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Buying a Property in Spain
Once you have found a property you wish to purchase what’s next??
A) Agree the Purchase Price
We will, as your estate agents determine whether the vendor is inclined to accept an offer when you find a property that suits your requirements. The culture is, in the UK to ‘make an offer’ on a resale property, however the acceptance of this varies depending on the vendor’s nationality as different nationalities have their own property/investment cultures. In many cases offers are unacceptable however, we will advise you on this. In the case of new developments and off-plan the published price is binding, although in recent months this has now started to relax with the significant changes that have and continue to takeplace within the financial sector.
Once we have submitted an offer on your behalf and this is agreed a binding agreement then comes into existence. The normal practice in Spain is pay an initial deposit to reserve the property prior to the exchange of a Private Purchase Contract (PPC), in order to show the vendor that there is a real intention to purchase, normally between three thousand and six thousand euros. We will retain this amount in our segregated clients account on your behalf and inform the vendor that we are in possession of this deposit. If there is anything suspect about the property that we did not discover in our original searches and it is felt you should not proceed with the purchase on the account of the property being unfit for sale, then we will refund the reservation deposit to you in full.
B) Appoint a lawyer
Before signing anything or paying any full deposits, you should appoint an Abogado (Spanish lawyer). The Abogado will safeguard your financial interests, generally for a fee of 1% of the purchase price (plus VAT currently charged for legal services at 16%). This is not prohibitive because in return you will have peace of mind, an invaluable commodity.
We are able to recommend three different abogado practices, all of whom are English speaking, specialize in house purchases and work for a lower fee than the normal fee of 1% + VAT. Also to avoid a conflict of interest, we recommend you do not use the same lawyer as the vendor.
The legal systems and land registration procedures in Spain are unique. It is advised that you do not try to do this yourself, and by using professionals you will avoid the majority of problems and have peace of mind.
C) Sign a Private Purchase Contract (PPC)
The PPC will be drawn up by your lawyer, but you and the lawyer must ensure that all negotiated items are included, include every detail in the offer do not assume anything or agree anything verbally that is not included in the PPC.
The PPC should include the following negotiated items:
• The purchase price
• The declared price (which can be different from the purchase price)
• The method of payment and currency
• The fixtures and fittings
• The furniture itemized in an inventory which we are happy to assist in drawing up
• All of the taxes due and which party is liable for which tax
and it should also state that:
• The property is sold free of all debts (including mortgages), collateral and embargoes.
• All bills are paid up to date.
• Listed items of household equipment are in working order.
• It is usual at this time to make the deposit up to 10% of the purchase price, to display to the vendor your serious intentions.
Your lawyer will also check:
• The plan parcial (which shows all the plots) to find out if the property is on an urbanization and that the urbanization is legal and registered with the Town Hall.
• For plans of any new roads and developments in the area.
• That the vendor has the final Escritura Publica (Title Deeds), if not, you should rethink about going any further into agreement.
• That the IBI (a small local tax payable on owned property) receipts are all up to date.
• A certificate of Valuation (Referencia Catastral) the number should be on IBI receipts.
• Make sure all community fees are paid up to date.
• Ensure electricity, water and telephone bills are paid.
• Rubbish collection fees are paid, these are usually charged as part of the IBI fees but in some instances they are charged separately. Bills can have built up and are subject to additional fines and surcharges.
D) Secure the Property
When your lawyer has written and endorsed this private contract, you must be prepared to deposit 10% of the purchase price. Your lawyer will forward this deposit to the vendor's lawyer. Only when this is done, both parties have completed and signed the contract and the 10% deposit paid does the private contract become legally binding, your deposit at this stage is non-refundable, and the vendor is bound to sell you the property at the agreed price. The rights of both parties involved are secured, it is a very impartial system, and works extremely well. The contract will specify the completion period (usually one month) and the penalty for not completing in time (usually loss of your deposit).
IMPORTANT NOTE: The property will not be withdrawn from the market until the 10% deposit is paid.
More things to be aware of...
Only persons named on the Escritura (title deed) of a property can own that property.
Only those persons or person approved by a power of attorney (or Poder) can sell the property.
Your lawyer should always deal directly with the vendor's lawyer.
Documents and contracts need to be in Spanish to be fully legally binding in Spain.
Never sign anything until your lawyer has approved it.
Value of Property: - Historically properties have had a declared value on the Ecritura that is lower than than the actual sale price at the time. This practice has continued, but is now not as prevalent as perhaps in the past, it was done in order to reduce transfer and capital gain's taxes. However, there can be penalties for both the seller and especially the buyer if it is considered the declared price is grossly undervalued. Your lawyer will advise you on what you should declare.
The percentage of tax payable as capital gains on the sale of properties by residents purchased since 1995 reduces annually in line with inflation. This is good news for residents who sell a property, which is their primary residence in Spain. As long as the property has been owned for at least 3 years, and all the capital is reinvested into a more expensive property, and the new property is also the resident's primary residence in Spain, then any capital gained from the sale will not be taxed. This is designed to prevent property speculation. To reduce the value on the Escritura, furniture, carpets, curtains etc. can be sold separately.
From the year 2000 resident pensioners over 65 years of age, who have owned a property for at least 3 years, which is their primary residence in Spain, have not had to pay any tax on the capital they gain from the sale of the property.
To ensure a non-resident pays this tax when selling a property the taxman, known as Hacienda, requires the buyer to deposit 3% of the purchase price with them. Upon a future sale of the property, the individual can then claim back this money minus any taxes due.
E) Complete the Purchase
The Escritura de Compraventa is the final document for the sale. It must be signed by both parties in the presence of a Spanish Notary in order to make it legally binding. It is possible to allow another person to sign instead by establishing a power of attorney (Poder) with that person.
The Spanish Notary: - The Spanish Notary (Notario) is a public official. He will certify that the contract has been signed, the declared money transferred, and will advise both parties of their tax liabilities for the purchase.
Title Deeds: - Once the Escritura de Compraventa is registered with the Spanish property registry the Title Deeds (Escritura Pública) are produced and this fully installs your title to the property. Your lawyer should have this within 5 -6 weeks of the purchase, if not follow it up it with your lawyer (you will have paid 0.2% for the registration). Until you have the Escritura Pública you do not have full title to your property and you are not the registered owner.
It is prudent to allow an additional 9 -10% of the purchase price to cover most taxes and fees. IVA (VAT) is 7% on old and new property.
Mortgage, Life Assurance, Lawyer, Notary and Land Registry Fees:
Mortgage lender's fee: depending on lender and amount of loan allow 1 - 1.5% of loan.
Life assurance: to cover value of loan, premium dependant on age and health status.
Lawyer's fee: from around 1%.
Notary's fee: depending on land and size of house, allow 0.2% - 0.3%.
Registry fee: allow approx. 0.2%.
Inheritance Tax: - Your lawyer or tax consultant will be able to guide you on inheritance tax and how to minimize it. If you are buying a retirement home and are in your golden years, it is advisable to get this information before you decide in whose name or names the property is to be registered.
REMEMBER- When you purchase a property in Spain as a holiday home/investment and you do not become a resident, you will be charged a tax on an annual basis known as the WEALTH TAX. This tax assumes that as a non resident you will let your property out for rental purposes.
This tax is calculated at 0.5% of the official rated value. For example if the official value of your property was 150,000€ you would pay 750€ per annum. This is all calculated and handled for you by the solicitor within their fiscal representation on your behalf.
SUMMARY
The information given above is intended to advise you of potential pitfalls and ensure that you are prepared, forewarned is forearmed. This is not a do-it-yourself guide and should never be used as a substitute for professional legal advice. In Spain you can enjoy more personal freedom and a fabulous lifestyle, which is one of the reasons Spain is such a great place to live and spend time in on a regular basis
By being aware of the areas where mistakes can be made, by using professionals you will ensure that your interests are protected, and the purchase of your home in Spain should be an enjoyable, risk and stress free experience.
Do not leave your brains in the suitcase when you get off the plane.
Before you complete on the purchase of a property in Spain there are a few administrative things that need to be understood and arranged.
The following is designed to assist you in ensuring that the necessary administrative activities are addressed.
1. N.I.E. Number and Residents Cards
Apply for and obtain an N.I.E. Number Numero de Identificacion de Extranjeros.
A non-resident of Spain can purchase a property (without a mortgage) with their passport / identity card, however, in order to change several of the utilities from the previous owners name into your name, to obtain a mortgage and for any future financial dealings in Spain you will need to obtain a NIE number, sometimes referred to as a NIF number. This is an identity number for Foreigners (Número de Identificación de Extranjeros). We will assist you in completing the simple form and applying to the local police, based in Denia. You will also require two passport size photographs and your original passport for proof of identity. Once they have your details they return the form and we will keep this and collect your NIE number when it has been prepared. Obtaining an NIE number can take up to a couple of months, so try to anticipate this time period when thinking of purchasing, especially with a mortgage.
The N.I.E. number may be the precursor to you obtaining your residencia, residents card. Once you have purchased your property and you wish to be classed as a resident, you will need to visit you Fiscal Representative and they will advise you of the paperwork that you need to compile in order to apply for the residents card (residencia). The before mentioned NIE number, which is unique to yourself throughout your time in Spain will also be printed onto your residents card. To apply for a residents card you may be asked to supply the original documents, often accompanied by 3 photocopies of marriage and birth certificates, property deeds, passport sized photographs, health insurance (translated into Spanish if in foreign language), certificate from bank to show that you are self supporting. As, typically in Spain, the “goal posts” are moved on a regular basis, it is always best to confirm that paperwork that you need before you set about the sometimes arduous task.
2. Open a Spanish Bank Account
This is essential to make your life easier when coming to pay the household bills as most are paid by direct debit
At some stage you’re going to have to send money to Spain and for that you’ll need an account with a Spanish bank. You will have to pay some regular outgoings on your property, even if you don’t live there full time, and these are normally paid by direct debit, so again you will need a bank account. You will possibly be seeking a mortgage to assist in the financing of the purchase and subject to loan-to-value rules, most banks will be prepared to offer funding on the spot, but you will need to open an account with them to secure the mortgage.
We are happy to help you find a local bank, where they speak English and understand the process. Most banks in Spain still believe in the old fashioned way of doing business and giving service. We can make an appointment for you to meet a friendly bank manager who, within the hour, will have opened you an account.
3. Financing the Purchase
It is easier if you apply for a mortgage with a Spanish bank and it is strongly advised by us for simplicity and lower rates of interest, however you can arrange for it through a bank in your home country
Bearing in mind that the rates are often found lower in Spain and after the currency exchange rate is agreed, you may find yourself losing out. You will find that the rate varies for those who are Residents and Non-Residents and those being Spanish nationals. A 70% is offered to Residents and Non-Residents and for Spanish nationals an 80%. Mortgage application is an easy process. You will need proof of income / funds and a bank survey to value the property against the land and construction values of today. The mortgage amount offered to you is calculated on your financial status, the valued price of the property after the bank's survey giving their declared value
4. Make a Spanish Will
The inheritance tax laws differ significantly from those in the UK
It is highly recommended that you make a separate will for all of your Spanish assets. Most properties would normally be owned on a 50/50 basis between husband and wife. The basic Spanish will for foreigners shall bequeath any assets to the wife / partner of the deceased and in the event of the deaths of both joint owners then the property and assets shall be inherited by equal shares by any remaining children. The wills can of course be changed to suit your individual requirements. A Spanish Will does not affect any assets outside of Spain and in the event of the death of a property owner, the fact that a Spanish Will exists will ensure the transition and Acceptance of Inheritance is handled more efficiently and with fewer problems.
5. Fiscal Representation
Appoint a fiscal representative or Gestor to assist you with the tax authorities. If you opt for a Fiscal representative then you are simply nominating somebody to receive your correspondence from the tax authorities. It can be anyone who lives here permanently such as a neighbour, a solicitor or a dedicated legal tax advisor. If you opt for the Gestor then this person provides a service for most things including managing your tax returns, legal representation, work permits and licenses to name but a few activities.
Once you have completed on your purchase of a property in Spain there are some additional living costs to take account of, similar to those incurred in the UK but generally lower:
Urbanizacion / Community Charges
This a charge usually given by the residents commitee (of the urbanised area) or by an outside legal company offering this service. This cost covers and includes the maintainance costs of shared facilities E.g. roads, gardens, pools, lighting, taxes. These costs will vary due to the facilities available.
Some developments are mistakenly referred to as “Urbanisations”. These developments do not have communal areas such as pool and gardens and the only common areas are the roads, which in most cases are run by the local Town Halls, in this case no urbanisation fees are usually paid.
The average community charge for a 2 bedroom apartment on a complex with lift, pool and gardens should be in the region of €600 per year.
Ownership Taxes
Non-Residents must pay a wealth tax (Patrimonia), based on the declared amount figuring on the Escritura (deeds) or the catastral value (usually based on the higher, 0.2% is normal.
Anybody who is residing in Spain full time or on a short term basis should appoint a local Fiscal Representative (Gestor), these will ensure that all of your taxes are paid on time and in the event that you need to make a claim for tax reimbursement, your Fiscal Representative shall arrange this for you. We are more than willing to recommend reliable Fiscal Representatives that can speak to you in your own language.
Property Rates
The local town hall (or SUMA) charge a tax called the IBI on property (Impuesto sobre Bienes Inmuebles), this is an annual property tax. This tax varies with areas and is based on the catastral value of the property. Garage spaces / private garages sometimes have their own escritura (deeds) and will have a lower IBI charge. In the UK this would otherwise be known as the Council Tax, and would be significantly higher.
The average yearly rates bill for a three bedroom villa with pool will be in the region of €500 year.
Insurance
Fire insurance is a must by Spanish law when purchased with a mortgage. House insurance is available from many companies offering protection of your property and its contents. Life insurance is also a good idea to guarantee loan payments in the case of death. 0.5% to 1% of value is normal. If you intend to live in Spain and are under 65 it is also advisable to take out a private health insurance plan. We can recommend insurance brokers who are able to seek out the best rates for the different insurance policies.
Water and Electricity
These 2 services have a standing "rental" charge apart from the charges of consumption. In Jávea there are 2 local water companies, AMJASA and Aguagest and the electric company, Iberdola is a national setup.
Telephone
For line installation the initial charge is around €180, then the line is yours to transfer at a later date, with a minimum charge of connection fees in the new location. Line rental and call consumption is charged every 2 months. With the telephone company “Telefonica” you are charged a monthly line rental and usually a monthly fee for the rental of the phone apparatus. There are a number of companies offering cheaper call rates once you have had the line installed. Obviously as a business we are continually seeking out the cheapest rates, and can pass on our experiences.
Tax on Rental Income
When rental income is declared, a tax charge is made. This should be declared to tax authorities in the UK or Ireland, it's based on the treaty between Spain and the above mentioned countries.
Rubbish Collection / Basura
In most areas this is charged separately to the IBI, whereas in other areas it is included in the IBI taxation. Solely a charge for the rubbish collection. This is usually in the region of €80 / year.
Payments
All Payments for any utilities / services can arranged to be direct debited from your bank account, and your lawyer should ensure that all services are transferred upon completion of the purchase of your property
We look forward to meeting you -
