How to acquire Real Estate in Spain
There are different rules which apply depending on whether you are considering acquiring a property for personal or business use, or whether the property is old or new or is a listed building, or whether you are buying on your own or in joint ownership or even as a time share.
This article deals with the purchase of a residential property.
A. Real Estate Agents
The majority of property purchasers in Spain do so through a Real Estate Agent. Regardless of whether they have a large or small portfolio, it is important that they are serious when handling monies.
Registered real estate agents are obliged by the regulations of the trade to check the situation of the properties they sell. But this happens very rarely. There are excellent real estate agents, licensed and not licensed, in Spain, who do what they know best: sell properties with professionalism. But a real estate agent undertaking the burden of the conveyance procedure can result in disaster.
A lawyer will provide the legal guarantees for the purchase of the property ensuring that Spanish legal requirements are met and that the property is bought free of encumbrances, charges, liens or debts and up to date in all its payments of local contributions and community charges.
B. Formalizing an Offer
Once the terms of the purchase-sale have been discussed, the offer is submitted to the real estate agent who in turn will inform the seller of the details of the offer. If the seller accepts the offer, a binding agreement is born. It is normal practice in Spain to include with the offer a sum of money to reserve the property prior to the exchange of private purchase contracts; in order to show the seller that there is a real intention to purchase.
A private contract is signed on this behalf and at that time the buyer will be required to pay between 5% and 10% of the price as a deposit. The deposit will be refunded if certain pre-conditions are not realized and will be lost if the buyer decides not to go ahead.
In general, if the seller withdraws from the sale, twice the amount of the deposit will be repaid to the buyer.
Under Spanish law, once you have agreed on the object of the contract (i.e. the property) and on the price, the sale is deemed to have been concluded. You should make a search from the Property Registry to make sure that you are dealing with the owner or a representative and that the property is free of charges.
You should also get an architect’s report on the condition of the property.
If you are buying a plot on which to build your own house, make a search at the town hall in respect of any conditions which may apply.
If you are buying a flat, ask the management agent to provide you with confirmation that all maintenance charges have been paid to date.
If you are buying a house, the same confirmation should be obtained from the housing association which runs the estate.
C. Exchange of private purchase contracts
After the reservation deposit has been lodged with the real estate agent and prior to the signing of the private purchase contract, the appointed lawyer will have completed the legal searches and investigations of the property.
Any debt or charge attached to the property will be reflected in the private purchase document. These will have to be cancelled prior to completion. If not, the buyer will be entitled to either withdraw from the proposed deal and claim damages or deduct the amount of the debt together with the cancellation costs, if any.
The purchase is formally completed when the public title deeds of purchase-sale are signed before a Public Notary, the agreed payment of the price paid and the possession given to the buyer. Unless agreed otherwise, the public deed always stipulates that the property is sold free of charges and encumbrances, up to date in all the different payments and free from tenants and occupants.
The Notary will not allow the contract to be signed unless all the conditions have been fulfilled so a lawyer should attend the meeting.
The parties will need to bring an identity card or passport. The buyer needs a certificate from his bank if he has transferred funds from his own country. The seller must bring all the title deeds and also the last receipts for the annual tax on the property (the “Impuesto de Bienes Inmuebles” or “IBI“) which is useful to calculate tax and expenses.
You will be asked to pay the Notary’s fees and the tax on the transfer. There is a further tax, payable to the local council, which is called “Plusvalía” and which the seller pays unless you have agreed otherwise.
Four or five days after completion, the deed is collected from the Notary´s office. With the original deed, all the relevant transfer taxes are paid in the different tax offices and eventually the deed is taken to the Land Registry in order to procure formal registration of the title to the property. Registration is not mandatory, although highly recommendable. According to Spanish law, the registration of your purchase does not “make” you the owner of the property, but simply serves as an official declaration.
This means that any form of contract is valid and can be accepted if ratified by the Court. To avoid difficulties, we recommend that you should seek the advice of a lawyer and that the contract be signed in front of a Spanish Notary. This form of contract (called “escritura“) will be immediately acceptable to the Property Registry (provided all legal requirements have been fulfilled). It is because many “escrituras” cannot be registered as the correct information is not included that we recommend you seek advice from a lawyer.
Similarly, the lawyer will arrange for the transfer of accounts with the local suppliers of utility services and organize a direct debit on a current account of a local bank.
Depending on the Land Registry of the area, registration may take from 15 days to 3 months. The Land Registry will then give notice to the lawyer that the registration has been completed and the deeds are available for collection. Land Registry fees are paid then.
During the interval the purchaser can have a copy of the records by requesting from the Public Notary a “copia simple”.
E. Purchase Costs
Before a title deed can be registered into a new owner´s name, or a deed issued for a newly constructed building, transfer tax has to be paid by the buyer. It can come in two variants: Transfer Tax (ITP) at 6% or Value Added Tax (IVA) at 8 % plus Stamp duty (AJD) at 0.5% when buying from a developer or promoter. These two taxes are calculated on the declared purchase price on the title deeds.
Also, the local municipalities charge a tax on the increase of the value of the land since the previous sale. It is not based on the seller´s capital gains tax but on a number of calculations and values set by the Town Halls. This tax is called `Plusvalia´, and according to the law it is the seller´s responsibility, although it is commonly stipulated in the contract that the buyer pays it. It is a point which will be negotiated between buyer and seller.
Notary Fees: The scale is fixed by law and and depends on how low or high the properties are priced.
Land Registry Fees: The scale is also fixed by law and is normally lower as the Notary fees.
Legal Fees: Normally charged as a percentage of the purchase value increased by VAT currently charged for legal services at 18%.
F. The loan
If the buyer needs finance to fund his purchase, he can obtain it either from his own bank or from a Spanish bank. Spanish banks usually lend up to 80% of the value of the property and take a mortgage as security.
G. Who can purchase property?
A property can be purchased by one individual or by several or through a property based limited company.
An individual who is married must always specify what type of contract regulates the marriage so that it is clear whether the property will belong to the individual or to the couple and so that there are no problems on a resale.
Buying through a company has some advantages (lower taxes on reselling, the shares are movable assets and easier to transfer) and drawbacks (running the company, accounting rules, formal meetings …..).
Capital gains tax on an increase in value is payable in Spain at a rate of up to 30%. The increase in value is calculated as the price of resale minus the purchase price (plus expenses and taxes) and is reduced in accordance to a set rate depending on the year of purchase.
In addition, to ensure payment of the tax, the buyer must retain 5% of the purchase price, which is paid to the tax office. The seller can then request a refund if the tax payable is lower.
The law of the home country generally applies in respect of the rules on inheritance, but Spanish tax law applies in respect of property located in Spain.
The rate of inheritance tax starts at 7.65% and increases in accordance with a set scale up to 34 %. There are reductions, which apply depending on how close the family connection is with the deceased owner.
J. Living in Spain and tax issues
If you live in Spain, you may be taxed on all your income (in accordance with the provisions of tax treaties with other countries) if you are considered to be domiciled in Spain, or if your main assets are located in Spain or if you remain in Spain for more than 183 days a year.