Costs and taxes associated with buying and selling property in Mallorca

If you are dreaming of owning a house or apartment in Mallorca, you should be aware of the costs and tax obligations involved, as well as the purchase price. As an experienced real estate agency on the island, home4you not only helps you find your dream property, but also provides you with expert advice on ancillary purchase costs and taxes.

The following is an overview of the most important one-off and ongoing costs involved in buying and selling property in Spain, with a particular focus on Mallorca.

Notary and registration fees

As in Germany, the notarisation of the purchase of real estate by a notary is also mandatory in Spain. The fees incurred depend on the purchase price of the property. There are also costs for entry in the property registry (Registro de la Propiedad). Depending on the value of the property, both fees together usually amount to between around €800 and €1,400.

Example for guidance:

Taxes when buying property

When you buy a property, different taxes apply depending on the type of seller and the property. As a rule, either value added tax or land transfer tax is payable.

Value added tax (IVA)

VAT (IVA) is only due when buying new buildings or plots of land from a commercial seller (developer, etc.):

• 10% on newly built residential properties
• 21% on undeveloped plots of land and commercial properties

Since 2012, buyers have been obliged to declare and pay the VAT due directly to the tax office.

Land transfer tax (ITP)

If, on the other hand, you buy a property, a construction project or a plot of land from a private individual, land transfer tax is due instead. The following rates have applied in Mallorca since 1 January 2023:

• Up to €400,000 → 8%
• €400,001 to €600,000 → 9%
• €600,001 to €1,000,000 → 10%
• €1,000,001 to €2,000,000 → 12%
• over €2,000,000 → 13%

The first €400,000 of the purchase price of a property is therefore only subject to 8% land transfer tax.

• The difference between €400,001 and €600,000 of the purchase price of a property is then subject to 9% land transfer tax.
• the difference between €600,001 and €1,000,000 of the purchase price of a property is then subject to 10% land transfer tax.
• the difference between €1,000,001 and €2,000,000 of the purchase price of a property is then subject to 12% land transfer tax.
• the difference between €2,000,001 and €2,500,000 of the purchase price of a property is then subject to 13% land transfer tax.

Thus, a uniform tax rate does not apply to the total amount, but is made up of the above-mentioned scale. The tax is calculated on the notarised purchase price and must be declared and paid within one month of the notary appointment.

Capital gains tax (Plusvalía Municipal)

This municipal tax is levied on the pure land value increase between the last and the current change of ownership.

The basis for this is:

• municipally determined land value
• duration of ownership of the property
• size of the municipality

The calculation varies greatly depending on the location and can only be determined in specific cases. In principle, the seller is responsible for the payment – in practice, however, it is often contractually transferred to the buyer.

Example calculation

Annual assessment factor based on length of ownership and number of inhabitants:

These values indicate the annual factor by which the land value is multiplied depending on the length of ownership.

Tax rate on the calculated basis of assessment:

Depending on the size of the municipality, this tax rate may be applied. Each municipality is allowed to set its own rates within legal limits.

Example calculations:

The longer the period of ownership, the higher the Plusvalía. If a property is resold in the same year, no Plusvalía is due.

Income tax on the sale of real estate

When selling a property in Spain, income tax is due on the profit made, depending on the seller’s tax residency status. The taxable profit is the difference between the original purchase price (plus certain additional costs) and the current selling price.

Taxation for residents of Spain

Individuals whose tax domicile is in Spain are subject to the regular income tax liability. The following tax rates apply to the sales profit (as of 2016):

• 19 % on profits up to €6,000
• 21% on profits between €6,001 and €50,000
• 23% on amounts in excess of this

If the property is the seller’s main residence and the profit is reinvested in a new main residence within two years, the profit can remain tax-free under certain conditions.

Taxation of non-residents

Sellers who are not resident in Spain for tax purposes are subject to a flat tax rate of 19% on the capital gain. In addition, the buyer is legally obliged to withhold 3% of the notarised purchase price and pay it directly to the Spanish tax office – as an advance payment on the seller’s tax. This regulation is intended to ensure that non-resident sellers also meet their tax obligations.

Annually recurring taxes on property ownership

Even after the purchase, owners have ongoing tax obligations. These are independent of whether the property is owner-occupied or rented out.

Income tax on owner-occupation or rental

Non-residents who occupy their property themselves (e.g. as a holiday home) pay income tax on a notional rental yield. The tax base is a flat-rate percentage of the cadastral value:

• 2% of the cadastral value (or 1.1% if the cadastral value was reassessed after 1 January 1994).

A tax rate of 25 % is applied to this.

Different rules apply to rentals:

• Non-residents: 24.75 % on gross rental
• Residents: taxation as part of progressive income tax, often with a 50% tax-deductibility of rental income

Wealth tax

In addition to income tax, property owners in Spain are subject to wealth tax under certain conditions. This tax is levied on net assets, with real estate being valued at its actual market value.

The tax rate varies depending on the amount of wealth and the region:

• 0.2% to around 2.5% (for very high wealth)
• Exemption: €700,000 per person (centrally regulated)
• For owner-occupied primary residences, an additional allowance of up to €300,000

Non-residents with property in Spain may also have to file a wealth tax return.

Property tax (IBI)

The annual property tax (Impuesto sobre Bienes Inmuebles) is calculated on the basis of the cadastral value and collected directly by the respective municipality. The amount varies depending on the municipality.

In certain years, the Ministry of Finance may impose a flat-rate increase, which the municipalities may apply individually.

Other ongoing obligations

In Spain, it is common for all recurring costs (e.g. water, electricity, waste collection charges, insurance, taxes) to be debited directly from a Spanish bank account. For property owners resident abroad, a local bank account is therefore almost essential.

Note on tax returns

In Spain, the principle of self-assessment applies. Property owners and vendors must submit their tax returns independently and on time – otherwise, they face severe penalties of up to 20% for omissions. We recommend that you engage a tax advisor with experience in Spanish property law at an early stage.

Our conclusion for you

Buying or owning a property in Mallorca not only brings with it an enhanced quality of life, but also tax and administrative requirements. As an experienced real estate agency, home4you not only supports you in your search for your dream property, but also guides you safely through the entire purchase process – including all tax-related questions.

Would you like to know more about ancillary purchase costs, tax obligations or legally secure processing?
Contact us – we will be happy to advise you in person.