What does it cost to buy and run a home in spain?

This week our guest contributor from Spain sprinkles a few questions and answers about the cost of buying and running a property in Spain. Christopher Clover runs the estate agency Panorama in Marbella, and with 35 years experience in the market, is ideally placed for the task.

The first thing he clarifies is that he always recommends purchasers of property in Spain retain a qualified solicitor to represent them and qualified financial advisors to deal with tax issues.

Purchasing property in Spain is a relatively straightforward procedure. The 'last word' in property ownership is the property registry, which will show immediately if the seller owns the property free of liens and encumbrances.

Most frequently, a private contract of purchase is drawn wherein the details of the purchase are reflected - the legal description of the property, purchase price, form of payment, date of completion, date of possession, etc. Upon signing the private contract, a payment on account is always made and although the can vary substantially, a normal deposit for completion within 30 to 60 days would be 10% of the agreed purchase price.

New properties which are unfinished obviously are paid for over the construction period, and all payments on account before finishing must be guaranteed by a bank or insurance company: if the property is not finished by a certain date, a purchaser has the right to reclaim the monies paid, plus legal interests. Additionally, a recently enacted law obliges the property developer to arrange an insurance policy with respect to any basic building defects with the purchasers as beneficiaries.

When the entire purchase price is paid for the property, the seller will issue the public deed of conveyance (escritura) to the purchaser, free of liens and encumbrances. This deed is issued before a Spanish Notary, is passed from the notary to the tax office to be assessed for stamp duty if the property is a resale or second hand property, and then presented to the Property Registry for inscription. A provisional inscription in the registry is made immediately upon issuance of the deeds.

7% Transfer Tax (I.T.P.) payable by the buyer for the purchase of any Real Estate (villas, flats, land, commercial premises, garages), provided the vendor is not a developer or normally trading in the business of resale properties.

8% (7% VAT and 1% Stamp Duty) for any Villa or Apartment, or Garage that is annexed to an apartment, where the vendor is a developer, promoter or habitual trader in these generally new properties.

17% (16% VAT and 1% Stamp Duty) for Parcels Of Land, Commercial Premises, or Commercial Garage Spaces, where the vendor is a developer, promoter or habitual trader. This covers virtually all Newly Urbanized Land Parcels and Newly Built Commercial Premises. This only covers resale properties when the vendor falls into one of the above categories.

Notary fees should amount to no more than €1100/£748, although the cost increases according to the number of pages or complexity of the title deed (e.g. transcription of statutes, payment in stages, property partially finished, etc.). As an example, an apartment costing €300,000/£204,000 will cost around €650/£442 in notary fees, whilst a property costing €600,000£408,000 will cost around €800/£544 in notary fees. Any higher than this amount, the fees go up marginally. The property registry inscription fees, providing the purchase is straightforward, run at around 65% of the notary fees.

This is an 'added value' tax based upon the increase of the Town Hall index value of the land only, from the prior (vendor's) purchase to the present sale. It is usually not a significant amount with respect to apartments or townhouses - less than €1000 for the most part for an apartment or townhouse which last changed hands five or six years ago - but can be more in the case of villas with a large tract of land.

This tax corresponds in principle to the seller, but, in common practice, is often paid by the purchaser, especially with respect to apartments or townhouses. As there are several variable factors used in calculating this tax, especially the length of time of ownership of the property, the amount payable can vary substantially and should be verified before proceeding with the purchase.

The total official costs involved in purchasing property should be less than 8% if it is a resale property, or less than 9% if VAT is paid on the purchase price, plus the Plus Valia, if applicable.

• Local rates

Local rates are payable annually, and are calculated from the rateable value of the land assigned by the Spanish Tax Office. Each municipal Town Hall decides on the percentage to be charged in respect of local rates. In the case of Marbella, the formula applied is 0.93% (in 2005) of the rateable value of the property, which is almost always far less than its true market value.

• Rubbish collection & water rates

The rubbish collection rate is applied by the Town Hall according to the property and payable every 6 months, at a maximum rate of €320/£218 per year. Water consumption is calculated by the water meter consumption in cubic meters and is payable every 3 months. Payment can be made directly at the Town Hall or by bank with direct debit instructions.

• Community fees

Generally speaking, the Community of Co-Proprietors or Homeowners' Association is a legal entity comprised exclusively of the owners of the apartments in a building, or villas on an estate. Each homeowner is obliged to participate in the expenses of the upkeep of the community areas and services on a prorated basis with the other owners. A budget for the annual community expenses is presented at the annual general meeting of the homeowners, and they or their authorized representatives must approve the budget by majority vote of those present at the meeting. Expenses can vary substantially according to the services provided.

A typical 2 bedroom apartment in a building or area with a hall porter, swimming pool, and a small garden, could cost between €120/£82 to €300/£204 per month in community fees - but could go up to €600/£408 or more per month in a high luxury building with a large community staff and many services.

In the case of an individual villa in an estate of villas, community fees are often less since the private gardens and exteriors of such properties are generally not maintained by the community, and the community fees are limited to road and roadside garden maintenance, basic common service maintenance, and security.

• Insurance

A standard insurance cost for a €300,000/£204,000 apartment with contents valued at €48,000/32,640 would be €395/£269 per year. One should note that in an apartment building, the Homeowners' Association is required to insure the building for its reproduction cost. Therefore, the individual's insurance policy for the apartment need not cover the entire value of the apartment, but only damages to the interior of the apartment, its contents, and third party liability. It is also advisable to insure the building at first risk in case the Community insurance is not comprehensive. For a villa with a reproduction value of €500,000/£340,000 with contents insured at €180,000/£122,400 the annual insurance would be in the area of €1,580/£1074.

• Gardeners

The upkeep of a private garden is essential to the maintenance of your property and its cost will, of course, depend on its size. As a rough guide, the hourly rate is about €16/£11. A full-time gardener on salary would cost in the area of €1000/£680 per month, whilst a half-time salary would be in the area of €600/£408. A villa on a plot 2,500m2 might require a gardener a few hours a week. A large parcel of a full acre or more may require a half or full-time gardener. Social security is an additional cost to full time wages and runs in the area of 40% of the salary.

• Cleaning service

Cleaning service is generally available on a full-time salary or hourly basis. Full-time salaries range from €700/£476 to €900/£612 per month plus approximately €120/£81.6 per month social security contributions. Part time help is usually charged by the hour with rates varying from €9 to €12 / £5.4 to £8.16.

• Electricity

Electricity is billed bimonthly. Minimum rates are applicable whether you are in residence or not, and the minimum varies according to the amount of electricity your house could potentially use with all power and lights turned on. The minimum charge for an apartment might be between €24 and €36 / £16.30 and £24.50 per month. Charges for a villa are from about €60 to €90 /£41 to £61.2 per month, depending largely on the extent of the electrical installation. Usage is €0.08 /5.4pence per Kwh plus tax. With all the sunshine in Marbella, you will nevertheless be using less lighting and heating than in a lot of other countries!

• Fixed-line telephone

The telephone bill is also charged bimonthly. Standard rates vary according to the equipment installed, but can be in the region of €18.50 / £12.58 per month including a touch dial telephone. A 3-minute call (daytime business hours) to any European Community country, direct dial, presently costs about €0.48 /33 pence (excluding VAT). There are many local and national telephone companies that can offer substantial savings to those who wish to spend some time studying the market, and ADSL broadband services are available virtually anywhere.

A foreigner who is a non-resident of Spain has the right to sell his property to another non-resident foreigner entirely in foreign currency, with payment made outside of Spain. It should be noted that, since 1997, a 5% tax retention is effected by the tax authorities upon the sale of any property owned by a non-resident vendor, which is applied towards the capital gains tax (currently 35%). The profit on the sale is reduced by a small percentage for each year of ownership in compensation for inflation. If the amount withheld is greater than the tax due, it can be reclaimed in part from the tax office. Those sellers today who have owned their property prior to 1986 currently pay no capital gains tax on a sale.

An urbanization is a planned community which has met the standards of the various governmental agencies with respect of the use of the land (residential, commercial, sports area, green zones), and to providing a specific set of services and a minimum level of quality in the construction of roads, sidewalks, drainage, sewage systems, electricity and water installations, and so on. Obtaining permission to develop land into an urbanization can take a developer up to several years and several million euros of expense. The most obvious advantage to the owner of a property within an urbanization is the fact that the land usage is strictly controlled. If one decides to build a house on a plot in a section of an urbanization zoned exclusively for single-family dwellings, you are assured by law that neither an apartment block nor a rabbit farm can be located on the adjacent single-family plot!

In addition to the annual Impuesto sobre Bienes Inmuebles or Ibi (the equivalent of Rates or annual property taxes) paid on all property to the Town Hall, non-residents must pay a Wealth Tax (impuesto de patrimonio) on their assets in Spain. The amount of tax is determined based on the individual wealth. The cost price of the property is usually the basis for the calculation of the tax.

Non-residents are wise to appoint a fiscal representative to handle all tax matters relating to ones assets in Spain. Official notifications regarding your property will be delivered to your fiscal representative, which is highly advantageous to the foreign owner as it protects an owner from having his or her assets repossessed by the Inland Revenue due to non-payment of taxes, for example. In previous years, there were cases of non-residents coming to Spain only to find their properties had been embargoed and even sold over, all due to the fact that the owner had been officially notified at a local address and found to be absent! To contract a fiscal representative one need look no further than one's own lawyer who will refer you to his own tax consultant.

Non-residents who use their property themselves must also file for Income Tax and must pay tax for any income received in Spain at the flat rate of 25% (including real estate rental income) even if the income was received abroad. Every non-resident is assessed on income tax even if there is no real income (on the theory of derived benefit) at 25% of 2% (or 1/2%) of the rateable value of the property value (cadastral value), which is generally a fraction of a property's market value. This tax is not applicable if the owner is leasing the property to third parties, but it is applicable with respect to the rental income received, which is taxable at 25%.

Upon the sale of real estate (when the seller is a non-resident), there is an automatic tax retention of 5% of the sales price, payable against a 35% capital gains tax. If the seller is a resident in Spain, with residency permit issued six months or more, there is no tax retention and a flat rate of 15% capital gains tax if the property has been owned 1 year or more, adjusted to compensate for inflation.

Residents in Spain must of course file Income Tax and declare the income they receive regardless of source. For tax purposes, one is considered a Fiscal Resident if one resides in Spain over 183 days per calendar year, regardless of whether one is officially resident or not.

Further miscellaneous questions and answers can be found on the Panorama website.