Understanding local property taxes as a non-resident is very important if you’re considering buying, selling, owning, or renting a property in Estepona. In this clear and simple article, we’ll guide you through them all.
Buying a Property:
- Second-Hand: Expect to pay approximately extra 9% of the property price in taxes and fees.
- New Development: Taxes and fees amount to about 13%.
Selling a Property:
- Capital Gains Tax: This tax is from the profit of selling a property. EU/EEA residents are taxed at 19%, while those outside the EU/EEA face a 24% tax rate.
- Tax on Rental Income: For EU/EEA residents, the rate is 19%. For residents outside the EU/EEA, it’s 24%.
- Taxes and Fees: These include IBI tax, imputed income tax, community fees, and garbage fees and more. The total depends on your property’s value.
Taxes When Buying a Property
In this subsection we will explore the taxes and fees related to buying a property in Estepona.
1. Property Transfer Tax (ITP) - 7%
When buying a second-hand property (from a previous owner), you’re required to pay the transfer tax. In Andalusia this tax is 7%.
Example: If a property price is 500.000€, the tax is 35.000€
2. Value Added Tax (VAT) - 10%
When buying a new development (an off-plan project), you’re required to pay VAT, which is 10%
Example: If a new development price is 500.000€, the tax is 50.000€.
The prices you see from a developer, don't include this tax and you need to add it on top.
3. Stamp Duty (AJD) - 1,2%
When buying a new development (an off-plan project), you’re required to pay stamp duty. This tax is for the paperwork that makes your ownership official. In Andalusia, it is 1.2%
Example: If a new development price is 500.000€, the tax is 6.000€.
4. Notary Fee - 0,1% - 0,4%
When buying a property (both second-hand and new development), you’re required to pay a notary fee. This fee is for the Spanish notary who reviews all the documents.
For most apartments, this is a few hundred euros. The fee goes up with the property’s value but the percentage rate gets better for more expensive properties.
5. Land Registry Fee
When buying a property (both second-hand and new development), you’re required to pay a land registry fee. This is for the official registration of the property under your name.
Generally, this fee is about 50% - 70% of the notary fee. For a typical apartment, you might pay a few hundred euros.
6. Lawyer Fee
When buying a property, it is recommended to use a lawyer. It is not required, but we absolutely recommend using one.
The cost is usually 1% + VAT (21%). For a 500.000€ property, lawyer’s fees would be 5.000€ plus 1.050€ VAT, totaling 6.050€.
At LUCKY SOL, we collaborate with a professional and experienced law office that has six offices along the Costa del Sol. They charge a rate of 1%, but unlike other law offices, this rate already includes VAT. Even at this lower price, we believe their service is the best based on our experience working with multiple firms. Feel free to contact us to start your property buying journey today.
7. Banking Fees
When buying a property, you will usually pay the final amount with a check at a notary, and the bank will charge you for this check. Different banks charge different amounts.
Also, many banks might charge you up to €150 every year as a fee for having an account.
8. Mortgage Fees (If Applicable) - 1,5% - 3,5%
When buying a property with mortgage, there are a few extra costs, known as mortgage fees:
- Opening Fee: The bank charges this fee for setting up the mortgage. It’s usually 1-2% of the mortgage amount.
- Bank Appraisal Fee: The bank checks the property’s value before giving you the loan. An expert will do this, and it costs from €250 to €600.
- Stamp Duty (AJD) on Mortgages: Just like with new developments or off-plan properties, for the mortgage’s legal papers, you pay a tax called stamp duty, which is 0,5% – 1,5% of the mortgage amount.
Example: For a 500.000€ mortgage, the fees could be 7.500€ – 17.500€.
9. Technical Inspection (If Applicable)
When buying a property, you might want to do a technical inspection of the property to check for hidden problems. This costs from a few hundred to a few thousand euros, depending on the property’s size and complexity.
Note that if there are major hidden problems, like too much humidity that makes the property hard to live in, the buyer can cancel the deal or ask for a lower price.
Feel free to check out our step-by-step guide on how to effortlessly buy a property in Estepona.
Taxes When Selling a Property
In this subsection we will explore the taxes and fees related to selling a property in Estepona.
1. Capital Gains Tax
When selling a property in Estepona, there’s a tax on the profit called the Capital Gains Tax. It’s the difference between what you bought and sold the property for. If you are a non-resident, but you are from a EU/EEA country, you pay a fixed 19%. If you’re from somewhere else, like the USA, the rate is 24%.
If you’ve improved the property (for example did a renovation), you can add those costs to your original price, which can lower the profit you’re taxed on.
Example: You bought a property for 500.000€ and sold it for 550.000€. Your profit is 50.000€. If you are a non-resident, but you are from EU/EEA you’ll pay 9.500€. If you are a non-resident, but you are not from EU/EEA, you'll pay 12.000€
2. Bonus: Retention Tax
When a non-resident sells their property in Estepona, there’s a special step to keep in mind. The Spanish law requires the buyer to hold back, or “withhold,” 3% of the sale price. This isn’t an extra cost but more like a security deposit paid to the Spanish tax office. Here’s how it works:
- You’re a non-resident and decide to sell your property in Estepona.
- The person buying your property takes 3% of the purchase price and sends it to the tax office.
- This helps make sure that non-residents pay any remaining taxes they might owe to Spain. After all, once you leave the country, it could be harder for Spain to collect those taxes.
- If it turns out you’ve paid all your taxes and don’t owe anything, you can request this money back, usually within months but up to a year.
Find out about the services offered to sellers by LUCKY SOL.
Taxes When Owning and Renting a Property
1. Real Estate Tax (IBI)
The IBI tax is a yearly tax based on your property’s “cadastral value” – an official value looking at the location, size, use, and condition of your property, almost always much lower than the market price.
Estepona sets the tax rate, ranging from 0,4% to 1,1% of the cadastral value.
Example:
Your property’s market price is €500.000. The cadastral value is €50.000. The local IBI tax rate is 0,7%. You pay 0,7% on the €50.000, not the market price, making your IBI tax €350 for the year. You can find out the cadastral value on your tax bill or by asking the local tax office.
2. Personal Income Tax/Non-Resident Income Tax
If you own property and earn rental income, you must pay tax on that income every year. This is new from 2024. Before then, it was every 3 months.
- If you’re from within the EU/EEA: The tax rate is 19% on rental income.
- If you’re from outside the EU/EEA: The tax rate is 24% on rental income.
3. Imputed Income Tax
There’s a tax called imputed income tax. It’s a tax for non-residents for the benefit of owning a property in Spain.
You pay this tax every year based on your property’s cadastral value, which is the property’s value according to the local council records (based on location, size, use etc.). If this value hasn’t been updated in over 10 years, your tax rate is 2%. If the value is updated and less than 10 years old, the rate is lower at 1,1%. You can deduct a part of this tax by renting out your property.
4. Solidarity Tax
The Solidarity Tax is a temporary, yearly tax for people with more than €3 million in assets in Spain as of December 31st every year. It was created to support the Wealth Tax, mainly in regions where that tax has been lowered or removed. The rates of this tax can’t be changed by the regions. Spanish residents pay this tax on all their assets worldwide. Non-residents only pay it on assets located in Spain.
Tax Rates
- €3 million to €5.35 million = tax rate of 1.7%.
- €5.35 million to €10.7 million = tax rate of 2.1%.
- €10.7 million and above = tax rate of 3.5%.
Tip: If you buy a property with your wife or husband, the asset will be split between you. That means, that you can buy a property under 6.000.000€ and avoid paying this tax entirely.
5. Gestor Fees
A gestor in Spain is someone who can help you with paperwork and understands legal stuff. It’s a mix of an accountant and an office helper. You pay them based on what services you use. It’s up to you if you want to hire one, many non-residents don’t.
6. Community Fees - 100€ - 500€ Monthly
When you own property in Estepona in a community with shared spaces like a residential area, you have to pay community fees every 1 or 3 months. These are regular payments for shared facilities like gardens, pools, elevators, and for keeping the community safe. They are also used to paint the buildings and pay for shared utilities, such as water or gas.
How much you pay changes based on what shared facilities you have. If you won’t pay these fees, you could face legal problems and might not be allowed to use any of the community facilities.
Remember, when you buy a property in Estepona, you need to think about community fees as they are part of the ongoing costs you will have. Most of the time, these fees are between €100 and €500, but sometimes they can be more, in luxury communities.
7. Garbage Tax - 50€ - 300€
Every year, property owners in Estepona need to pay a garbage tax. The cost is different for each location and is often part of your local council tax bill, which is called “Impuesto sobre Bienes Inmuebles” or IBI for short, which was mentioned above. The money from this tax is used for picking up home trash, keeping streets clean, and looking after places where trash is thrown away. It is usually between €50 and €300 yearly.
8. Utilities
1. Electricity
Electricity costs can depend based on usage, the size of the property, and the efficiency of appliances.
2. Water
Water bills in Estepona are usually charged according to consumption. Properties with gardens or swimming pools may face higher water bills, especially in the warmer months when irrigation needs increase.
3. Gas
If your property uses gas for heating, cooking, or hot water, this will be another utility cost.
4. Sewage and Sanitation
These services are usually included in the local municipal taxes but can sometimes be charged separately. These fees are for the maintenance of the sewage systems and treatment facilities.
5. Internet and Telecommunications
Connectivity is important for everyone, and Estepona offers many options for internet and telecommunication services. Costs will depend on the speed of the internet and package deals with providers, which often bundle internet, telephone, and television services. However, the prices of internet and mobile tariffs are low compared to other countries.
Tips for Managing Utility Costs
- Seasons Affect Costs: Your bills can go up in winter (for heating) and summer (for water).
- Save Energy: Using appliances that use less energy can reduce your bills.
- Shop Around: Look for the best deals from different service providers.
- Ask Neighbors: To get a better idea of what to expect, ask neighbors or previous residents about their average utility costs.
9. Insurance
Property insurance is strongly recommended, not only for protection against unexpected events but also because it provides financial security and peace of mind. Here’s why it’s important and what it typically includes:
1. Building Insurance
This insurance protects the physical structure of your home from damage caused by events like fires, storms, floods, and vandalism.
2. Contents Insurance
Contents insurance covers the loss or damage of personal belongings within the home, such as furniture, electronics, and clothing, due to theft, fire, or other damages.
3. Liability Insurance
This insurance protects you from the costs associated with someone being injured on your property or if you cause damage to neighboring properties. This is especially important if you plan to rent out your property.
Choosing the Right Property Insurance
- Evaluate Coverage Needs: Check how much your home and the things inside it are worth to figure out how much insurance you need.
- Compare Policies: Look at different insurance companies to find the best deal that covers everything you need. Think about including extra protection for accidents or if you need to stay somewhere else temporarily because of damage to your home.
- Understand the Policy: Make sure you know exactly what your insurance covers and what it doesn’t cover. Pay attention to any amounts you have to pay yourself before the insurance kicks in (deductibles) and the maximum amount the insurance will pay.
10. Security (Optional)
In Estepona, new communities usually have good security already, but you can add extra things like security cameras if you want more protection. Even though there is almost no crime in Estepona, adding more security can make you feel safer, especially if you have valuable things at home. It’s up to you if you want to add more security or not.
A big benefit of owning a second home by the sea in Estepona is that you can rent it out short-term and generate enough income to cover all the costs associated with property ownership, while still earning additional profit. If you’re interested in renting out your property, feel free to look at our rental services.
Conclusion
Buying a Property:
- Second-Hand: Expect to pay approximately extra 9% of the property price in taxes and fees.
- New Development: Taxes and fees amount to about 13%.
Selling a Property:
- Capital Gains Tax: This tax is from the profit of selling a property. EU/EEA residents are taxed at 19%, while those outside the EU/EEA face a 24% tax rate.
- Tax on Rental Income: For EU/EEA residents, the rate is 19%. For residents outside the EU/EEA, it’s 24%.
- Taxes and Fees: These include IBI tax, imputed income tax, community fees, and garbage fees and more. The total depends on your property’s value.
We hope this guide has helped you understand the tax aspects of buying, selling, owning, or renting a property in Estepona.
If you are looking to buy or sell real estate in Estepona, feel free to contact us at LUCKY SOL. We offer a complete service to our clients and we leave nothing to chance.
