BUYING PROPERTY IN SPAIN
The following is a general guide to purchasing new and resale property in Spain. However, this guide does not attempt to cover all legal and financial points and prospective purchasers are recommended to seek professional advice.
As in many EU. countries property in Spain is registered on a property register.
When you have decided upon the property to purchase, the agreement will normally be contained in a private contract. The document should contain details of the agreed purchase price; payment of deposit; provision for payment of the balance of the
purchase monies; any extras that you have agreed to purchase and the intended date for completion together with all other relevant terms and conditions.
Once you have paid your deposit (usually 10%, depending on time between initial contract and completion) there is then a binding agreement between both Buyer and Seller. A specific agreement (called arras) may be entered into between Seller and Buyer, where either party may rescind the
contract, the Seller returning double the deposit or the Buyer losing the deposit.
When there is common ownership or sharing of facilities between owners, in every development in Spain a Community of Owners must be established through which community charges can be shared. If your development is contained in an apartment block
then the law is that relating to the Horizontal Division ("Ley de la Propiedad Horizontal").
If you are purchasing in a new development it is essential that both the Deed of Horizontal Division and the rules of the Community have been explained to you and approved on your behalf as they are very important contributions to your future enjoyment of the property.
- Conveyance (Escritura de Compraventa)
The sale and purchase of all property in Spain requires to be registered in the Land Registry. They maintain details of the property and record financial charges and other matters which may affect the title.
The Notary - el Notario - repares the Conveyance - la Escritura - from the information supplied to him by the Seller or his lawyer - el Abogado . He will check compliance with Spanish law. However, the Notary does not check the title to the property , although
he will make a check at the Land Registry immediately prior to the signing of the Escntura to ensure that there are no undisclosed charges on the property. Before the completion the Notary will check to ensure that no adverse entries have been made beyond those disclosed or to which the
purchase may be subject. Once the formalities have been completed before the Notary, the Escritura Publica m ust be delivered to the Land Registry for the title to be recorded in the Registry of Property - Registro de la Propiedad . Before doing so, however, it is necessary
to ensure that all taxes have been paid.
There has been a custom for many years to understate the sale and purchase price enabling the Vendor to reduce his tax liability. You may also be told this will reduce your initial outgoings by saving in stamp duty. If the procedure is adopted
you must realize that when the property is sold and the actual price then declared you will be liable to pay Capital Gains Tax will be higher. For non-residents of Spain, new legislation has decreed that for sales after 31st December 1986, a deduction of 5% must be made by the purchaser
from the sale proceeds and deposited with the Tax office pending agreement of the capital gain.
In the past, there have been circumstances when you could be compelled to accept an underdeclared value compared to the true value. New legislation has been enacted by virtue of which if a Tax Inspection establishes that value of the property exceeds more than 20% of the value stated in
the Escritura, and provided that the excess is more than 2.000.000 pesetas, the excess will be both for the Buyer and the Seller as if the excess was a donation or a gift (donations are taxed for the foreign recipient as gift tax which could be as high as 83%). Therefore understatement of
the price cannot be recommended.
The total expenses incurred in the purchase should not, on average amount to more than 10% of the purchase price. The individual expenses are as follows:
- Stamp Duty (Transfer Tax)
There is no stamp duty threshold and you will be required to pay at the appropriate rate based on the declared price. If you purchase a new residence from a developer I.V.A. (VAT) is charged at the rate of 7% on the declared price. In addition,
the so-called Legal Documented Acts Tax at a rate of 0.5% is also applicable. In other cases the stamp duty is charged at 7% of the declared price. If the property being purchased is solely land upon which a property is to be constructed and is bought from an established business the
applicable rate is the full I.V.A. rate (currently 16%).
The fees of the Property Registrar for registering your escritura in the Register will be assessed on a scale fee related to the declared value.
This tax is paid to the Local Authority and is a form of Capital Gains Tax that is payable on the increase in value of the land since the last purchase. It should be stressed that this tax is based on the increase in value of the land, and not on
any buildings erected upon it. The obligation to pay this tax falls upon the Vendor, but the Vendor may attempt to require the Purchaser to meet this - care should therefore be exercised where the contract refers to the Purchaser paying - todos los gastos - all the expenses of the
transaction - which would include the Plus Valia tax.
A fee is charged by the Notary to prepare and legalize the Escritura. This is also a scale fee on the declared value.
