Design Process
Total Costs of Buying Land
When acquiring land, whether to build a house or for other purposes, it is not enough to pay the price of the land itself; it is necessary to bear in mind that the total costs of buying land include fees, taxes, and administrative expenses that increase the total amount to be paid.
Furthermore, if we apply for a loan or mortgage to finance the purchase of land, it is important to know the total costs of buying land to ensure we do not fall short on our budget.
What Each Party Pays When Buying Land
Although both the seller and the buyer pay taxes or expenses, this is not done equally by splitting 50% each. An agreement can be reached between both parties to establish which expenses each one pays, but generally certain costs are assigned to each:
The seller, that is, the owner of the land, is responsible for paying the capital gains tax, which is a municipal tax.
Capital gains tax only needs to be paid when the land is classified as urban or of special characteristics. If we are talking about a rural plot, it does not need to be paid.
On the other hand, the buyer is the one who pays the majority of the expenses associated with the purchase of the land. They must pay the costs of the administrative agency, the notary, and the ITP (Property Transfer Tax) or VAT depending on whether the land is registered under an individual or a legal entity.
As we can see, the total costs of buying land are not limited solely to the sale value of the plot.
Let us examine in detail each of the expenses associated with purchasing land.
When Do We Pay VAT or ITP When Purchasing Land?
Depending on who owns the plot, we will pay VAT or ITP (Property Transfer Tax).
Therefore, it is important to know whether we are making the purchase from a company or from a private individual, as the percentages—and therefore the price—paid in each case are very different.
Purchase from a Legal Entity (a Company)
When the plot belongs to a company, 21% VAT must be paid, since we are purchasing a company asset.
In this case, in addition, what is called IAJD—Stamp Duty Tax—must also be paid to the tax authorities. This is a tax that typically amounts to around 1% and varies according to each autonomous community. In Catalonia, for example, this tax represents 1.5% of the land value.
Purchase from a Private Individual
If, on the contrary, the owner of the plot we are going to buy is a private individual, VAT and IAJD do not need to be paid; instead, we must pay what is called the Property Transfer Tax (ITP). ITP is also paid to the tax authorities.
Depending on the autonomous community, this percentage can vary between 6% and 10%. In the case of Catalonia, it corresponds to 10% of the land value, while in Madrid it is only 7%.
This percentage is reduced in certain cases, such as for large families, where it is reduced to 5%, or in the case of Officially Protected Housing, where it is 7%.
The ITP must be checked in each community, as in Spain it varies from 4% to 10% depending on the community, and all have some type of reduction.
What Are the Notary and Registry Fees?
The total costs of buying land must also include notary fees and property registry fees.
Although the notary and the registry are independent, as are the expenses each one entails, their work is closely related. Although it depends on the price of the plot to be acquired, notary and registry fees together do not usually exceed €1,000.
The notary is responsible for establishing that a seller wishes to transfer land to a buyer for a specified price.
To carry out notarial procedures such as purchasing land, you can go to any notary you wish; there is no obligation to go to a specific one.
The notary’s fee, like that of the registry, is governed by tariffs established throughout the country. The notary is usually more expensive than the registry in almost all cases.
As for the property registry, it is responsible for registering real estate transactions—among other operations—and confirming that they can be carried out and are legal.
In this case, you must go to the registry assigned to you according to the location of your land, since each registry is assigned one or several municipalities.
The amount to be paid to the registry is also established according to tariffs set in Spain.
How Much Is Paid in Notary and Registry Fees for the Land to Be Purchased?
In this way, a percentage is paid based on the value of the land:
a. If the value of the property is equal to or less than €6,010.12, €24.04 is paid.
b. Between €6,010.13 and €30,050.61, 1.75% of the property value is paid.
c. Between €30,050.62 and €60,101.21, 1.25% is paid.
d. Between €60,101.22 and €150,253.03, 0.75% is paid.
e. Between €150,253.04 and €601,012.10, 0.3% is paid.
f. For values exceeding €601,012.10, 0.2% of the property value will be paid.
Is It Necessary to Include the Costs of a Lawyer?
We have also included the lawyer within the total costs of buying land because, although it is not mandatory, it is quite common to hire a professional to advise us in the purchase process to carry it out with complete security.
In fact, at Slow Studio, we always verify the legal information of the land, and if we have doubts, we usually delegate this to our lawyer, as all kinds of problems can arise in the real estate market, such as outstanding debts, boundary disputes with neighbors, or legal issues in obtaining a building permit that depend on a municipality preventing the construction of a house, among others.
Therefore, although we are not obliged to contact a lawyer, they can help us make the purchase easier and clearer and ensure that the land we buy will be suitable for construction and we will not encounter subsequent problems.
Although each firm and each lawyer has their own fees, a lawyer’s fee is usually around 1% of the purchase price of the land.
Potential Legal Issues When Purchasing Land
As we have seen, ensuring that the land has no issues that could interfere with the subsequent construction of a dwelling is a key step.
Therefore, apart from knowing the total costs of buying land, it is also important to check for potential hidden costs that we might encounter when building.
Let us look at some of the most common problems we may encounter when purchasing land.
What Happens If the Land Has Liens or Debts?
If land has an associated debt or lien, in the event of a sale it would become the responsibility of the new owner. Therefore, it is important to check whether liens exist and, if so, renegotiate the price with the owner to assume the additional expense they may entail.
A debt could be a mortgage associated with the land that has not been fully paid. To verify this, a simple note can be requested from the property registry where the legal status of the plot will be documented.
Debt for Urbanization of the Area
There could also be an urbanization debt because the municipality plans to urbanize the area where the land is located. In this case, the municipality will request the amount of the municipal debt, which can amount to several thousand euros, in the form of a bank guarantee to grant the building permit.
The urbanization of a plot can include everything from paving the streets to lighting and basic utilities such as water, electricity, and the sewage network. All these costs will be established in the Territorial Partial Plan that has been drawn up for the specific area in which we are located.
Furthermore, we should not trust plots that are apparently already urbanized, and it is always necessary to consult with the municipality to ensure there is no pending urbanization plan, as in some cases there are re-urbanization plans or there are urbanizations that are missing some service such as sewage.
It is essential to understand the difference between developable and non-developable land in order to approach the municipality with proper knowledge.
Do Easements Affect the Purchase?
Easements do not directly affect the total costs of buying land, but they do affect the expense it may entail in the future.
An easement is an encumbrance on land that must be indicated in the property deeds; if it is not included, it has no legal value.
It usually involves water or sewage connection pipes that pass through our plot but do not belong to us and must be respected. Furthermore, to carry out any modification of them, we must assume the costs and reach an agreement with the owner, whether it is a neighbor, a utility company, or a municipality, and this is not always possible.
If these easements are located in areas where we want to build, whether the house or a swimming pool, for example, it can pose a subsequent problem.
If we decide to accept this easement, we must bear in mind that it is advisable to carry out a subsurface excavation to verify its location; although it is recorded on a plan, it is always good to check it on site and assess whether this could interfere with the construction we plan to carry out.
What Happens with Land That Has Been Subdivided?
Subdivided land, that is, land that was part of a single larger plot that has been divided, may not have basic services (such as water, electricity, among other networks) because they have not been duplicated.
In this case, the new owner may have to assume the cost of such connections.
It must also be verified that they are registered as independent plots and that the square meters as well as the façade length comply with municipal regulations to be able to build.
Land Where Building Permits Are Not Granted
For one reason or another, there are plots of land where building permits are not granted.
The problems can be of all kinds: from an area pending urbanization whose project has not yet been defined, a non-urbanized area (without basic services) that is not part of the municipality, to non-compliance with European directives that do not allow new construction to be carried out until they are up to date.
These problems can last several years or even decades, and therefore we would be buying land with no value.
For this reason, it is important to always consult with an architect and also with the municipality to ensure that construction is possible on the land we want to buy.
At our sustainable architecture firm, we always work based on the regulations and conditions that apply to the site and hold meetings with the municipal technician to clarify doubts.
Do not hesitate to contact us if you have questions about the total costs of buying land, and of course, you can get in touch with us if you are going to purchase land so that we can advise you throughout the entire process without any obligation and you can carry it out with complete assurance.