.
Negotiation and Agreement
Once the buyer has shown interest in purchasing a property, the negotiation process with the seller can begin. As your real estate agent, we will endeavour at this stage to help both parties reach a suitable agreement on the sale price. Once an agreement has been reached, both parties can confirm the terms in writing, and the task of drawing up the finalised official contract can begin.
The private contract and payment of the deposit
The next stage consists of the initial private document and the payment of the earnest money. This stage is not necessarily compulsory and sometimes both parties may prefer to sign the "Escritura de compraventa" directly as the first draft of a contract. However, in most cases, it is advisable to sign a private (preliminary) agreement which can be drafted with the help of the legal service of the real estate agency, or by the individual legal representatives of the clients. The aim is to make the agreement legally binding, with peace of mind and security for both parties, until the public deed can be signed before a notary.
Here are three main types of private contract and deposit payment options:
1) Private purchase contract
The "Contrato Privado de Compraventa" is one in which the seller agrees to deliver the property and the buyer agrees to pay a certain price for it. The buyer can pay the seller an agreed amount of money at the signing of this private contract as a down payment. This payment is often referred to as a down payment, good faith deposit or earnest money.
Once the agreement and contract are signed, both parties are obliged to honour the contract on the agreed terms and conditions. Breach of this contract by either party entitles the other party to choose between enforcing the contract on its own terms, or unilateral termination of the contract, with the right to damages.
2) Deposit contract
The second private and earnest money contract can be known as "Contrato de arras", which is a contract of sale that includes a "pledge contract", where a partial amount (usually 10%), referred to as a deposit, is given.
However, if the buyer withdraws, the amount paid as a security deposit may be retained by the seller. On the other hand, if the seller withdraws, the buyer is entitled to receive double the security deposit paid (the return of the entire deposit, plus the same as a penalty).
3) Option to purchase contract
Finally, the "Option to Purchase Contract" is a private contract in which the seller grants the buyer the right to decide whether or not to conclude the final "Escritura de Compraventa" within a certain period of time and under certain conditions.
If the buyer decides not to exercise the option, the amount paid as option premium deposit is forfeited. If the transferor-seller refuses to sell on the agreed terms, the transferee-buyer can choose between demanding performance of the contract on its own terms or requesting the termination of the contract with the right to damages.
In all these cases, the private contract can be concluded at a distance, by digital means or by post. This private document contains all the terms negotiated, the price, the deadline for signing before a notary, the description of the property including furniture and household appliances, the responsibilities and the expenses arising from the transaction (including agency fees).
The deed of sale
The final signing of the deed of sale takes place before a notary in Ibiza in the presence of all parties or their legal representatives. At this signing the full agreed price is paid, deducting the amount paid as a guarantee deposit.
The purchasers have the right to choose their notary, as they bear the costs arising from the formalisation of the deed.
The rights and duties of ownership of the property which is the object of the agreement are transferred to the buyer with the signing of the deed.
Is it a good time to sell your property in the Balearics?
In general, and looking at historical data, it can be stated that since the 1990s the Balearic Islands property market is one of the best performing in Europe, if not globally. The economic crisis and global pandemics have not yet been able to dent this property market powerhouse, especially in comparison to its somewhat more volatile continental counterpart. For the most up-to-date data on the Balearic property market, please see our "Annual market report and forecast for 2021".
How to choose an estate agent in the Balearics and do you really need one?
With hundreds and hundreds of estate agents operating on such small islands, it can be overwhelming to know which one to entrust with the development of your property. A good starting point is to talk to people around you who have recently worked with an estate agent in the Balearics and get recommendations. You should also back up this recommendation by doing your own research online and see which agencies appear in the top results of a Google search, checking their websites and, more importantly, their customer reviews, which you can usually find on a company's Facebook or Google page. Another useful tip is to look for agencies that belong to a professional body, in the Balearics this would be for example PIMEEF and the API. Once you have narrowed your options down to a handful, contact them and ideally make an appointment at their physical offices to get a real idea of their location in the market, their working energy and to see if you connect with them on a more personal level too.
Next, ask how much their fees are and see an example of a standard "Order of Sale/Mandate" that you would sign with them, to ensure that all fees, costs and general agreements are clearly set out and acceptable to you.
Should you market your property to several agencies or just one?
Both options have positives and negatives; for a more detailed analysis read our article on "Why sign an exclusive mandate with Prestige".
Do you need an agent to sell your property?
You may be wondering if you need an estate agent to sell your property in the Balearics - and the answer is: No, you don't - but you will wish you had. Frankly, there is nothing to stop you putting up a for sale sign and advertising your property on online portals such as Fotocasa and Idealista yourself. If you have the time, energy and patience to deal with the enquiries, viewings and offers yourself, why not? However, working with a professional real estate agency with the right skills, knowledge and infrastructure will make the whole process much easier for you and your family. Need more information? Check out our article "15 Great reasons to sell your property with Prestige Properties".
Find a lawyer in the Balearics who speaks your language
Although it will normally be the buyer who engages legal advice to carry out due diligence before purchasing a property; it may also be in your interest to engage a lawyer who speaks your language and who can help you supervise the sale and advise you on tax issues etc. Here are links to lists of lawyers based in the Balearics who speak a foreign language:
Have your documentation ready
As mentioned above, having your documentation in order will ensure that things run smoothly and without unpleasant surprises for either the buyer or yourself.
Ideally, you should have
The Escrituras (title deeds) of the property
Cédula de Habitabilidad (in force)
Licence or Final de Obra
The receipts of the municipal property tax or IBI)
Copies of utility bills
Details of the community statutes (for flats and gated communities)
A list of the furniture etc. to be included in the sale
Your identity card, your residence card if you have resident status or NIE (Spanish National Identity Card)
Did you know that the average selling time in the Balearics is 10 months?
To bring it down to a more sensible average, here are the 4 most important things you can do:
1.(De)dress the house: remove all personal items, tidy it up and make it as minimalist as possible; add mirrors and plants; redecorate in neutral colours; have it as bright as possible; remove any signs of pets or sources of unpleasant smells.
2.Presentation is key - Market your property well: have the best possible presentation by taking the best possible photos (or hiring an agency with great marketing skills) to promote your property at its best.
3.Realistic pricing - Heed the recommendations of professional (more objective) valuations and accept what the market is willing to offer. If you want things to move faster and not drag on endlessly, you may have to accept a lower offer than you originally expected.
4.Come prepared - Have all the necessary documents ready to make life easier for prospective buyers and their legal advisers. When the right buyer arrives, the deal can be done in a matter of hours if everything is well prepared, transparent and clear.