Spain Property Buying Guide

Don’t be fooled by all that sunshine and sangria! 30% of foreigners who buy property in Spain have serious problems after buying property in Spain. However we will try to help you avoid the most common pitfalls with this guide.

The increase in house prices in Spain differs from region to region and in some cases even between locations situated within a very short reach. We have examples of people who have saved 50% or more by looking in the neighbouring town for almost the same type of property.

There are no restrictions on foreigners buying in Spain. Before purchasing any property you should decide whether you wish to be resident or non-resident in Spain.

This is because you need a NIE (numero de identificación extranjero) if non-resident or NIF (numero de identificación fiscal) if you wish to become resident in Spain. This identification is required in order to complete the legal paperwork for buying and assist in opening a bank account.

If you are unsure, apply for a NIE using your solicitor or a “gestor”. If at a later date you wish to become resident you need to apply for a NIF.

Below is a list of considerations that may affect your decision about residency. However we recommend you check with your solicitor and tax accountant for guidance about your situation.

If you spend less than 183 days in Spain, you generally will be considered non- resident.

If you intend to spend more you than 183 days in Spain you will be considered resident.

You will also be considered resident if :-

You have no residency elsewhere

Absences outside Spain are not included by the tax authorities, taking your period above 183 days

If you spouse or children are permanently in Spain

If the centre of your financial affairs is based in Spain

If you choose to become resident you need to apply for a residents card "tarjeta de residencia," within three months of relocating.

You will have to make an income tax return in Spain for your world-wide income which can be reduced with Double Taxation Agreements. However taxes in Spain are generally lower than most other EU countries particularly those in Northern Europe.

As a resident, you may off-set the costs of purchasing a new dwelling against any capital gains from selling their old property, while the non-resident must pay 35% on the net difference between the values in the old escritura and the sales escritura.

A resident also does not have to pay income tax on the notional value of his dwelling whilst a non-resident must declare the full value of the fictional use of his property, without any deductions, and pay a flat rate of 25%.

Furthermore when a resident sells a property in Spain, he is exempt from the obligation of letting the buyer retain 5% of the declared value which is paid to the tax Office (Hacienda) as a guarantee for the seller's tax payment.

Inheritance tax there can be very complicated. Generally you should have two wills, one for assets in Spain and another for assets in your home country. This is minimise tax liabilities and to resolve issues relating to which country takes precedent of the testament.

Inheritance Tax is calculated on the basis of a number of variables, namely value of assets being transferred, family relationship between the giver and receiver and pre-existing wealth of the latter. Deductions are based on the age and residency for tax purposes status of the inheritors, on the consideration of habitual domicile of the property inherited (between spouses) and also miscellaneous expenses (funeral etc).

Spanish law gives preferential IHT benefits children and grandchildren under the age of 21 before other relatives including spouses. However, if you are a non-resident, this law will not apply to you and you will be able to leave your estate to the person of your choice. You will not be exempt from paying the inheritance taxes.

However, if you are an official resident in Spain, and leave your inheritance to a spouse, they will be subject to a tax liability unlike many countries. Beneficiaries will pay tax on a sliding scale on amounts above 15,956.87 Euros.

As a resident you can freely use Spain's Health and Social Security System. However as a non-resident you are only entitled to free emergency health care using the European Health Insurance Card.

As a resident you can register to vote if you are on the "padron" at the town hall. Being eligible gives you and other foreigners to influence social and political matters in Spain to improve the benefits for foreigners as a whole, rather than just being merely investors and tax subjects.

By registering the local community will receive more subsidies from the national and regional governments, better facilities for the local post office, more telephone lines, more pharmacies etc. This will improve the area and the quality of life, giving you both mutual benefits.

We suggest you use a licensed estate agent who is a member of a professional body such as “API” (agente de la propiedad inmobiliaria), or a “GIPE” (associacion profesional de gestores intermediarios en promociones de edificaciones). These agents should have professional indemnity cover provided by their professional bodies automatically.

If you use an unlicensed estate agent, check that they have professional indemnity.

Please be aware that the number of properties on their books is no way an indication of professionalism.

Never be pressurised to buy or complete a purchase if you are unsure by an agent or salesperson.

The notary acts as a legal judge is only responsible for putting a contract into the public domain. The notary does not represent your interests in purchasing a property in Spain. Nor he is responsible for checking local developments that may affect the value of your property or check the condition.

Employing a lawyer can save you from making an expensive mistake. Use a Spanish lawyer who is knows Spanish law rather than one in your own country.

Do NOT use any solicitors recommended by the agents, vendor, the developers, or which has any connection with these parties.

Contact your local embassy in Spain, for a list of lawyers who speak your language nearest to where you are looking to buy. They may cost slightly more but they are cheaper than using lawyers in your own country.

Ensure that your deposit goes to your Spanish solicitor to pass on directly to the vendor or developer after your solicitor has made his checks on the property and paperwork.

Escrow accounts to hold deposits are not legally recognized. If you must use an estate agent to hold money, make sure that their professional indemnity policy covers misuse or misappropriation of any monies paid on deposit.

The lawyer can sign documents on your behalf when you are not to be in Spain under a Power of Attorney (Poder). This may be useful when you cannot attend meetings.

This very much depends on whether you wish to live in the country or in town or by the coast. Generally they can be summed up as follows:-

Apartment: Easy to maintain, low maintenance costs, less privacy and more noisy – suitable for non-residents not staying permanently in Spain.

Semi-detached home: More privacy, less noise, but with slightly higher maintenance costs.

Villa: Highest degree of privacy and very quiet if you are not on a noisy road, but with higher maintenance costs and a higher risk of being broken into when you are away.

Farm or a village-house (Fincas): Normally low price and low maintenance costs.

They can either be fincas rusticas or fincas urbanas dependent on their location.

Urbanizaciones can refer either to a housing estate or several apartment blocks, where there are sharing communal facilities such as garden, pool or a golf course.

Compulsory registration for all new developments and most urbanisation properties situated on urban land has existed since 1997.

On rural areas and villages where there has been no development most properties are not recorded and have no title deeds.

Older properties in towns and villages tend to be larger internally but without much external area. Plumbing and electrics should be checked to remove iron water pipes and modernise wiring.

Most Spanish properties have freehold title, which means an owner is entitled to absolute possession of the property for an indefinite time.

Buying a property in Spain normally amounts to 10% of the property value.

Transfer Tax (Impuesto de Transmisiones Patrimoniales - ITP) - 6% of the property value of a paid on completion applicable only on second-hand property OR

VAT (Impuesto sobre el Valor Anadido - IVA) - 7% of the property value applicable only to new properties.

VAT (Impuesto sobre el Valor Anadido - IVA) - 16% when purchasing land, commercial premises, or garage spaces.

Stamp Duty (Impuesto de Actos Jurídicos Documentados- IAJD) is 0.5% of the property value to be paid upon signature of notarial document.

The fees are set by the Government and are dependent on the value of the property.

• Up to 6,010.12 euros you pay 90 Euros.
• For each 1000 Euros between 6,010.12 up to 30,050.60 you pay 4.5 Euros (0.45%)
• For each 1000 Euros between 30, 050.61 up to 60,101.21 you pay 1.50 Euros (0.15%)
• For each 1000 Euros between 60,101.22 up to 150,253.03 you pay 1 Euros (0.1%)
• For each 1000 Euros between 150,253.04 up to 601,012.10 you pay 0.5 Euros(.05%)
• For each 1000 Euros between 601,012.11 up to 6.010.121.04 you pay 0.3 Euros (.03%)
• If it is above 6,010,121.05 Euros, the notary is free to agree the amount with both parties.

For example if a property costs 120000 the fee will approximately be 258 Euros plus IVA at 16% = 300 Euros.

The land registrar office will charge you a fee to transfer the new deeds into your name. They are also set by law and are normally about 42% of the notary's fees.

• Up to 6,010.12 euros you pay 24.04 Euros.
• For each 1000 Euros between 6,010.12 up to 30,050.60 you pay 1.75 Euros (0.175%)
• For each 1000 Euros between 30, 050.61 up to 60,101.21 you pay 1.25 Euros (0.125%)
• For each 1000 Euros between 60,101.22 up to 150,253.03 you pay 0.75 Euros (0.075%)
• For each 1000 Euros between 150,253.04 up to 601,012.10 you pay 0.3 Euros(.03%)
• For each 1000 Euros above 601,012.11 you pay 0.2 Euros(.02%)

For example if a property costs 210000 the fee will approximately be 189 Euros plus IVA at 16% = 219 Euros.

Based on the increase of the value of the land since the last sale. The exact amount depends on the size of the land and the years since the last valuation and on the property's valor catastral. Each town has a different procedure regarding payment of this plusvalia.

This is officially supposed to be paid by the vendor but in many contracts it is specified that the buyer have to pay.

Officially the vendor should pay the plus valia tax and traditionally the Notary fees as well, since he making the profit on the lands value increase. The buyer pays the ITP and the registry fee, as he is the one interested in making sure that the property is truly registered to his name. Do not let the vendor or solicitor discriminate or take advantage of you being a foreigner into paying the plus valia.

However, if you buying from a non-resident in Spain, you the buyer are obliged by Spanish Fiscal Law to retain 5% of the sum declared in the escritura and pay it through a bank on Form 211 to The local Tax Office (Hacienda) within 30 days, as a guarantee for the eventual tax obligations of the non-resident vendor.This is to ensure that the seller does not take sale proceeds and run. The Notary will check this.

Banks may charge an arrangement fee of 1% for mortgage loans.

Before purchasing any property you must obtain an NIE (numero de identificación extranjero) if non-resident or NIF (numero de identificación fiscal) if you wish to become resident in Spain, to order to complete the legal paperwork for buying. It will also help in opening an account for the transfer of purchase funds.

Once you have found a suitable property, instruct your solicitor to start the legal process to purchase the property. Do not sign anything with the vendor or agent until the solicitor instructs you to. There may de debts or registered charges that affect the property and you will become liable for them as soon as you sign a purchase agreement. Using a solicitor will ensure that they are discharged before completion.

The solicitor needs to check the following paperwork.

There are two land registrars – one national Registro de la Propiedad for recording each property and one local from the town hall (Referencia Catastral) for local taxation. Since 1997 the Referencia Catastral is the default reference.

Obtainable from the vendor of the property. MAKE SURE that this refers to both the land and property. This is a historical document. It does not show if the property has changed hands or any debt on the property. (Please note that the property may not have been registered to avoid taxes or debts, which will become liable on registration. It may also be a private contract that has never been notarised and put into the public domain).

Obtainable from the Property Registry (Registro de la Propiedad) to verify the owner of the property and any of debts registered against the property. In Spain all debts, charges or court orders are registered against the property rather than the person. These include mortgages (hipotecas), ground rent or leasehold payments (censos), interests in the property (usufructos), restrictions on use (limitaciones), fines (multas), determinations i.e. decisions about the future of the property (cláusulas resolutorias), or court orders for distraint or seizure (embargos). Also gives a property description and dimensions.

Also obtainable from the Property Registry. Similar to the Simple Note, except that the Director of the Register, accepts responsibility for the information given. However it is more expensive.

Obtainable from the town hall. This contains the only legally valid description of the property and is a register of assessed property values for tax purposes. It has two parts, one being a description in words of the property and the other being a graphic representation, either a plan or an aerial photo. It is very cheap but can take up to 2 months to be delivered.

Whereas the Registro de la Propiedad is concerned with ownership, the Catastro is concerned with the property.

When there are description differences between the Registro de la Propiedad and the Catastro, it is the latter that is normally correct. Your lawyer should always compare this Catastro with the description in the Property Register certificate and the escritura to ensure that there is no difference.

Obtain copies of the Community Owners Rules and the Minutes of the most recent community meeting. This is applicable to all new developments and most urbanizaciones, apartment blocks and complexes.

Check there are no outstanding fees. A certificate must be issued on whether a property has any debt before that property can be sold The law makes the buyer liable for the unpaid fees of the present year and the preceding year.

Upon purchase you will automatically become a member and will be bound by their rules and covenents. For example if it is prohibited to keep pets in the building on the estate, you will have real problems keeping your dogs for example.

Therefore please read or have the regulations translated.

This consists of two contracts:-

A private contract between the buyer and the vendor.

The public contract is the placement of the private contract into the public domain. This will be the Title Deed which will be witnessed by the Notary at completion and passed to the Land Registry for registration.

There may also be pre-contracts depending on the transaction. Please discuss with your solicitor.

There also exist a number of pre contracts where it is not legally binding to finally purchase the property.

An option contract or an exclusivity contract is a non-binding contract where the vendor gives the buyer an option to buy a property under fixed conditions (price, state of property etc.) and for a fixed amount of time. This type of contract will normally cost the buyer a fee to reserve the right to buy the property.

The reservation contract is a simple form of private contract and is used to give the buyer time enough to get the outstanding 10%, to pay in deposit in a private contract after a small down payment. This can be used when there is a short time span between signing the reservation contract and the public contract, bypassing the need to sign a full private contract.

The next step is for your Lawyer to draw up a private contract between you the buyer and the seller. The private contract will contain all the negotiated agreement's made between you the buyer and seller.

The contract should contain the following facts;-

The agreed purchase price. Do not agree to show a lower figure in the contract, as this can cause tax and legal problems in the future. Make sure that any registered charges are to be fully discharged at completion and show these provisions if you decide to carry on with the vendor’s registered mortgage or debt. In this case, the contract should state that the existing mortgage amount or debt that will be deducted from the purchase price.

The address of the property.

The description of the property.

The agreed date for completion.

An itemized list of any furniture, fittings agreed in the sale.

Any details regarding the communal associations rules and regulations, all annual fees, relating to the apartment you are buying, a copy of the deed showing the division of your apartment, and the communal association statement showing it to be free from debts.

The amount of the deposit payable at the time of signing the contract.

When you sign the private contract with the seller you normally pay a deposit (arras) or a bank guarantee of 10% of the agreed purchase price. This can vary i.e. the amount reduced if the property has been on the market a long time.

This is provision that if the buyer then fails to complete he will lose the deposit. Similarly if the vendor fails to complete then he will have to return double the amount received.

Alternatively, it can be agreed that neither party will be able to pull out of the contract without the other party´s consent, therefore making each other liable to complete. If one of the parties then fails to complete, there will be a breach of contract .The counter-party can sue the other for damages. However taking the matter to court is a long complicated legal procedure in Spain.

Your solicitor can recommend the best choice.

An appointment with the notary should be made by your lawyer a few weeks beforehand. The Notary is acting as a Government witness and takes care that the purchase deed terms and conditions comply with Spanish formalities.

On the day of completion all parties concerned meet at the nearest Notary Public Office for the signing of all documents relating to the transfer of the property.

The notary should have a new Nota Simple confirming that the ownership and debt details have not changed since the previous contract.

If everything is correct both parties should sign the Transfer Deed (Escritura) which will be countersigned by the Notary.

The buyer then hands over the balance of the sales price via a cheque and the seller releases the keys gives vacant possession of the property.

The notary should file the new inscription at the Property Register immediately by fax, as any unpaid debts for which a court has imposed an embargo (seizure order) can be registered against the property at any time.

If the embargo is registered after your last check, and before your inscription is registered, the creditor will have a claim to your property which ranks ahead of yours and which will enable him to force the sale of your property to repay the debt.

The notary will give you a signed copy (copia simple) at this stage.

After completion, the original Title Deed (Escritura) is submitted to the Land Registry for inscription (to have the property transfer registered). Registration of the title is normally takes a few months. This service should be included in the Notary’s fee. When you will receive back the original escritura, it will now be a public deed (Escritura Publica), which is the official statement of ownership of the property.

Payment of fees and taxes, and the 5% deposit to Tax Office (Hacienda) if you are buying from a non-resident, using the Form 211 within 30 days.

Remember, the seller is supposed to pay the Plus Valia and the Notary.

Keep a receipt of all the payments and request a completion statement of accounts from the Notary.

Inform the Town Hall (Ayuntamiento) and the community of owners of the change of ownership.

Change all the utility contracts into your name.

Fire insurance is compulsory by law when taking out a mortgage.

Life insurance should be taken out to guarantee payment of the mortgage loan in the case of death.

Comprehensive household insurance is available to protect your home and contents.

The local town hall charge IBI which is an annual real estate tax. The previous owner is obliged to give you copies of previous bills.

Community charges when you buy a property on a community development. These cover things like maintenance, swimming pools, gardens etc.

Wealth Tax (impuesto sobre el patrimonio) - This is payable to the regional government in arrears between Jan 1 and June 30 of the following year.

Property owners shall also pay a wealth tax based on the value of the property minus the mortgage and other debts registered against the property. The total amount to be paid is around 0.2%-0.5% depending on whether the buyer is a resident in Spain, the number of owners of the property and the value of the property. The wealth tax applies only to assets with a value above 170,000€. The tax rate starts at 0.2% and rises to 2.5% for estates with a value above 10,700,000.

Non-resident property owners or residents that owns more than 1 property have to pay a special Attribute Tax. This tax is about 0.5% of the official value of the property but is taxed as an income tax and therefore differs for residents and none-residents.

Water rates.

Electricity charges.

Charges Garbage Collection/Mains Drainage Tax (basura y alcantarillado): is an annual tax payable by property owners.

If you mortgage or loan to purchase of a property in Spain you have first of all to decide whether you want finance from a Spanish bank or from a bank in your own country. There are different factors that can influences this option i.e.; where you are going to live and work, where you have your savings, interest rates, exchange rate fluctuations, fiscal advantages of obtaining a loan in different countries, cost of financing a property in different countries, etc.

Banks in Spain will normally lend you between 60% and 80% of the purchase price over 20-30 years. To obtain a mortgage in Spain you need the following documents:-

• A photocopy of your income tax returns
• Three months salary slips
• A bank reference
• A breakdown of assets and liabilities
• Last three months bank statements
• Proof of savings
• If self employed, statements of accounts
• Copies of the title deeds
• NIE or NIF and Passport

You may wish to borrow within your own country and many institutions will be able to help you. However you should be aware of possible exchange rate and interest differentials.

If you work or have your savings in a none-Euro country you also have to be aware of exchange rate fluctuations, as the exchange rate can change very quickly both positively and negatively.

For example your property could either cost you more than you had planned if the Euro strengthens or the property could become cheaper if Sterling strengthens. (Recently Sterling has fluctuated more than 10% against the Euro within a matter of months, so this does deserve careful consideration.)

It can be recommended to fix the exchange rate to complete the necessary payments (i.e. buy a spot contract or a forward currency contract). This can be done in your bank or in financial companies specialized in these types of operations.

You have several different mechanisms to pay for property in Spain, whether you are paying in cash or via local borrowing.

Spot transfers - ideal if the exchange rate is in your favour and you can get the money together quickly. Then hold the currency on deposit and send payments when they are due from your Euro account. To do this you need to have full funds available.

Forward transactions – you agree to buy the currency now but pay for it at a later date when you have the funds available. Initial payment is normally a 10% of the currency purchase. The exchange rate that you achieve on a "forward contract" is not quite as good as that for a "spot contract" but it does guarantee that you know the cost of the property.

Limit order - you tell them what exchange rate you are looking for and they will tell you when it comes up so that you can make a quick purchase

Regular currency transfers - transfers on a regular basis at commercial rates to cover loans or mortgages.

We apologise for the tone of this section. We hope that by showing you the risks, problems and tricks that potential buyers are exposed to, you will be fully armed to begin your new home search in a smooth and stress free process, avoiding any problems or expensive mistakes.

The majority of older properties in Spain NOT registered. When you go register the property you may discover that the property was built illegally or that there are outstanding tax liabilities, which you will become responsible for. There may also be fines.

Most of the old village properties have no Title Deeds and many properties are not mortgageable due to building materials.

Older properties can be registered but with under-declared build area to avoid tax. This unpaid tax can become your liability.

In Valencia, the regional government is confiscating and demolishing property built on rural land as the properties were not built on land specified as urban. Furthermore the owners are being charged for infrastructure improvements such as roads, water and electricity as the land into bought into official urban use.

In Andalusia, the regional government is implementing a similar but less draconian policy.

Some builders and developers in Andalusia say that their developments are “agricultural” buildings and tell new owners that can change the registration of the property after 10 years.

Some builders in Andalusia, are building developments without planning permission. Without planning permission, the building is illegal.

Also in Andalusia, developers, government officials, notaries, lawyers and their customers are under investigation in respect of money laundering (Operation White Whale). Potential buyers have had the deposits frozen and some their properties confiscated.

If you are buying on a new development (urbanización), check that the urbanización is in an area zoned for building, and that the necessary planning permission has been given. If the builder has failed to obtain the necessary planning permission, the local government have the power to order the complete demolition of the development.

Try to avoid inspection trips where you pay a reduced fee for going to Spain to view various properties. However if you must, get the names of the developer, the company, their other previous developments, their directors and owners and details of the share capital. Any hesitation on their part to give you this information should be a red flag to a bull. Search on the internet with the names and the word “problem” to see other buyers experiences.

If you go on an inspection trip, do not take your cheque book! Do not sign anything. Think whether you have been given time to reflect carefully or have they organised everything including alcohol food and entertainment. No wonder you feel good and want like to sign!

Do not believe rental values as income figures are always overstated. What about the tax you have to pay? What about void periods when you property is empty? Who will manage the rentals? What are their fees?

If you are you are asked to under declare the value of the purchase by the seller, walk away. You will become liable for his undisclosed profit and penalty fines, which become substantially greater if the transaction value stated is less than 80% of the market value.

If the Escritura refers only to a building, the seller needs to register the land in his name with the Town Hall to obtain a Cadastre certificate prior to selling. The procedure requires also 2 witnesses who will swear on oath that to the best of their knowledge the property belongs to the person selling, and once this is done, at the same time, he can sell to you. The drawback is that a third party can claim title within the next two years and that banks will not lend on this property. Also, you will possibly be taxed twice, once for the first registration of the property and secondly for the sale. This has to be thrown into the negotiation process.

The above procedure is commonly known as Acta de Notoriedad, or Procedimiento del artículo 205 de la Ley Hipotecaria, and even though it may sound risky it is not normally the case. This is quite common in small towns, villages and rural areas.

No Proof of Title - A great deal of families have never informed the Town Hall that a senior family member has deceased and therefore many sales take months to proceed to completion. There are many families with complicated backgrounds, most children believe they actually own what is and sometimes what once was their parents, sometimes resulting in an Expediente Dominio.

Un-registered Properties -A great deal of the beautiful villas you see advertised are not registered by the builder and therefore the purchaser pays for the first registration, sometimes no licences have been issued and the seller is required to pay fines to the Town Hall.

There have been cases where a vendor has arrived at the notary’s office to sign, where the property is in joint names, but the spouse has died. They have presented the will, in which the property was left to them, claiming that this is enough. Not so! If one owner has died (and this unfortunately is often the case when a foreigner sells a property) and has willed his/her half to his/her spouse, this is a transfer of ownership, which must also be registered by the notary before it can be sold. So it is important to check that the exact ownership details recorded in the Registro are correct, and match up with the people who are selling.