Buying Residential Property in SpainA Legal and Practical Guide
The buying process in Spain differs significantly from that in the UK and many other countries, but remains relatively simple as long as the buyer follows clear guidelines.
- Once you have agreed a price with the real estate agent for the purchase of the property, you should ideally appoint a lawyer straightaway and with whom you can easily communicate. With the lawyers in place and your agent advised of who you are using, the buying process begins.
- The first contract to be signed is the preliminary contract; the ‘Contrato privado de compraventa’. This a legally binding contract signed by both parties, sometimes (but not essentially) in the presence of a notary. It gives a full description of the property for sale, details of both parties involved, outlines the sale price, any extra conditions particular to the sale, the completion date and the deposit paid which is normally 10% of the agreed purchase price. As surveys and searches are frequently carried out prior to signing, the preliminary agreement can be made conditional on their outcome.
In broad terms, this is equivalent to the English exchange of contracts. Careful drafting of the deposit clause is important, as under Spanish law, if the seller does not fulfil his obligation as laid down in the contract, they are liable to pay back the deposit in double to the purchaser. Should the purchaser not fulfil the contract, their deposit is non-refundable.
- The last step in the process is completion, and signing of the final contract; Escritura de Compraventa. This is signed in front of the notary by both the buyer and the seller, or someone with the power of attorney to sign on their behalf. The outstanding balance, plus all fees and taxes are paid at this point. Once signed, the Escritura gives you official ownership. The property will then be registered under your name in the Land Registry; the ‘Registro de propiedad’. Buyers should request a copy of this registration for their files (this is done by your lawyer).
Ideally your lawyer should speak a language you understand and specialise in property law. As well as assisting with the fundamental steps above, your lawyer will help with the following procedures:
- Explaining thoroughly all tax-related matters, particularly inheritance tax, wealth tax and the requirement to fill in an annual tax return as a non-resident. Tax rates are assigned regionally so will differ according to location and the value of the property you wish to purchase. More details on this can be found below in the ‘Purchase Costs’ section.
- Next, Spain has the law of subrogation, whereby properties carry the debts of their previous owners. Your lawyer will therefore ensure that there are no outstanding charges against the property for utilities and maintenance costs such as infrastructure charges, council tax (Impuestos de Bienes Inmobiliarios; IBI), and community fees. The lawyer will also confirm that the property has a full title by checking the Registro de Propiedad.
- As a consequence of strict planning laws, your lawyer will ask the vendor for a Licencia de Primera Ocupación (First Occupation License). This document, which would have been issued upon completion of the construction, confirms that a legal construction licence for the building existed and ensures that the built area meets all regulations and license standards. If one does not exist (which is not uncommon for older properties) it can be applied for from the Town Hall
- To confirm the value of the property, also known as the catastral value, and the official surface declared, your lawyer will conduct a search at the catastro registry office. Your lawyer will compare the title deeds and the catastro registration. The catastro is a government agency which acts as the central registry which collaborates with the Land Registry to ensure that the property is correctly registered including swimming pools, out buildings etc.
- Each property in Spain is assigned a catastral value by the local town hall and this appears on council tax receipts. This is the value that is used to calculate council tax amounts and is lower than the market value. Be aware that in the unlikely event that a property is bought for a price below the catastral value, the purchaser can be liable to pay tax on the differential. Your lawyer can calculate what this would be.
- If you are buying within a development or complex, your lawyer will check any communal obligations and obtain confirmation from the community that all community dues are paid up to date.
- Your lawyer will finalise the terms and conditions of the contract, arrange registration of the final deeds at the Land Registry and ensure that the ITPO (Property Transfer Tax) is paid within 30 days of completion of the sale. If you are unable to be present in front of a notary to sign the final deed, you can assign your lawyer with a Spanish Power of Attorney to act on your behalf. This can be done in person in Spain or at a Spanish embassy abroad
- Your lawyer can also advise you on how to obtain an NIE; Número de Identificación de Extranjero. All Spaniards carry a National Identity Number and likewise foreigners transacting business in Spain likewise need an ID number. In this regards, it is required in order to buy a property in Spain, open a bank account, apply for a driving licence, or even to buy a car. You will need this before completion.
- A lawyer can organise your utility bills (electricity, water, gas etc.), by firstly notifying utility companies of the change in ownership, and secondly organising your future payments through your Spanish bank.
For this work, a lawyer typically charges a fee between 0.5% and 1%, subject to the purchase price of the property for sale and the complexity of the transaction.
As with much of mainland Europe, buying costs in Spain are higher than in the UK and they are regulated by each autonomous region and therefore vary slightly depending on location.
On top of the notary fees, there are a few other costs to consider:
- Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas; ITPO) – This is paid when a property or parcel of land is sold by an individual and is, therefore, a resale. This amount differs by region, between 6% and 10% of the purchase price. Andalucía is on a sliding scale of 8% up to €400,000, 9% up to €700,000 and 10% for properties over €700,000.
- Value Added Tax (Impuesto Sobre el Valor Añadido; IVA) – This is only applicable when a property is sold by a developer to a first occupier and is 10%. If a parcel of land is sold without any construction by a developer or corporate owner then 21% IVA applies.
- Stamp Duty (Impuesto de Actos Jurídicos Documentados; AJD) – This tax is paid in addition to IVA when purchasing a new house from a developer. This varies in Spain between 0.75% and 1.55% with Andalucía currently applying 1.5%.
- Land Registry Costs – Variable according to property price – approximately between €300 - €800.
It is important to establish whether the seller is a fiscal resident or non-resident in Spain. In the latter case, the buyer’s lawyer must withhold 3% in lieu of potential capital gain and pay the Spanish tax authorities (Hacienda) the applicable amount within one month of completion.
Since October 2013, the Spanish government has given residency rights to non-EU nationals who invest €500,000 or more in property through a bond or home purchase in their Golden Visa programme. Such a purchaser who spends more than 180 days per year in Spain will automatically become a Spanish tax resident with its corresponding fiscal responsibility. For more information on this, please consult a lawyer.