Although it is not strictly necessary, hiring a lawyer is highly recommendable. When buying property we are parting with substantial sums of money so being protected becomes essential, because we should not forget that unfortunately, things can go wrong.
We should therefore seek proper legal advice. In Spain, as the Property Conveyancer title does not exist, this legal advice must be provided by a qualified and registered lawyer (member of the “Ilustre Colegio de Abogados”- the equivalent to Spanish Bar Association).
Lawyers are obliged to observe strict professional standards and are covered by professional indemnity insurance. This insurances proctect the client against the consequences of negligent practice.
If you contract a lawyer, you will benefit from more advice and services as he/she will also assist you in the processing of opening bank accounts, NIE’s numbers, drawing up wills, inheritance issues, changing utility contracts, mortgage advice, etc.
To sum up, employing a lawyer with specialist knowledge of the housing market will help you to avoid possible problems and will even save you money.
Until comparatively recently it was necessary for a non-resident who owned a property in Spain to appoint a Fiscal Representative, resident in Spain to deal with his tax affairs. This rule has now been relaxed for those whose only asset in Spain is a holiday home. However it is a good idea to employ one as you will find that they are not expensive in general. Without one you will have to submit your own tax returns. Any assessments will be sent to your Spanish address. If they arrive while you are absent from Spain you may well find that you are out of time to appeal against them if incorrect.
The Spanish Civil Code stipulates that where offer and acceptance are met; there is a binding agreement whether it adopts the form of a written contract or a simple verbal agreement. However, in order to enforce a verbal agreement in a court of law you will need to provide witnesses.
If it is not possible for you to be present to complete the transaction, there are two methods, which will allow your lawyer to sign on your behalf:
A gestoría is an intermediary in your relations with the various official bodies. The “gestor” (a general purpose consultant) can make your life much easier, as he knows the workings of many council and local government and is usually able to obtain an official permit or document much quicker that you could on your own- even if you are fluent in Spanish.
Gestorías are necessary part of Spanish life because government and council official are notoriously slow and meticulous and bureaucratic procedures are complex.
According to many Spanish contracts, the developer can start handing over properties after application of the license of first occupation has been made, but officially you are not allowed to live in a property without the license. Most homeowners however, do not wait for the official license to come in and start enjoying the property directly after hand over. Please keep in mind that utilities cannot be connected in your personal name until the license has been granted and therefore the developer will usually issue site supply electricity and water until the license is issued. If developers are willing to wait with the hand over until the final license of first occupation is issued, we recommend this option.
Normally the purchase price and the valuation figure differ around 10%(at times the valuation being 10% higher than the actual price).
You should be aware that the Spanish Inland Revenue (Hacienda) will make an assessment of the amount declared on the title deed and compare it to their own valuation of the property. If they notice a discrepancy of more than 20% between the price quoted on the title deed and their valuation the local Tax Office will fine the seller claiming the difference plus interest and imposing surcharges.
It is always a good idea to leave a provision of funds with your lawyer in case you have unexpected expenses (payment of taxes, a new power of attorney, a payment to the notary for wills, additional community payments etc.) A provision of funds with your lawyer will enable you to make payment for anything unexpected without delays caused by extra transfers, authorisation forms etc.
It has to be pointed out that this account is not a personal account, but a client holding account and if the lawyer have financial difficulties creditors would be restrained to the personal accounts of the members of the firm. Moreover, clients are protected against legal wrongdoings from their lawyers, by means of a professional indemnity insurance.
There are virtually no exchange controls in Spain and you are therefore free to apply for mortgage on your property in any currency and from any bank in the world. We would, however, strongly advise you to set up your mortgage in euros since this will protect you against running into problems due to currency fluctuations. You will find that Spanish banks offer some of the lowest interest rates in Europe (under 5%) and are happy to lend to non-resident property purchasers. As for most aspects of property purchase in Spain your lawyer can arrange a mortgage for you.
The amount you can borrow will obviously depend on the value of your property. As a general guideline, non-residents can borrow up to between 60% and 70% of the property value, while for residents this figure raises to 80% of the value.
It will also depend on your income. As a rule, banks will usually lend up to three times your gross annual income, but they rarely authorise a loan that will result in monthly repayments that exceed 33% of your net disposable income per month.
The maximum term for repayment of the loan is usually 15 years, but mortgages can sometimes be arranged that have 30-year terms. The crucial factor here is the age of the borrower. The borrower, or eldest partner in the case of a joint mortgage, must be under 65 at the end of the mortgage term. So, if the eldest partner in a couple is 55 the maximum repayment term a bank will be prepared to offer is 10 years.
Each bank requires slightly different documentation for a mortgage application, but the following is a general guide to the kind of paperwork you will be expected to supply.
For employed mortgage applicants:
For self-employed mortgage applicants:
It is important to remember that in Spain a mortgage is attached to the property rather than the person and is registered on the title deed (Escritura Pública) at the Property Registry (Registro de la Propiedad). If you are buying off plan the developer may have a mortgage already in place on the property and you simply take over the responsibility for paying it on completion. Obviously the lender will want to check your financial status before agreeing to this.
The fees for arranging a mortgage usually come to about 3% of the amount you borrow, but this will be lower if you are taking over the developer’s existing mortgage. These fees include the bank’s commission, and stamp duty as well as fees paid to your lawyer, the Notary and the Property Registry.
This used to be a very tax efficient way of holding a Spanish property, the title to the property being registered in the name of the company and the owners holding the shares in the company. On sale or on a death the shares in the company were transferred and as there was no change in the registered owner of the property, i.e. it remained in the name of the company, taxes were avoided. The Spanish authorities realized that this was losing them a considerable amount of revenue and accordingly a Special tax of 3% per annum is now imposed on such properties.
Unfortunately, yes. You are deemed non resident in Spain if you spend less than 183 days a year there. As a non-resident you will be liable in addition to rates(IBI), to pay annual taxes, wealth tax (Patrimonio) and income tax (Impuestos sobre la Renta).
Both are taxes placed on property, but PWT’s exaction is competence of the State, whereas IBI’s is of local competence. The main practical difference is the way the taxable base is ascertained, and how the amount is calculated.
PWT’s taxable base is defined with regard to the declared value on the title deeds while IBI’s is defined with regard to the cadastral value, the official value assigned to the Property by the Town Hall, which is almost always lower than the declared value.
a. With regard to PWT the tax agency places a tax rate of 0.2 % up to assets of 167.129’45, after that the rate goes up as assets go up. The amount is divided between as many titleholders as there are, which reduces the amount to be paid a little. Mortgages upon the property can be deducted from the declared value, which also reduces the amount to be paid.
b. With regard to IBI, the tax agency places a rate of 0.4% upon the cadastral value of the property, but the amount to be paid is lower than the one of the PWT, because the taxable base is lower.
This tax is paid to the local administration and is based on the increase in the value of the land since it was last sold.
The Law states that the seller is responsible for paying the Plus Valía. However, some Sales Contracts stipulate that the buyer is responsible. This is an important issue during negotiations over the terms and conditions of the Sales Contract and it is essential to consult your lawyer before making any agreement on this point.
It is based on the official value of the land, which is always lower than the actual market value. The tax is charged at between 10% and 40% of the annual increase in the value of the land. The exact percentage depends on a number of factors including the location of the property and the length of time between sales. Local authorities periodically carry out valuations of land and maintain up-to-date records in order to calculate Plus Valía charges.
The Impuesto sobre la Renta (Property Owners’ Imputed Income Tax) is a tax that must be paid by non-resident property owners every year. Resident owners who can prove that their property in Spain is also their principal residence are exempt.
Non-residents are taxed on income received in Spain at a flat rate of 25%. Where no actual income exists the Inland Revenue will impute an income usually based on 2% of the value of the property (valor catastral) which is registered at the Land Registry (Catastro). On new properties which have recently had their value revised, this is usually reduced to 1.1%.
In addition to the Real Estate Tax (IBI) all property owners, resident and non-resident alike, have to pay a Spanish tax on their capital assets or Patrimonio. However, the amount of tax you are liable for differs depending on whether you are resident or non-resident. As a non-resident you will be taxed on all your capital assets in Spain including money held in Spanish bank accounts, shares, cars or yachts as well as real estate.
When assessing the value of your real estate the figure declared on the title deed (Escritura Pública) is used to calculate how much Capital Assets Tax you will have to pay.
The tax is very low; for capital assets up to the value of €160,000 only 0.2% is levied. (For current scale, please, see Patrimonio Capital Assets Tax in CHARGES TAXES & EXPENSES in our Conveyancing Guide).
This tax is paid to your local authority to cover the costs of rubbish collection and disposal. It is paid twice a year and it is advisable that non-residents arrange payment by standing order from a Spanish bank account.
If your property is newly constructed your local town hall may not immediately bill you for the tax. Sometimes it can take up to a year for them to send you notification, at which point they will backdate your payment to the original purchase date.
IBI (Impuesto sobre Bienes Inmuebles Tax) is very similar to the local rates or community charge that you pay to the local authorities in your home country. All property owners, both resident and non-resident, have to pay the tax annually to the local administration. The tax can be paid by standing order from a Spanish bank account and which is probably the most convenient method if you are a non-resident since late payment will result in surcharges being added to your bill.
The amount of tax you are liable for is calculated with reference to the official valuation (valor catastral) recorded by the Land Registry (Catastro) which is usually lower that the real market value. Other factors such as the location, size or nature of your property may also be taken into account. Because this is a municipal tax, rates vary from place to place; a typical local authority like Marbella currently charges 0.65% of the registered value per year.
You should make a Spanish will to distribute your assets to avoid time-consuming legal problems for your heirs.
Spain has strict rules applyed to inheritance. Even if you have a will in your home country, it is also wise to make a Spanish will that distributes of your property here. Spanish succession law is quite complicated and may differ greatly from what you are used to at home.
The Spanish law regarding wills is designed primarily to protect heirs within the family. A number of restrictions are therefore placed on the testator’s freedom to dispose of his estate as he wishes. If a foreign resident dies intestate his property will be distributed according to Spanish succession law. (For further information, please see our Conveyancing Guide).
As foreign will may cover your Spanish assets but it will be a slow and expensive process (translation, obtaining the probate of will in the jurisdiction of the will, legal assistance…) to get it recognised in Spain.
For your heirs to transfer your Spanish property to their names, the process is much simpler if there is a Spanish will. If there is no Spanish will registered in the central registry of wills, then in the worst case, your property will pass to the local and regional government.
No. You will need a will made out for each of you.
The most common type of will is signed before a Notary Public, who keeps the original. A copy is then sent to a central registry of wills (Registro de Actos de Ultima Voluntad), which is located in Madrid. This registry issues a certificate upon death of the testator with the contents of the will and is necessary in order to execute and process the will.
Building insurance is, by law, obligatory. Article 20 of the Edification Act. stipulates that no public deed of new works will be authorised or registered in the Land Registry unless the developer and the contractor in one case, have taken out three insurance policies.
These insurance polices cover the following:
|Who takes it out?||What does it cover?||How long does it last?|
|Insurance 1||Building Contractor||Minor defects affecting finishing or final details (e.g. doors, locks, windows, etc.)||1 year|
|Insurance 2||Developer||Damages to construction and conditions of inhabitance(e.g. water leakage, pipes, drainage,etc.)||3 years|
|Insurance 3||Developer||Structural building matters. Serious damage to beams, pillars any other element directly affecting the mechanical resistance and stability of the building.||10 years|
The policy beneficiaries will be the developer and any subsequent purchaser of the property.
Yes, you should. If your property is mortgaged the bank will require you to do so.
A standard insurance policy for an apartment worth about €300,000 with contents valued at €48,000 costs in the region of €280 a year.
In an apartment block or housing complex the residents’ association (Comunidad de Propietarios) is required to insure the whole property for the cost of rebuilding. However, it is always advisable to also take out your own buildings insurance in case the Comunidad de Propietarios insurance is not comprehensive. For a villa with a rebuild value of approximately €500,000 and contents worth €180,000, the insurance premium would be about €1,550.
Being a member of this Community of Owners (Comunidad de Propietarios) means that you have certain obligations and rights. Your obligations include:
1. You must not damage the communal facilities
2. You must maintain your own property in a state of good repair
3. You must allow repairs to be carried out on your property which benefit the community as a whole
4. You must allow workmen to enter your property in order to carry out repairs related to points 1 ?| 3 above
5. You must pay your share of the service charge
6. You will be held accountable by the residents’ association (Comunidad de Propietarios) if you fail to observe any community or statutory regulations
As a member of the Comunidad de Propietarios you have the right to vote and participate in making decisions and running your residents’ association.
Sometimes developers allow a temporary supply of water and electricity that is unreliable and could be dangerous. Some problems that may arise when using these connections as power cuts due to voltage. We do not recommend occupying the dwelling until these services are officially connected.
You should also be aware that it could take some time, up to four weeks in many cases, for this to be carried out.
Yes, you are. By law, failure to pay Community fees or council rates are considered debts construed as preferential charges on the property this means that if the seller has run up debts, the new property owner will then be liable.
A competent lawyer will have these debts checked out to ensure payment or will withhold, the amount pending the amount pending from the purchase price.
The procedures in case of unpaid charges are:
IBI/BASURA: Legal action begins after the first 2 unpaid IBI or Basura bills (depending on municipality) and if no action is taken, the property is sold in at auction. The new buyer is liable for this taxes if the previous years have not been paid.
Community of Owners fees: in this case, the process is really fast. If community administration decides to proceed against the new owner, a notification on the notice board in the common area of the building or on the notice board of the community administration office will be enough to proceed with the seizure of the property and sale at public auction.
In this case, debts will go with the person who signed the contract, and therefore the seller will be liable. However, electricity and water can be cut off if they have not been paid for.
The buyer can sign a new contract in their own name with the supply company and remain unaffected by the debts. However, in practice it is most often cheaper to pay the bills and ensure supply than litigating with the company.
Again, a competent lawyer should check this.
Fees may vary depending on the water or electricity company.
For water you can expect to pay an initial amount of between 75€ and 150€. Generally, the water contract also serves as receipt for the first payment.
With regards to electricity, the first payment is normally paid together with the first bill(usually by direct debit). As with water, this figure may also vary and it will be charged by the electricity company.
Community fees vary considerably depending on the size, location and construction standards of the property. There amount varies according to the community and can be anything from as little as 90,00€ per month up to 500,00€.
The whole process usually takes between one and three months, depending on the workload in each particular Property Registry. In the interim you can request a copy of the records (copia simple) from the Notary. When registration has been completed the Property Registry will get in touch with your lawyer to inform him that the title deed (Escritura Pública) is ready for collection.
After paying the last instalment to the vendor and receiving the keys, the registration process starts. Several parties are involved (bank, land registry, notary, lawyer) and usually a gestoría (Spanish administration company) will take care of the registration process. Since all parties will charge for their services, they are provided with a provision of funds and will use this to pay the involved parties. Any balance will of course be returned to the client with a breakdown of how funds have been spent.
The state agent is the company that usually takes up the responsibility of making up the snag list and then reports it to the developer. There are certain developers that allow them to make it before the signing of the title deeds and others that compel them to make it after. Only if the customer is not satisfied with the building and wishes to start a legal claim, it is the law firm that he has to go to.
Spanish law establishes three different lapses of time depending on the kind of snag involved:
1. when we are talking of minor snags, the lapse is of 1 year.
2. in case of damages caused by defects compromising hygiene and good health, environmental protection, energy saving and other functional aspects permitting a satisfactory use of the building, the lapse is of 3 years.
3. with regard to structural damages, the lapse is of 10 years.
However, we advise you to inspect the property within three months after completion.
By law, the developer and the builder have to apply for an obligatory insurance policy covering the damages mentioned above. In case of not complying with their obligations, the client has the possibility of setting up a claim before the Insurance Company, in which case he can use the services of the law firm.
In order to have snags resolved by the developer, it is usually enough to fax the snaglist to the developer.
Nies and Residence
A NIE is a fiscal identification number for non-residents, without which you cannot buy property or certain other assets in Spain.
This document is strictly for identification purposes, and does not attribute in any way the sense of residency, nor can it be taken as a presumption of residency.
It is the first requisite which we need in order to carry out conveyancing proceedings on the behalf of a non-national in Spain.
Yes you are able to obtain a NIE in the UK. You can either apply at a Spanihs consulate or embassy or sign a power of attorney together with a certified copy of your passport, all documents either signed at a Spanish consulate or embassy or sealed with the Hague Apostille, with the original documents (you are advised to send these by registered post or courier) we can make the application on your behalf.
The date of Inscription of Foreigners in a Municipal register, in spite of the fact that this does not constitute proof of legal residence in Spain, may be used as the start date for calculating the 183 actual days per year, which are necessary to achieve the condition of fiscal or usual residence, or at least the presumption of this on the part of the Spanish Administration.
This date can also be used by the Traffic Agents may begin to calculate the term of six months since the start of usual residence, after which it is obligatory to change, or to register, a driving license needed in a European Community nation.
In the same way, they calculate the period of thirty days after which a foreign-registered vehicle must be re-registered if the owner has his usual residence in Spain. It is the responsibility of an individual who is not usually resident in Spain to demonstrate this to the authorities.
This determines that the individual spends at least 183 actual days a year residing in Spain, or that the main nucleus or base of their economic activities or interests is in Spain. At the same time, it will be presumed, unless proved otherwise, that the contributor has their habitual residence in Spain and, in accordance to previous criteria, that any non-separated spouse or underage children dependant on the individual also have their habitual residence in Spain.
The immediate effect of a lack of Fiscal Residence is the obligation on the part of a purchaser to retain and pay to the State Taxation Agency (Agencia Tributaria Estatal) 5% of the price of the sale of a property in taxes (either VAT (IVA) or ITP). In this specific case Fiscal Residence is not assumed, but rather it is the responsibility of the individual to demonstrate it in order to obtain a certificate, which proves this, thereby exonerating them from the tax.
Assuming you do not have Spanish citizenship, you are a resident if either:
You are physically present in Spain for more than 183 days (including sporadic absences)
The main base of your professional activities or economic interests is in Spain