Legal

 
 
 

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

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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 the purchase of a property is 1% 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 expert professional advice from the very beginning.

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PROCESS OF BUYING A PROPERTY


THE CONTRACT

Once you've 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 the contract (Contrato de Compraventa), which will include a completion date and the transaction conditions which usually contains an assurance by the sellers that the property is sold free of charges, tenants and mortgages.

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 IBI, the Impuestos sobre Bienes Inmuebles, the annual real estate tax. This receipt gives the all-important Valor Catastral the official assessed value of the property, on which your property owner's income taxes will be based. Check with the local town hall that the receipts have been paid. Any outstanding balance may be requested of the vendor.

Do not buy Spanish property until you have obtained a current Nota Simple (an extract from the title) from the Registro de la Propiedad.

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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 "Escritura Publica de Compraventa" (title deed) in the presence of a Spanish Notario (Notary) 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 over it's signing. His fee is fixed by law, is on a set scale according to the property value, and whether the property is mortgaged or not, is not normally more then 1% of the purchase price including VAT.

Please note all professional fees including the notary's and land registry's charges are subject to 21% VAT.

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PROPERTY REGISTRY


All property in Spain should be registered in the Registro de la Propiedad (the land registry), where you can obtain the full details of the owner, the exact size of the property and full details of any mortgages, debts or judgements against the property will normally be registered. Only the persons or company named on the Escritura Publica, the title deed, have the right to sell the property, unless a notarised power of attorney has been given to the third party.

When the title deed is signed, you will automatically become the new owner. The final step is to have the 'Escritura Pública' registered in the Property Registry Office as soon as possible to prevent a mortgage or other charge being registered against the property, while it is still listed in the name of the seller.

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Property Registration Fees
Property Registration fees is charged by the property registration 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 fee does 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.

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TAXES


Property Transfer tax or IVA (V.A.T.)

Which of these two taxes is levied will depend on the type of property you are purchasing. The property transfer tax is levied on resale properties and is charged at 8% of the new escritura value (purchase price).

If you purchase a newly built property from a developer you will pay a different tax called I.V.A. (V.A.T.) is charged at 10% of the selling price plus 0.5% stamp duty.

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Plus Valia (local municipal tax)

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 seller's capital gains tax on his profit on the sale.

In practice "who pays what" is negotiated with the final selling price and this must be stipulated, as well as listing the contents/fittings to be included in the sale, when the owner accepts your final offer (in writing).

BUYER PAYS:
In accordance with Spanish law, the buyer is responsible for:
Transfer Tax or
(I.V.A. + stamp duty when buying from a developer)
Property Registration fees
Notary charges

THE SELLER IS RESPONSIBLE FOR:
His own capital gains tax on any increase in escritura value
Plus valia tax
Notary fees
Selling agent fees

The normal custom is for the seller to pay "Plus-Valia". If, however, the buyer agrees to pay this tax, please remember that it is registered against the land and you will have to pay if the vendor fails to do so. This tax is often not demanded until some time after completion.

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New Properties

For new properties, ask the seller to show you the Declaración de Obra Nueva, the declaration of new construction, together with a copy of the Declaración de Alteración de bienes de naturaleza Urbana, the declaration of alteration of property of an urban nature, which both demonstrate that the property has been registered for eventual payment of I.B.I..

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Withholding Tax

If you buy a property from a non-resident person or a company, you must withhold 3% of the purchase price; The hacienda (tax office) make it the buyer's responsibility that this amount is paid to the tax authority on account of any liability by the vendor to Capital Gains Tax.

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Capital Gains Tax

As the buyer must ensure that 3% of the purchase price is paid to the Hacienda, it is clearly in the interests of the seller to have this value as low as possible.

If the seller's original Escritura value shows he purchased the property at 80,000 Euros, and your Escritura is drawn up to show that you paid 100,000 Euros - the buyer will show a profit of 20,000 Euros, which is taxable. So the seller may suggest that you pay 100,000 Euros, but 5,000 Euros was for the furniture, giving an Escritura value of only 95,000 Euros.

It is obviously in the seller's interest to show less than the real purchase price. It is the buyers interest to show as much as possible of the purchase price on the Escritura. A sensible compromise is usually reached by mutual agreement.

Escritura values that are clearly below any reasonable market value may be penalised by the Hacienda at a later date. It is fairly reasonable to allow 5.000 Euros for the furniture, thus, the Escritura value will be 5.000 Euros below the actual price paid, and this is acceptable to the Hacienda.

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Outstanding Debt

If there are any debts, outstanding mortgages, unpaid Community fees etc, then you should make sure that these are paid directly to the debtors first, and the seller gets the balance of his money once all other interests in the property have been settled from the purchasers money. The conveyancer will help you ensure that all of the various bank certified cheques required for the different parties are drawn up by the buyers bankers - ready to hand over at the notary office on the day of completion.

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Property Owners Association

If you purchase an apartment in a block, townhouse or villa in an urbanisation, you will automatically become a member of the property owners association, with the right to vote at the AGMs, which administers 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 meeting minutes and the community regulations. The minutes should highlight problems, such as failing water supply and the regulations will confirm your rights.

  • Please note as 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 urbanisation or apartment building.

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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 the case of some property owner's associations, community fees may include cover on the building.

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RUNNING COSTS AND ANNUAL TAXES


NIE (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 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 Hacienda. Again your legal representative will advise you on this matter.

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.

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Even if you do not let your property, you are still committed to declare and pay tax at 25% of the amount resulting from calculating 2% 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 in the escritura pública whichever is higher.

1)    I.B.I. "Impuesto sobre Bienes Inmuebles" (the annual real estate tax)
2)    IRPF (property owners income tax)
3)    Patrimonio (wealth tax)

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The IBI will show the Valor Catastral (rateable value). 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.

IRPF (property owners income tax) is calculated from the base of 2% of the Valor Catastral (this 2% is considered to be your income on the property) and you pay on this imaginary income the rate of 25%. For example, a non-resident with a property with a Valor Catastral of 35.000 Euros the bill would be 175 Euros. per annum ( 35.000 Euros @2% = 700 Euros @ 25%= 175Euros)

Note : the Valor Catastral is normally much lower than the real value of the property. The owner of the property on the 31/12 of the year is liable for the payment of these taxes. E.g. 2012 tax is due any time from Jan'2013 to Dec.2013. Payable in hacienda office. The first year you purchase you are only liable for the proportionate amount.

You have to pay "Patrimonio" (wealth tax) paid annually, it is calculated upon the value declared in the deeds and charged at the rate of .002% on base of up to 150,000 Euros. On 90,000 Euros. you pay a yearly rate of 180 Euros, however a resident has exemption on the first 84,000 Euros

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GENERAL INTEREST


Currency
If the buyer wants to pay in a foreign currency, it is simply a matter of fixing an exchange rate on the private purchase agreement. This rate is used to calculate (i) the Escritura value, which must be in Euros, and (ii) the 3% retention if you are buying from a foreigner, which must be paid to the Hacienda in Euros. After any other parties with an interest in the property have been paid, the buyer can pay the seller's balance in any currency the seller/buyer agree.

Bank Certified Cheques
This is the normal method of exchanging money at the Notary office, on the day of signing. 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 recipient. Allow 2 working days for your bank to arrange the cheque. They simply require the name of the recipient and the amount. There will usually be a charge for the service.

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Term

Description

Abogado

Solicitor

Actos Juridicos Documentados (AJD) Stamp duty
Community Administrator Check for any outstanding fees that need to be taken into account
Contrato de Compraventa

Contract of sale, this is signed when the 10% deposit is paid, check 'completion time', Escritura value, Furniture inclusion and other conditions of the sale

Copy of Escritura This will be certified copy of the title deed
Cuotas de comunidad

Community service charges

Escritura Publica de Compraventa

The title deed. This will show who the true owner/s are and define exactly what is being purchased

Escritura value

Purchase price of the property and content value

Hacienda

(Tax Office) Checks there are no outstanding taxes and that previous wealth tax submissions were made

Impuesto Sobre Transmisiones Patrimoniales (ITP) Property Transfer Tax
I.V.A. VAT
Legal Definition of the property Exactly what is being sold - (bit embarrassing to buy a villa, and then find the deeds don´t include the land it stands on)
Liabilities and debts The extent of any borrowings or liabilities, if any, guaranteed by the property and any outstanding debts on the property.
Nota Simple An extract from the title, which confirms current ownership and shows any mortgages or embargoes on the property. Available from the land registry
Notario The public impartial witness (Notary)
Plus Valia Capital Gains tax on land
Registro de la Propiedad The land registry
Town Hall

Checks that the annual Municipal rates have been paid up to date

     

Information