If you are thinking on selling a house -either on your own or through a real estate agent-, you should know that apart from the conveyance price, both the buyer and the seller have to pay some expenditures and taxes regarding to the operation. Doing this, in our experience, the main doubt appears to both parts by the time of closing the deal. Also, this is something that independently is contemplated in the law, it is essential to detail it in the contract for avoiding controversies about it.
In this article, we are going to go over what are those expenditures and taxes regarding to selling a house. Mainly, there are the Municipal Added Value Tax, the mortgage cancellation costs -if there is one-, and notary expenditures. Of course, this operation will have to be informed in the tax return, so if there is an added value in the selling price (meaning that we have sold for more money than it costed us before, in net terms), we will also have to pay that added value to Treasury.
So, we are going to analyse all these expenditures and taxes in a more detailed way:
MUNICIPAL ADDED VALUE TAX
The Municipal Added Value Tax, is calculated based in a coefficient, under which you have to pay a fine for the added value of a land property at the time of selling a house. It is calculated using the cadastral value of the house and the number of years that has been owned. And this calculation depends on each Council and it is included in the law “Ley Reguladora de las Haciendas Locales”.
So, if the cadastral value of the land increases, which you have to pay, and no matter if the owner has lost the money by selling. Indeed, that was the application and interpretation that have been developed regarding to this tax until recently. Of course, during the expansive economic cycle previous to the crisis, that fortunately is behind us now; no doubts about that, year after year those “real” added values existed in any operation or conveyance that was done, and thus, almost nobody questioned about the convenience of this tax. It means, the cadastral values were taken as a reference, in an automatic way and just for the sake of time passed, and the land value increased.
The reality is that in the last couple of years what happened and is still happening, was just the opposite. So, this fact has generated a controversy inside of the social environment and finally in the legal one, and that was revealed with the sounded Sentence of Tribunal Constitution of Spain in May 11th 2017; which declared in its final decision that I will quote now: “Estimate the question of unconstitutionality no. 4864-2016 and, in consequence, declare that the articles 107.1, 107.2 a) and 110.4, all of them from the restated text of the “Ley Reguladora de las Haciendas Locales”, passed in “Real Decreto Legislativo 2/2004, in March 5th, are unconstitutional and void, but only in the measure that are submitted to a tax situations where there is nonexistence of added value.
After that, the payment can be avoided when the owner has lost money by selling. What advocators are recommending, is paying the tax and then ask for its refund, so you have to pay before the 30 days expires from the signing of the conveyance.
For further information, you can review the previous article in which we explain this in a more detail way.
MORTGAGE CANCELLATION FEES
In many cases, when we sell a house and there is still a current balance on the mortgage that is on the property. Thus, in this point we have two options:
-The buyer accepts a mortgage subrogate -in this case it is not necessary for any cancellation fee-, although you should review the deed terms.
-It needs to transfer free of any encumbrances -because the buyer does not need financing or just because he prefers a different option-, in this case the mortgage has to be cancelled before the conveyance.
So, in this last case, the mortgage usually has an early cancellation fee that is between 0.5% and 1% from the current balance. Nevertheless, we are waiting for the new Mortgage Law, the act limits this fee to a maximum of the 0.5% in the first five years, and 0.25% from the fifth year on.
LAND REGISTER EXPENSES
On the other hand, it will be also necessary to inscription the mortgage cancellation in the Land Register, which cost will depend on the principal amount of the mortgage, which can reach up to 1,000 € depending on the case. Although, usually it is the same management service of the buyer´s bank who is in charge of this process. Certainly, they normally ask for a provision that can be around 800 € and 1,200 € to accomplish it.
The notary fees are going to depend on the agreement signed in the contract. The most common are those expenses “According to Law”, which means that the seller will pay around 60% of the notary costs, and the buyer will pay the rest 40%. As an example, in a conveyance of 120,000 €, that 60% could be around 600 € or 700 €. This amount should be payed the same day that you go to the notary.
Selling a house, due to paying the taxes in the Tax Return, having to declare the earnings that we have got with the sale. The calculation used is very simple, based on the difference between the value at which we have sold and the one we bought, applying a coefficient that varies depending on the year in which the property was acquired. This data must be included in the Taxable Amount on Savings.
In case that the house is sold for less money that we payed originally, and so it will not be due to pay taxes. Nevertheless, we are forced to declare it, including the possibility of compensating those loses with the earnings got in the previous years.
There are other exceptions when it comes to Tax if any of these two following cases happen:
-When independently of the age, those earnings are reinvested in buying a first home, being compulsory to make it before the following 2 years after the date of the conveyance.
-Being over 65 years old and is living in their current home, or for those that have a second house, they reinvest the money earned with the sale on a life annuity, in the first 6 months after the conveyance.
As a conclusion, and the information given about the expenses and taxes that we are facing by the time of selling a house, we see that these procedures can be done by anyone who has time and a minimum knowledge on this matter. Nevertheless, knowing that it is not always like that, there are many agencies that will support you or even give you the chance to be in charge of those formalities, which is always the most recommendable choice. If not, you can always ask for this service from a professional.
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