There are many questions
we receive about the Legal & Financial
side of buying a property and living in Spain. Below we have
listed some of the most common ones:-
THE LEGAL SIDE OF BUYING A HOME IN
SPAIN
Is the conveyancing process in Spain
similar to that in England?
No. The Spanish legal system is very different from the English.
Generally speaking, however, provided that we make the necessary
checks and enquiries, there is hardly any more need to worry
about buying a house in Spain than about buying one in England.
Unfortunately, very often people purchasing property in Spain
take little or no legal advice and are indeed quite "casual"
about the purchase and about the signing of legal documents.
They may
then find there is no title to the property, that it was built
without planning permission or that it does not even exist!
You will, no doubt, have heard of cases where buyers have suffered
loss. There is no reason why this should happen to you provided
that you take independent legal advice. At Buena Vista Villas we always recommend that you use a lawyer.
We use four different lawyers for our clients each specialising
in differing aspects of land and house sales.
WHAT IS THE
ESCRITURA?
This
is the title document transferring ownership of the property.
Under Spanish law it is necessary for the Escritura to be signed
before a Spanish Notary Public. Your lawyer will arrange this.
WHO IS THE NOTARY?
The Notary is a public official who is there simply to put on
the public record the fact that the title deed recording the
sale/purchase has been signed in his or her presence and understood
by the parties concerned.
WHERE THE MONEY SHOULD BE PAID?
The money for the final payment of your property is handed to
the seller in front of the Notary when the Escritura is signed.
Proof of this payment is then incorporated into the title deeds
of the property.
DO I HAVE TO BE IN SPAIN TO COMPLETE
THE TRANSACTION?
The person buying the house may attend in person before the
Notary, but, if this is inconvenient, arrangements can be made
for a Power of Attorney to be granted enabling another person
to attend on their behalf. This must be in the Spanish form and
signed in front of a Notary. Our clients usually appoint the
lawyer to sign on their behalf. The lawyer can also draft a Power of attorney to be signed at a notary near your home in England.
WHAT ABOUT PAYING THE TAXES
DUE?
Once the purchase formalities with the Notary
have been completed the Lawyer arranges on your behalf, to pay any taxes
due in relation
to the transaction.
IS THERE A LAND REGISTRY SYSTEM IN
SPAIN?
Yes. After the Escritura has been
signed in front of the Notary the lawyer arranges for it to be presented
to the appropriate
Land Registry and for the payment of the Land Registry fees.
Several
months can elapse before the process of registration is concluded, but as
soon as your lawyer is notified that the deeds are
ready the lawyer will have them collected, checked and then
forward them onto you.
IN WHOSE NAME SHOULD YOU PURCHASE THE PROPERTY?
There are a number of ways to purchase the property
- In your own name
- In the joint names of you
and your wife or co-purchaser(s)
- In your
children’s names or in the name of somebody who
will eventually inherit the property from you
- In the name of a limited company, whether English, Spanish
or ‘’off-shore’’
Each method has its own advantages and disadvantages. Everything
depends on your own personal circumstances. The lawyer would
be pleased to discuss the various ways of buying and to advise
as to the most advantageous method for you.
It is worth paying careful attention to this point because of
the potential tax and other savings that can be made at a later
stage.
These tax savings arise because of the Spanish system of inheritance
tax under which gifts on death can still attract very high rates
of taxation. Careful planning can dramatically reduce the tax
payable.
The tax savings also arise because of the way that each time
a property changes hands, certain taxes and fees become payable.
If you can minimise the number of times it changes hands, you
can greatly reduce your tax liabilities.
As always with tax savings schemes there is a danger that the
Government can close the loopholes that allow the schemes to
operate and, as always, there are disadvantages to them as well
as advantages. In each individual case, you will have to weigh
up the advantages and the disadvantages and decide how you wish
to deal with the transaction.
WHAT ABOUT RAISING THE MONEY?
It is possible to raise finance to assist with
the purchase of a property in Spain either by mortgaging the property itself
or by mortgaging or adding to the mortgage on any property which
you may have in England.
We will be pleased to advise you about the possibilities of
obtaining mortgages and finance both in Spain or in England and
to assist in the obtaining of finance that you require.
WHAT EXTRAS ARE THERE ON TOP OF THE PRICE OF A PROPERTY?
The total
costs (land registry fees, taxes, associates fees, bank charges
etc) normally add up to about 10% of the price of
the property. There will be additional charges, fees and taxes if you are
taking out a Spanish mortgage. The bank will give you an estimate of
these costs when we know more about your plans.
The Solicitor will give you a detailed estimate of the likely
overall cost once he knows more about your particular purchase.
- Typically a fee is paid to the Notary for the preparation
of the Escritura. This fee varies but is typically about 0.4%
of the purchase price.
- The lawyer's fees for the purchase
are normally 1% of the purchase price.
- A fee is payable to the
land Registry. This depends on the value of the property
but is usually about 0.25% of the price.
- Plus valia – a municipal capital gains tax – has
to be paid on the transfer of a property. The tax should be paid
by the Seller but many contracts transfer the liability to the
Buyer. This tax is usually small – say £150 – but,
as it can be several thousands of pounds, it is vital that
you are aware of the implications of this. The lawyer will
advise
on this point.
- A transfer tax or VAT and Stamp Duty also has
to be paid. Again this depends on the value of the property,
the type of
property in question and where it is located. It is typically
6% - 8.5% of the price of the property (normally 7%).
- In many
cases you may not wish to be in Spain at the time when the
public title deed needs to be signed. In these
circumstances the lawyer can prepare a Power of Attorney authorising
either someone nominated by you or himself to sign on your
behalf. The cost of this is typically £150.
- In order to buy property in Spain, you
need to be registered with the Spanish tax authorities and
to have a foreigners’ identification
number (NIE). The lawyercan usually arrange this whilst you are here.
WHAT ABOUT THE
SELLER'S TAXES?
The
Buyer is obliged by Spanish law to pay 5% of the purchase
price directly to the tax office on account of the Seller’s
potential tax liabilities in Spain where that seller is non-resident.
There are certain exceptions to this rule.
This does not increase the amount the buyer has to pay – he
or she simply pays 5% of the agreed price to the tax office and
95% to the seller.
The Lawyer will arrange this and there will then be no further
exposure to liability in respect of the Seller's taxes.
This responsibility is the same wherever the money is paid and
whether it is paid in Sterling or in Euros.
HOW DO I GET THE MONEY TO SPAIN
When looking for your dream home, you should take the time to consider how you will make payments on your property. As you are more probably aware, exchange rates shift on a daily basis, and this can have a dramatic effect on the amount you will eventually pay on your stage payments and when you make regular transfers abroad. Buena Vista Villas understand the importance of getting value for money and that is why after careful research, we have decided to undertake a partnership with Travelex to offer the very best in foreign exchange services.
Recent research carried out by the world’s largest foreign exchange specialist, Travelex, shows that currency fluctuations can add an average of £7,000 to the price of a typical overseas property. For example in August 2004 €200,000 cost £132,363. By January 2005 the price
had risen to £141,643, that’s a difference of £9,000. Are you willing to take that risk?
Travelex offer the following services:
- Free Transfers (no European Bank receiving fees – that can mean a saving of up to 0.5% of the amount transferred)
- Commercial Exchange Rates
- Direct Bank Transfers
- Locked Exchange Rates
- Dedicated contact at Travelex
- No Commissions
- No Fees
- No obligation to deal when you open an account
If you are interested in this service please complete our contact form and we will ask a member of Travelex to contact you.
ARE THERE ANY OTHER THINGS I SHOULD
DO AT THE SAME TIME AS I BUY A PROPERTY?
We
believe that it saves a great deal of time, effort and money
later on if you now review your English Will and make a separate
Spanish Will. For most people the cost of this is fairly small.
It is highly advisable for any person who has a property in
Spain but does not live there all the time to nominate a fiscal
representative. This is a person to who the tax authorities can
send all correspondence relating to your affairs in Spain, secure
in the knowledge that it will arrive. The fiscal representative
must be resident in Spain, but it is for you to choose whom to
appoint. It can either be a friend, neighbour, lawyer or your
tax adviser. If you wish to know more about this, please ask.
You will wish to insure your property and its contents. Once
again Buena Vista Villas can assist you in this.
You will need to have the electricity,
water and rubbish collection transferred to your name. You
will also need to notify the Town Hall that you own
the property and register for local rates and with the Spanish
authorities for tax and other purposes. The lawyer will help
with this.
You should register as the owner with the Community of Owners
if you live in an apartment block or a development with shared
facilities.
WHAT HAPPENS IF I
DECIDE TO LIVE AND/OR WORK IN SPAIN?
The
lawyer can assist you with residencias, work permits, licences
and permits in connection with the opening of a new business.
They can also advise on the importation of cars, furniture and
pets in Spain, obtaining payment of your pension in Spain, healthcare
issues, planning your tax affairs, National Insurance and other
related matters.
AFTER I HAVE
SETTLED IN, WHAT ARE MY CONTINUING OBLIGATIONS?
If you spend less
than 184 days a year in Spain then you are, generally
speaking, classed as a non-resident and you must:
- Pay your local rates (contribucion Urbana/IBI)
- Make a declaration of all your capital assets in Spain and
where appropriate, pay wealth tax on them.
- Make a Spanish income
tax declaration and pay income tax on any income deriving
from your activities in Spain.
- If you have a car, pay car tax
and arrange suitable insurance cover.
- Pay your electricity,
water and other bills. It is usual to do this by arranging
for your bank to pay the accounts directly
to the suppliers.
WHAT HAPPENS IF EITHER I OR MY CO-OWNER SHOULD
DIE?
Jointly owned property does not automatically pass to the
survivor. It will be dealt
with according to any instructions which you
leave in your will (either English or Spanish) or, if you do
not leave a will, under the rules relating to intestacy.
It is generally much cheaper and simpler to deal with your affairs
if you have made a Spanish Will. Your lawyer will be pleased
to help with this.
WHAT TIME DO BANKS OPEN?
These are open from 08.30 to
14.00 Monday to Friday. They charge a transaction fee for
any exchange of money.
WHAT IS
THE CURRENCY OF SPAIN?
The Spanish currency is the Euro.
Money can be exchanged at hotel/apartment reception desks,
banks and
exchange bureaus.
Buena Vista Villas suggest that you use the bank. As younormaly receive a more favourable exchange rate.
WHAT IS THE COST OF LIVING HERE?
Annual running costs in Spain are
considerably lower. We can not be exact, however, the
cost of running
a three bedroom property
with a communal pool valued at 225,000€ would be approximately
1,450€ per year.
| Water and electricity standing charge |
150€ |
| Local rates including refuse collection |
200€ |
| Community fees (only for urbanisation) |
500€ |
| Insurance – buildings and contents |
400€ |
| Fiscal representation |
200€ |
SPANISH RESIDENCY - THE PROS AND CONS
The
Spanish Costas have become one of Europe’s
leading property markets in the last five years. Favorable
exchange rates and
improvements to the infrastructure have made owning property
on the Costa an attractive option for people from all over the
world.
Most have brought their properties as non-resident owners and
use them as holiday homes, while some are living in Spain permanently.
Others live in their properties over the winter and go elsewhere
during the hotter summer months.
For many the question of whether to get a Residencia (a Spanish
residence permit) is an important one. The following are some
of the advantages and disadvantages of becoming a Spanish resident.
INCOME TAX
If you live in Spain for more than 183 days per calendar
year you are considered tax resident, regardless of whether you
have
a Residencia. This means that you must declare your worldwide
income, making the same income tax return as a Spanish resident.
If you are non resident and spend less than 183 days per calendar
year in Spain, you are not obliged to declare your worldwide
income. But you are still liable for any income arising in
Spain. This could include for example income from letting out a Spanish property.
PROPERTY TAX
As a non resident you are obliged to pay income
tax on the letting value of your property, even if you are
not renting it out. The
letting value of your property is calculated at 2% of the fiscal
value and you pay 25% tax on this value every year. Spanish residents
are exempt from this tax. If you are a non resident and you decide to sell your property,
you must pay a 35% Capital Gains Tax on the net difference between
the value of the old Escritura (title deeds) and the sales Escritura.
If the property you are selling was purchased after 1986 you
must deposit 5% of the new Escritura value with the tax office.
This acts as a guarantee for your Capital Gains Tax payment.
As a Spanish resident however, you can offset the costs of purchasing
a new property against any capital gains from selling the old
property. Capital Gains Tax for residents has recently been re-adjusted
from 20% to 15% of the net profit (1 January 2003). But if all
the profits are reinvested in another property - which must be
your main residence - within two years of the sale, then you
are exempt from the charge. Residents are also exempt from depositing
the 5% Capital Gains Tax guarantee, but must declare the sale
of the property and any profit, in the following year’s
Income Tax return.
WEALTH
TAX (PATRIMONIO)
Patrimonio is a tax based on assets -
mainly property, car, bonds, bank account and stocks and shares.
Non-residents only
pay Patrimonio on assets in Spain. Residents pay Patrimonio on
worldwide assets, but are exempt from paying Patrimonio on property
if it has a value of less than € 108,182.18.
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