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Buying Property in Spain: An Overview |
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Buying Property in Spain: An Overview |
1. First contact: Real
Estate Agents
The majority of home purchasers in Spain do so through
a Real Estate Agent. A buyer ought to be extremely cautious
when appointing one. Regardless of whether they have a
large or small portfolio, it is important that they are
serious when handling monies. A small real estate agent
may have a few excellent properties available for sale
and follow the few legalities imposed, directly or indirectly,
by the laws and regulations of the trade. A large real
estate agent can claim to have thousands of properties
in their books and be totally unaware of the minimum requirements
for the protection of a prospective purchaser.
Real estate agents are not lawyers, nor they intend to
be, but it has to be said that some tend to offer buckets
of legal assurance, and also free legal advice, to buyers,
in the hope the monies are quickly lodged with them. Because
real estate agents are not lawyers, they should refrain
from giving qualified legal advice inasmuch as lawyers
do not sell properties.
However, registered real estate agents are obliged by
the regulations of the trade to check the situation of
the properties they sell. But does this really happen?
Very rarely. The answer to this can be found in the following:
Real estate agents activity has weak and confusing regulations
and laws. Licensed operators do adhere to a set of professional
standards.
No license or authorisation is required. Anyone can sell
properties in Spain. Much to the bitterness of registered
real estate agents, most of the highest rated agencies
in the Costa del Sol are not registered and are not subject
to any rule or regulation.
Real estate agents are more worried in looking for buyers
and matching them with the available properties than performing
the relevant searches on the legal status of the properties.
Even if they had the time, language barrier to some real
estate agents is a problem. The understanding of legal
terminology is in this case rather poor.
A real estate agent does not get paid for representing
the interests of either buyer or seller. They have made
possible a deal and do not earn fees if the deal stalls.
A small percentage of operators can be regarded as unscrupulous
and self-seeking. What happens to the buyer, or the seller,
is not a concern as long as they get their fee.
These factors are compelling evidence and should make
buyers realise one thing: buying home is serious enough
to merit the intervention of a qualified professional
other than a REA with basic knowledge of the laws. There
are excellent real estate agents, licensed and not licensed,
in Spain, who do what they know best: sell properties
with professionalism. But real estate agents undertaking
the burden of the conveyancing procedure can result in
disaster. For all these reasons, Lawyers of Spain
strongly recommends buyers to employ the services of a
lawyer.
A lawyer will provide the legal guarantees for the purchase
of the home ensuring that Spanish legal requirements
are met and that the home is bought free of encumbrances,
charges, liens or debts and up to date in all its payments
of local contributions and community charges.
2. Formalising an offer
It is recommended that a lawyer is engaged
before an offer is made. The fact that an offer accepted
by the seller is binding as any other contract makes the
intervention of the lawyer appropriate at that time in
order that the terms and conditions of the offer are correct
and favourable to the buyer. The lawyer will also help
the buyer find out what the ongoing taxes are on the home
if the real estate agent fails to do so.
Once the terms of the purchase-sale have been discussed,
and 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 home prior to
the exchange of private purchase contracts; in order to
show the seller that there is a real intention to purchase.
3. Exchange of private purchase contracts
If the legal representation of both parties
deems necessary the exchange of private purchase contracts,
this is verified against payment of normally a 10% of
the purchase price. This documents sets out the agreed
terms and conditions of the transaction and sets out the
date for final completion before the Notary Public.
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 home.
Any debt or charge attached to the home will be reflected
in the private purchase document. These will have to 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.
4. Completion
The purchase is formally completed when
the public title deeds of purchase-sale are signed before
a Notary Public, the agreed payment of the price paid
and the possession given to the buyer. Unless agreed otherwise,
the public deed always stipulates that the home is
sold free from charges and encumbrances, up to date in
all the different payments and free from tenants and occupants.
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 home. Registration is not mandatory,
although highly recommendable.
Similarly, the lawyer will arrange for the transfer of
accounts with the local suppliers of utility services
and organise 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 Notary Public a ´copia
simple´. The lawyer will need a couple of copies
in order to complete all the legal formalities.
Purchase costs
Taxes
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 7% 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 `Plusvalía´, 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.
Fees
Notary Fees: The scale is fixed by law and is
lower for lower priced properties and higher for higher
priced properties.
Land Registry Fees: The scales are also fixed
by law and are between 30% lower than the Notary fees.
Legal Fees: Normally charged at 1% of the purchase
value increased by VAT currently charged for legal services
at 16%.
The base on which the tax percentage is applied is called
the valor catastral, which is the assessed value of the
home by the local authorities. This amount seldom
comes in round figures and it is the result of a number
of calculations performed by the relevant authorities.
This value can be expected to be from 20% to 65% of the
real market price. This should not be taken as a rule
since the local authorities are in the process of raising
these values to reflect the real selling prices.
Any reputable real estate agency should be able to provide
the buyer with a copy of the last I.B.I. receipt for informational
purposes.
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2. Property Income Tax
Non residents for tax purposes still
need to make a tax return in respect of the notional
letting value of the home. This tax return has to
be made whether the home is let to anybody or not.
Any home owner will possibly think that why pay
income tax when there is no income. The reason for this
tax to be in force is that the Tax Authority assigns
an imaginary income, or imputed income, or notional
letting value to the home, regardless of the owner
actually deriving an income from the home. The tax
base is the valor catastral, the local assessed value
of the home which can be found on a I.B.I. (Annual
real estate tax) receipt. The percentage then to be
applied is of 25% of a 2% of the valor catastral, in
other words, 0.5% of that value.
That 2% is the imaginary income the Tax Authority deems
appropriate, and the tax applied is of 25% on the buyer’s
imaginary income.
This tax is however due to disappear.
3. Property Wealth Tax
Although possibly not the proper legal
terminology, it is a close translation of the Spanish
name. This tax is levied on the capital assets, formed
mainly by real estate when applied to non-residents.
The base for calculating the Tax is the higher of either
the assessed value (Town Hall value), the assessed value
by the Tax Authority or the declared price shown on
the Public Deed of Conveyance when the home was
purchased. This real value is almost always the base
for calculating the Property Wealth Tax.
Residents for tax purposes are affected differently
with regards to this tax. They are required to declare
their worldwide assets. However, residents enjoy a reduction
on the tax base as well as deductions for debts against
a business, mortgage loans on properties and the corresponding
tax paid in their own country, as the case may be.
4 Community charges
Almost all properties in Spain are part
of a community of owners. This need arises when the
home owners own indivisible parts of the complex
where the home is located. For example, a communal
swimming pool or garden. But also the roof of the building,
the beams and the pillars, as well as the paint of the
facade. These facilities need to be maintained and therefore
a share of the total expense is allocated to each owner.
Community charges are not taxes, but they need to be
factored in the totals to calculate the annual running
costs of the Spanish Property.
Also, community charges are the most protected payments
any home owner needs to make. Payment default of
merely a couple months may give rise to swift legal
action and eventually the auctioning of the dwelling
to recover unpaid charges. Again, real estate agencies
should be able to provide the buyer with the exact amount
of these payments, and whether they are paid on a monthly,
quarterly or annual basis. The present article is intended
to give some guidance for a prospective purchaser of
real estate in Spain. The costs are likely to vary from
one area to another, and obviously, increase from a
smaller inland home to a larger coastal villa
Any reputable real estate agency will be able to provide
you with the base for calculating the annual real estate
tax and the home income tax (I.B.I. receipt). Likewise,
a figure for community charges can easily be obtained
from the real estate agency. The home wealth tax
can be calculated on what the real purchase price is,
although the figure is likely to be reduced , since
more often than not vendors will impose as a primary
condition for the sale to proceed that the declared
price on the Public Deed of Conveyance is reduced by
a fraction.
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This page has been reproduced
with the permission of Antonio Flores Vila of Marbella
lawyers.
Disclaimer:
Bargain homes abroad does not accept any liability
for the accuracy of the above legal articles and are intended
as general guidance, it does not constitute legal advice,
nor should it be relied upon, you should always consult
a lawyer to discuss your own personal situation. |
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