The rule of thumb that most people use when discussing the cost of buying property in Spain or Mallorca is 10% and is paid for by the buyer. As a rule of thumb this percentage correct but has caught a few people out when they were presented with provision of funds request in excess of this. The reason for this is that 10% does not apply to all "property", it really depends on what you are buying.

There are 4 main categories in what I would loosely describe as the residential property market in Mallorca and the costs can vary slightly in each. By far the largest of these categories (certainly in Mallorca) is the Residential Resale Market and this is where the 10% comes from. So lets look at the breakdown:

- 7% Impuestos sobre Transmisiones Patrimoniales (Property Transfer Tax - Notary Fee - Land Registry Fee - Lawyer's Conveyancing Fee - Administration - Processing of NIE number, Taxes (normally handled by your lawyer)

Impuesto Municipal sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (Plusvalía)

You will note that of the above, the only percentage I have quoted is 7% ITP (Property Transfer Tax), the reason being that this is the only figure that is really fixed (and valid on the day of writing).

For example, the Notary Fee is based on a sliding scale and will be dependent on the sales price of the deed, the number of registry entries on the deed, for example, an apartment with 2 parking spaces and a storage unit could have 4 separate land registry entries, and, believe it or not, the number of pages of the deed. Remember that this is an act of law being witnessed and recorded on numbered notarial paper which then has to be archived and stored.

The same goes for the land registry, again, different registries will have different charges and furthermore the charges will be on sliding scales and dependent on number of registry entries as with the above.

Lawyers Fees are also on a scale, albeit slightly more predictable, as they are entitled to charge between 1% and 1.5% of the purchase price. Different properties will incur different charges depending on the searches conducted in the land registry. It may be a simple "proof of ownership" but can be more complex with debt or mortgage cancellation, usufruct cancellation, first refusal rights of current or previous tenants to name but a few of the conveyancing procedures that may be required.

Administration costs are nominal in this sense but must be accounted for, after all, someone has to go the Ministry of Interior and process and collect your NIE (Numero de Identificacion Extranjero) without which you cannot pay taxes in Spain and therefore not purchase (the original document now needs to be produced at the notary as opposed to the application which was sufficient in the past).

And then we come to good old Plusvali­a, always a thorn in the side here in Mallorca. By Spanish law this is payed for by the vendor the reasons for which are fairly straight forward. The tax is levied on the "increase of the rateable land value of the property" (valor catastral del suelo). What is the rateable land value? Firstly, it has nothing to do with the sales price. It is the amount you pay your annual municipal rates on and it is only adjusted every time that there is a transmission of patrimony such as a purchase (but could also be an inheritance for example).

This means that, should you own a property for ten years, from years 2 till 10 after you bought, you are being taxed on a depreciated land value. Subsequently, when there is a transmission, the town hall recovers its lost tax revenue by applying Plusvalía. As it is the vendor who has had the benefits of a reduced rates bill for the last 9 years, legally they should pay it. However, in Mallorca, it has been customary for the buyer to pay this (the I've got what you want so you're going to have to pay for it attitude). On a resale property this is still so although it is becoming more negotiable as the notaries start to apply the letter of the law, and promoters of new properties are now no longer allowed to pass this tax on to the buyers.

So how is Plusvalia calculated? Well, the simple answer is, I don't know! You take the rates receipt to the Townhall, the last date of purchase / patrimony transfer, the planned or actual date of the current purchase/sale, and they tell you how much is due. It is a complex calulation based on the number of years since the previous transfer and/or partial transfer, the preceding rates of inflation, the revaluation and recalification of land and probably more.

The point is, it is very difficult to say 10% with any kind of exactitude but as a rule of thumb it is a good guide and unless there are exceptional circumstances within the conveyancing and the Plusvalia, it should normally be within this amount.

So, what about New Properties from a Builder. In my view, the rule of thumb changes, and usually 10.5% of the purchase price is quoted as the costs of buying. Lets look at the breakdown and the key differences:

- 7% IVA (VAT) - 1% Actos Juridicos Documentados (Stamp Duty) - Notary Fee - Land Registry Fee - Lawyer's Conveyancing Fee - Administration - Processing of NIE number, Taxes (normally handled by your lawyer)

Impuesto Municipal sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (Plusvalía)

There are two crucial differences here, one being that the principal tax being levied is VAT and the second being the AJD (stamp duty) that is incurred when you buy a new property. Although the VAT on a new property purchase is charged at the same amount of 7% it is paid to the selling company against a VAT invoice and not to the inland revenue.

The stamp duty is the reason I quote 10.5% as this is a significant and measurable additional cost. Why then not quote 11%? Well, normally, the conveyancing charges should at the low end of the scale here as, so long as everything is in order with the searches, the procedure should be fairly straight forward. As I mentioned earlier, notaries are now insisting that the Plusvali­a is payed by the vendor as per the law and quite rightly. Imagine a builder who is selling 100 apartments, that is a lot of tax that is being passed on to a second party!

And that brings us to categories 3 and 4 which are Plots of Land. Yes, both categories are of the same property type but what is crucial here, certainly in terms of the costs, is the ownership of the plot. I will not give you a full breakdown of the differences as they are similar to the two examples above, so here is the difference.

If the owner of the plot of land that you are intending to buy is a Person - "Persona Fisica" - then the transaction incurs the same costs as if you were to buy a residential resale property, roughly 10%. The biggest factor behind this being ITP (property transfer tax) being levied at 7% and the other charges being the same.

If however, the owner of the plot of land is a Company - "Entidad Juridica" - then the transaction would incur IVA (VAT). BUT, and it is a big BUT, it is not considered as a transfer of patrimony, rather a commercial land transaction, since there is no Patrimony (house, dwelling) on the land, so VAT is charged at 16%. This, makes the total cost of purchase significantly more than the 10%!

My advice, know what you're buying and who you're buying it from before you make any kind of (financial) commitment, especially when it comes to plots, remember, an unexpected 16% VAT bill could put the property out of your budget and mean you forfeit your deposit. Always use a reputable estate agent and get a good lawyer to do your conveyancing.

One final note, the above are costs incurred when you buy a property, this does not cover the costs of borrowing / financing the purchase with a Spanish mortgage. But more on that next time.