Buying property in Mallorca

When buying a property in Mallorca or Spain in general, there are some differences to the German system, from the taxes to the ancillary costs when buying to the drafting of the contract. Below we provide you with some information that you will need when buying a property in Mallorca.

Due to the energy crisis and inflation, Spain's property market has become even more sought-after by German investors. The drastic fall in prices in certain segments and the oversupply that has prevailed in some areas have recently increased the desire to buy. However, it does not make sense to buy on the entire island. We will briefly show you the price structure, the differences to German law and the current tax situation.

Who is actually allowed to buy property in Mallorca?

EU citizens in Spain, and therefore also in Mallorca, have the same rights as all Spaniards, which means there are no restrictions on the purchase of property. You can therefore buy anywhere in Spain - and the Spanish constitution naturally guarantees the protection of your property. For some months (end of 2024), there has been talk in political circles of limiting the proportion of foreign buyers in property transactions. However, nothing has yet been decided and, given the upcoming elections in 2023, nothing is likely to change until then.

What is the taxation like? VAT and property transfer tax on property purchases

IVA, Spanish VAT, is levied on first-time purchases (new builds, including from developers) and on the purchase of building plots. There are different tax rates here, between ten per cent for flats/houses and, for example, 21% of the purchase price for commercial properties. If the buyer is a natural person, property transfer tax is payable. In Mallorca, this was 7% until 1 January 2013. Since that date, it has been tiered as follows: up to €400,000: 8%, up to €600,000: 9%, up to €1,000,000: 10% and over €1,000,000: 11%. It is not compatible with VAT (or with the IGIC in the Canary Islands). In addition to VAT, there is also the stamp duty (Actos Jurídicos Documentados, AJD) of 1.2 per cent of the construction value. This is paid directly to the Balearic Islands region. The regulations in Mallorca change very often and are frequently updated.

Lawyers specialising in real estate law know their stuff

You should definitely make the purchase accompanied by a specialised local lawyer, as without a competent and independent lawyer the purchase is usually associated with considerable risks.

The tax declaration in Mallorca

As a property owner, you must, of course, not forget to file your annual tax return with the Spanish tax office. Here, a distinction is made on a case-by-case basis as to whether limited or unlimited tax liability applies. If you stay in Mallorca for more than 183 days per year, you fall under unlimited tax liability. You will then have to be assessed in Spain on your total income and assets. Here, it is also important to pay attention to the double taxation agreement between the UK and Spain. As already mentioned, it is very advisable to seek advice from a specialist, for example a solicitor, on the many aspects.

What about the different property prices in the various regions of Mallorca?

The price differences are very large. The most expensive, because the most popular, are the classic regions for holiday properties in the southwest, Alcudia and Can Picafort. In addition, Magaluf, Cala Millor, Playa de Palma and, of course, Palma are among the places with a high proportion of investors. More recently, the southeast, with its many new property offerings, has become a popular investment destination. Property prices for residential properties below the luxury segment in Mallorca have stabilised. While a three-room flat in a prime location is available from prices starting at €500,000, the price for a comparable property in the centre of the island or the Tramuntana region is around 30% lower. Here, you can find beautiful new-build flats from as little as €350,000. So you see, it very much depends on which region has the greatest demand at any given time.