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Legal & Financial Services

Buying Property in Spain

Apart from the actual cost of a property, you will need to allow approximately 10% - 13% of the purchase price to cover the fees and costs of acquiring a property. This 10% - 13% will cover the solicitor’s fees, translator’s fees, land registry cost, notary’s charges, stamp duty and VAT or Property Transfer Tax.

PROFESSIONAL ADVICE:

It is important to seek professional advice, and to employ a solicitor (Abogado). Most lawyers will tell you in advance what their fees will be. The standard lawyer’s fee for purchase of a property is between 1% and 1.5% of the purchase price plus VAT, a small price to pay for peace of mind (using a lawyer in your home country could double or treble the bill). The Spanish legal system is very different from other European countries and, to avoid misunderstandings, disappointments and possible fraud, it is essential to seek professional advice from the very beginning.


PROCESS OF BUYING A PROPERTY (THE CONTRACT):

Once you have decided on a property, a contract will have to be drafted and you need to make provisions for the deposit. The standard deposit is 10% of the purchase price. The deposit is payable upon signing a Purchase/sale Contract or an Option Contract (Contrato de Compraventa o Opción de Compra), which will include a completion date and transaction conditions which usually contains an assurance by the vendors that the property is sold free of charges, tenants and mortgages. We strongly recommend, in order to secure and guarantee the prospective purchase, that a solicitor deals with the drafting of the Option Contract or Purchase/sale contract.

Once both parties have signed this contract and the deposit has been paid, you have secured the property. This is a binding contract for both sides with penalties for breaking it or for failing to honour the terms of the contract.

After you have signed and paid your initial 10% deposit on the property, it is imperative to review the important legal details. Check the receipt for the paid Rates (Impuestos sobre Bienes Inmuebles also known as I.B.I.), which is the annual real estate tax. This receipt gives the all important “Valor Catastral” the official assessed value of the property, on which your property owners Income Tax will be based. Check with the Town Hall that the I.B.I. receipts have been paid up to date. Any outstanding amount should be requested from the vendor.

Do not buy a Spanish property until you have obtained a current extract of the title from the Land Registry (Nota Simple).


PAYMENT AND SIGNING OF DEEDS:

The next stage is to complete the purchase at the Notary’s office, usually, within a month or so, you will be ready to make the final checks before signing the Title Deed (Escritura Pública de Compraventa) in the presence of a Spanish Notary (Notario) who certifies that the contract is officially made. The notary does not certify that all statements are true, only that the parties have sworn to them. There you will be required to pay the balance of the purchase money, taxes and Notary`s fees.


NOTARY CHARGES:

These are collected by the Notary for preparing the deed and presiding of its signing. His fees are fixed by law and are based according to the value of the property.

Please note that all professional fees including the notary’s and land registry charges are subject to 18% VAT.

PROPERTY REGISTRY:

All property in Spain should be registered in the Land Registry (Registro de la Propiedad), where you can obtain the full details of the owner, the exact size of the property and full details of any mortgages, debts or judgments against the property will be normally registered. Only the persons or the Company named on the title deed (“Escritura Pública”) have the right to sell the property, unless a notarized power of attorney has been given to a third party.

When the title deed is signed, you will automatically become the new owner. The final step is to have the title deed (Escritura Pública de Compraventa) inscribed in the Land Registry Office as soon as possible to prevent any mortgages or other charges being registered against the property, while it is still in the name of the vendor.


PROPERTY REGISTRATION FEES:

Registration fees are charged by the Land Registry Office to inscribe the new deed into your name. These are based on the official registered value of the property. The length and complexity of the deed and other factors are also considered. The fees do not exceed 1% of the registered value. It is not advisable to try and do this yourself unless you are experienced and speak Spanish fluently.


TAXES: (PROPERTY TRANSFER TAX OR IVA (VAT)

Which of these two taxes are levied will depend on the type of property you are purchasing. The property transfer tax is levied on resale properties. The General rate for this tax is 6% but in some regions, such as the Balearic Islands, Catalonia and Valencia, etc. the rate is established at 7% for purchases less than €300,000, 8% for purchases between €300,000 and €500,000, 9% for purchases between €500,000 and €700,000, and 10% for purchases above €700,000. This should be verified beforehand.

There will continue to be situations in which there are reductions of the Transfer Tax as for instance in the property transfer of adolescents or people with disabilities or in the transfer of Council Properties.

If you purchase a newly built property from a developer you will pay a different tax called “I.V.A.” (VAT) which is charged at 8% of the purchase price plus 1% stamp duty. The I.V.A. is currently reduced to 4% to encourage new property sales.


LOCAL MUNICIPAL TAX (PLUSVALÍA):

This tax is based on an officially assessed increase in the value of the land since the last time the property was sold . This can be quite small if purchasing an apartment, but expensive on a villa with a large plot, which has not changed hands for years. Find out the exact amount from the Town Hall. Do not confuse this tax with the vendor’s capital gains tax on his profit on the sale.

In practice “who pays what” is negotiated prior to signing the Option Contract or Contract of Purchase/sale and this must be stipulated in the contract, as well as any listings of the contents/fittings to be included in the sale, when the owner accepts your final offer in writing.

In accordance with Spanish law, the purchaser is responsible for transfer tax or (I.V.A. + stamp duty when buying from a developer), plus Registration Fees and Notary’s Fees.


THE SELLER IS RESPONSIBLE FOR:

His own capital gains tax on any increase of value in the title deed, the local municipal tax (Plusvalia) and real estate agent’s fees.

The payment of the local municipal tax (Plusvalia) is the vendor’s responsibility by law, but if agreed between the parties, the normal custom is for the purchaser to pay it to assure that it is paid within the time limit. If, however, both parties decide that the vendor should pay this tax, please remember that is registered against the property and you will have to pay if the vendor fails to do so. This tax is often not demanded until some time after completion this is why, in most cases, the purchaser prefers to pay this tax liability.


NEW PROPERTIES:

For new properties, ask the vendor to show you the Deed of Declaration of New Building (Declaración de Obra Nueva), together with a copy of the Declaration of Alteration of Property of an Urban Nature (Declaration de Alteración de Bienes de Naturaleza Urbana), which both demonstrates that the property has been registered for the eventual payment of I.B.I. (Impuesto de Biene Inmuebles).


WITHHOLDING TAX:

If you buy a property from a non-resident person or a company, you must withhold a 3% of the value declared on the deed and pay that amount to the Spanish Treasury (Tesoro Público). The Spanish Treasury makes it the purchaser’s responsibility that this amount (3% retention of the purchase price) is paid to the Tax Authority on account of any Capital Gains tax generated by the vendor with the sale.


CAPITAL GAINS TAX:

Capital gains tax on real estate has been increased as of January 1st 2012 ( valid until 31.12.2013)
As of January 1st 2012 and for the tax year 2012/2013 the following amendments have been made to the capital gains tax on property sales.
Income tax for non-resident seller: For a non-resident seller the income tax has increased from 19% to 21%
Income tax for resident seller: Previously resident sellers had paid for up to 6,000 Euro 19% tax, for anything above that 21%.
The new rule is as follows:
Profits of up to 6,000 Euros- 21% tax
Profits of between 6,000 and 24,000 Euros – 25% tax
More than 24,000€ - 27% tax


OUTSTANDING DEBTS:

If there are any debts, outstanding mortgages, unpaid Community fees etc, then you should make sure that the debts are paid by the vendor before paying him the purchase price and signing the Deed of Purchase/sale, or you can deduct the amounts owed by the vendor from the purchase price to be paid and settle the debts on his behalf. This should be agreed between the parties.


PROPERTY OWNERS ASSOCIATION:

If you purchase an apartment in a block, townhouse or villa in an urbanization, you will automatically become a member of the property owners association, with the right to vote at the AGMs, which administrates the general maintenance of zones of common ownership, such as streets, gardens, hallways and swimming pool etc. An annual budget is calculated to cover these costs, which is divided between all owners according to the size of their properties. Fees depend on the services offered and are reflected in the annual amount.

Check the latest receipt for the payment of monthly or yearly maintenance charges (cuotas de comunidad) and discover how much you will have to pay. It is advisable for your legal representative to obtain a certificate from the association that there are no charges outstanding. Ask the president or the administrator for a copy of the Minutes of the Meetings and a copy of the Regulations governing the Community. The Minutes should highlight problems, such as failing water supply and the Regulations will confirm your rights.

Please note some communities have special rules. It is advisable to check up if there is anything special such as “no dogs” etc. Other items such as domestic services, electricity, water & telephone are metered and charged as used.

If the building belongs to a community it is important that the property has a Public title deed Escritura in which the plot as well as the house is shown. The Community of Owners is the legally registered body that administers the urbanization or apartment building.


INSURANCE:

This becomes your responsibility upon possession of the property. Normally, Spanish insurance companies offer a split policy, whereby the property and its contents are assessed separately. Please note that in case of some property owners associations, community fees may include coverage on the building.


SPANISH NOTARIZED WILLS:

It is strongly recommended that when your purchase a property that a Notarized Will is granted in front of Spanish Notary, only related with the assets situated in Spanish Territory. This will avoid unnecessary costs and delays for the heirs as they have 6 months from the date of death to meet the payment of inheritance tax. Delays in the payment of inheritance tax will be subject to a late payment fine.


PURCHASER PAYS: ( Running Costs and annual taxes ):

NIE number (TAX Registration Number)

All property owners in Spain, whether resident or not, must obtain this number from their local tax administration office, as you will not be able to pay your taxes or register your property without it. It is simply a fiscal ID number for non-residents. You also need it for payment of your annual taxes to the Spanish Treasury. Again your legal representative will advise you on this matter.


WEALTH TAX and INCOME TAX:

If you are a non-resident in Spain for tax purposes, you will be taxed on any income arising from a Spanish source. If you let your property in Spain, the income arising will normally be charged at 25% as Income tax.

Even if you do not let your property, you are still committed to declare and pay tax at 24% of the amount resulting from calculating 1,1% of the rateable value of the property (see an example below). All non-resident property owners are liable to annual taxes on their property. Using either the valor catastral or the value of the escritura pública, whichever is higher.

Rates receipt - I.B.I. (Impuesto sobre Bienes Inmuebles)
Income Tax (Property owners Income Tax) - I.R.P.F.(Impuesto de la Renta de las Personas Físicas)
Wealth Tax - Patrimonio

The I.B.I. will show the Rateable value for the property (valor catastral). This is the official ASSESSED VALUE OF THE PROPERTY (Your legal representative should ensure that there are no debts due from previous years). The local authority will annually levy this tax on your property, the rate being around 0,7% of the rateable value of the property but it can slightly vary depending on the municipality.

The Income Tax is calculated from the base of 1,1% of the Valor Catastral (this 1,1% is considered to be your income on the property) and you pay on this imaginary income the rate of 24%. For example, a non-resident with a property with a Valor Catastral of 42.000 € the bill would be 210 € per annum.( 42.000 @ 2%= 840 € @ 25%= 210 € )

Note. The Rateable value (Valor Catastral) is normally much lower that the real value of the property. The owner of the property is liable to the payment of this tax to the Spanish Treasury, on or before the 31st December. E.G. 1998 tax is due any time from 1st January 1999 to 31st December 1999. The first year you purchase you are only liable for the proportional amount.

As you may be informed , the Spanish Government abolished the Wealth Tax on 2008. This tax was to be paid annually, and it was calculated upon the value declared in the deeds.


GENERAL INTEREST:

If the purchaser wants to pay in a foreign currency, it is simply a matter of fixing an exchange rate on the private purchase agreement. The rate is used to calculate (1) the Escritura value which must be in € , and (2) the 3% retention if you are buying from a foreigner, which must be paid to the Spanish Treasury in Euros.


BANK CERTIFIED CHEQUES:

This is the normal method for paying the balance of the purchase price to the vendor at the Notary’s office, on the day of completion. A bank certified cheque is as good as cash. The bank has specially stamped the cheque, which guarantees the bank will honour it when it is issued to the reciplent. Allow working days for your bank to arrange the cheque. They simply require the name of the recipient and the amount.


NOTE:
The information provided here is purely for educational and informative purposes to assist you with appreciating the many differences in method that exist between Spain and other European countries. This may seem very complex but NOT to the people in the Spanish legal system who are doing this everyday of their lives, and in general the completion of a property purchase in Spain takes much less time than the U.K. As indicated above, it is advisable that you consult with a solicitor before purchasing a property in Spain.