The Spanish financial authorities have no tolerance for misconduct or late payments. No one should plead ignorance. Therefore, when buying and selling property, the tax authorities' rules should always be taken into account from the outset.
With all Mediterranean dreams, buying and owning a property in Mallorca is also associated with real obligations. As soon as the ink has dried on a purchase contract, the Spanish tax authorities are already waiting for the fulfillment of tax obligations. Both buyers and sellers are subject to different taxes, which should be taken into account from the outset. We provide you with an overview.▶ Property transfer tax (Impuesto sobre Transmisiones Patrimoniales, ITP for short) and how it is calculated
Property transfer tax (ITP) is one of the most important taxes when buying a property. Since 2022, the tax calculation has been based on the cadastral value and no longer on the market value. This mainly affects purchases between natural persons. For the purchase of properties that are not considered new builds, the property purchase tax in Spain varies depending on the autonomous community.
In Mallorca there is the following scale:
• the first 400,000 euros of the purchase price are taxed at 8%
• between 400,000.01 euros and 600,000 euros the real estate transfer tax is 9%
• the amount between 600,000.01 euros and 1,000,000 euros is taxed at a rate of 10%
• The purchase price between 1,000,000.01 euros and 2,000,000 euros is taxed at 12%
• The purchase price above 2,000,000.01 euros is taxed at 13%
▶ Value added tax (Impuesto Municipal sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana, Plusvalía for short) for sellers
Sellers must pay attention to the capital gains tax (plusvalia municipal), which is calculated according to the increase in value of the property. What is new is that it does not apply if there is a loss on the sale. A profit tax on the sales proceeds is also due.
▶ Value added tax (Impuesto sobre el Valor Añadido, IVA for short) for new builds
For new builds or apartments sold for the first time, VAT (IVA) applies, which can vary depending on the type of property: 10% for residential properties and 21% for commercial properties.
▶ Property tax (Impuesto sobre Bienes Inmuebles, IBI or Contribucion for short) –
A recurring item
The annual property tax (IBI) is based on the cadastral value and varies depending on the municipality
.
It is advisable for buyers to obtain the most recent IBI receipts from the seller in order to know the tax amount and avoid possible returns. The annual property tax varies between 0.4% and 1.1% of the value, depending on the municipality.
▶ Property tax (Impuesto sobre el Patrimonio) and its special features:
The property tax in Mallorca applies to property owners whose total assets exceed a tax-free amount of 3,000,000 euros. The exact tax rates vary and it is possible to minimize tax burdens through clever planning.
▶ Notarization tax – Another important aspect
The notarization tax (Impuesto sobre actos jurídicos documentados) is payable on the official issue of documents and amounts to 1.5% in the Balearic Islands. From a purchase price of over 1,000,000 euros it is 2%. This „stamp duty“ must be paid within one month of signing. For mortgage financing, this tax has been borne by the lender since 2018.
The tax landscape for buying and selling property on the island is like a labyrinth in which it is easy to lose your bearings. As the Spanish tax authorities are rigorous when it comes to multas – i.e. penalty payments –, professional advice is therefore more of an option – it is a ¨survival strategy. This is because it not only helps to protect your own wallet, but also ensures that no unpleasant surprises spoil the ownership of your dream property.
