Mortgage financials in Barcelona Spain 

This post is part of a previous post covering general information about Mortgages in Spain.
May you need the big scenario, I recommend checking first the post: Mortgages in Barcelona Spain.
In this post we’re covering this process:

• Foreign exchange rates
• Tax in Spain
• Legal considerations
  

May you don’t know us yet, let’s have a quick introduction: we’re ERA architects.
Actually, I’m Esther Rovira, architect and passive house designer in Barcelona and Catalonia for either passive houses, efficient houses and positive houses.
In this post ‘Mortgage process in Barcelona’, you’ll find the list of basics you need to know before you start your renovation in Barcelona.
I hope it helps you! Let’s explore the 4 basics of a positive home renovation.

Foreign exchange rates

This is very often overlooked when purchasing a property abroad. And it’s crucial for your purchase journey, especially exchanging dollars to euros.
I recommend talking to an expert when we have a shortlist of property options to purchase. The reason is when you’re buying a property in a different currency, you become exposed to unpredictable currency fluctuations.
As you know currency values fluctuate constantly. This is challenging when you have a fixed amount of funds for your property purchase in your new home country. That sum you’re holding is subject to constant change making you lose money with that flexible exchange rate. Specially considering a property purchase in Spain can span from 3 to 4 months to complete. Plus fluctuations in those months can vary ranging 5 to 10% (specially if close to elections the risk can be outrageous!).

Then, can you avoid the risk related to currency fluctuations? Yes you can save money and risks by fixing your exchange rate with a foreign exchange provider. These financial groups have proved to our clients to be 3% more cost effective compared to a high street bank.
When you deal with banks for currency exchange, they add a profit margin making it expensive to exchange especially when dealing with large sums of money like those you’ll be dealing with to buy a property.
Some financial groups are able to effectively mitigate currency fluctuations by locking exchange rates for future dates by using a forward contract. This is very convenient for property transactions since you are able to lock the exchange rate when agreeing on the property’s price.
This will help you to budget in detail knowing exactly the amount you’ll pay in your currency for either your property purchase or renovation.This gives you financial security when buying to renovate your property in Barcelona and Spain.
Here is an example when facing a construction of a positive home new build that costs 500.000€. If taking 12 months to start construction due to design and permit approval. Then a buyer transacting from US dollars to Euros considering this 12 months time (we’re considering real fluctuation between October 2022 and October 2023); the construction budget amount decreases by 18%. This cuts the initial budget 80.000€ which means goodbye to your swimming pool and hotub on the sky terrace.

If you want to know more about this fixed exchange rate on your large transactions abroad, we have in our team an expert able to assist you with a free consultation without any commitment. The financial groups we work with are approved by the financial conduct authority and secure all funds are in segregated safeguarding accounts. If you are interested in getting this free consultation, write to us at hola@era.archi and we’ll book a session to assist you.

Tax 

If you and your family live in Spain 183 days a year, then you’re considered a Spanish resident and must declare your worldwide income. Demonstrating non-residency when your spouse and children live in Spain is extremely challenging. Seek for expert advice if your case is blurry while don’t be faddy to save in taxes if you should not; Spain has a great health and education public system, be fair with what you take and give.
In Spain there are different taxes. This may vary depending on which region you buy property but generally speaking you have these tax types: 

Personal income tax

The Spanish name is IRPF (Impuesto sobre la Renta). This applies to all residents earning their income in Spain. This tax varies depending on the income level ranging from 19% to 47% of benefits  generated each year (income minus expenses). Expect to pay almost 40% if your benefits have been 80.000€. 

Companies’ income tax

Companies operating in Spain pay a fixed rate of 25% of the benefits of their company. Some minor activities have reduced types. The name of this tax is Impuesto de sociedades.

Value added tax

The famous IVA (Impuesto de Valor Añadido) with a standard rate of 21% (renovation costs have this rate) and a reduced 10% (new builds have this rate) and a very reduced one 4% for food and healthcare. For example, considering your property investment, the architect will charge 21% on her professional services (either renovation or new build). Then, the builder for your renovation works 21% while the builder of a new positive house build will charge 10%.

Real Estate tax

The IBI (Impuesto de bienes inmuebles) is paid once a year by those who own property. The range varies widely depending on the neighbourhood.

Heritage tax

This ‘Impuesto de patrimonio’ has been cancelled in most regions. But expect to pay it in Barcelona and Catalonia for sure if you have property and high net worth.

Inheritance tax

This exists only in Barcelona and Catalonia. If you die your inheritor will need to pay before they inherit anything, a percentage that ranges between 7,65% and 34%. If you move to Zaragoza you pay 0%.

Legal considerations

Buying a property in Spain needs proper knowledge for two reasons. First, the real estate agencies or realtors are not obliged to give you all the information about the property. And second, the specific knowledge and language gap when signing complex purchase contracts or mortgages can be a hassle to your loss as a buyer.
The truth of realtors in Spain is that they are 100% on the side of the sellers and by law are not forced to tell you as a buyer if that property is affected by structural issues, supply debts or even who is holding the higher percentage of the ownership. You may even find that part of the property is not legally registered (maybe the swimming pool or an extension).
This is a huge problem that can make you lose a lot of money. So when buying a property, get a solicitor in order to:

• check the property is correctly registered
• add all the important items on the contract bilingual
• ensure you can retrieve your 10% deposit when conditions change at the final agreement

Conclusions

• Get Informed:
  • If you haven’t, read the general essentials in this post: Mortgages in Barcelona Spain.
• Understand Currency Fluctuations:
  • Don’t overlook the impact of currency fluctuations, especially when exchanging dollars to euros. Consult experts and fix your exchange rate to save money and mitigate risks.
• Realize Tax Implications:
  • Grasp the intricacies of the Spanish tax system for both residents and non-residents. Including: Personal Income Tax (IRPF), Companies’ Income Tax (Impuesto de sociedades), Value Added Tax (IVA), Real Estate Tax (IBI), Heritage Tax (Impuesto de patrimonio), and Inheritance Tax (Impuesto de succesiones).
• Prioritize Legal Knowledge:
  • Recognize the importance of legal expertise when buying property in Spain. Real estate agencies may not share all information, so hire a solicitor to ensure proper property registration, bilingual contracts, and secure deposit retrieval.
• Consult Experts for Free:
  • Take the next step by seeking a free consultation without commitment. Contact us at hola@era.archi to explore fixed exchange rates for significant transactions abroad.

I hope this post ‘Mortgage financials in Barcelona Spain’ is helpful for you to empower decision making based on knowledge.

You’re already moving forward by reading this post until the end. So congrats on your achievement so far!
Best of luck on your positive home renovation adventure.
See you on the next post,

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