GUIDE TO BUYING IN SPAIN

A brief guide to a Spanish conveyancing process & how A.S.K can help…

In general terms ´we are with you every step of the way´ by always representing you and your best interests, whether in connection with a private seller, a developer, and estate agent, or indeed a bank.We have excellent professional contacts throughout the region and this is essential when purchasing in Spain.

We are also able to offer free independent mortgage advice for Conveyancing clients, as well as obtain competitive insurance deals.

In the first part we explain the basics of Spanish Conveyancing, but below this we go into more detail regarding the process, taxes etc.

1 – The writing and/checking of the purchase contract

The first step of the process is to sign a private purchase contract (Contrato Privado de Compraventa) between the two parties involved. If you are purchasing a new build property this will be between you and the builder, generally be drafted by his Solicitor and be weighted in his favour.We can however sometimes negotiate better terms for you if you are not happy.

If you are purchasing a resale property then this will be between you and the owner of the property.

We will check that all the details are correct within the contract and explain it to you in English before you sign it.

2 – Certificate from the Land Registry & Report

We would carry out a land registry search to verify that everything stated in the contract was true:

Establish the current ownership

Check that the property is free of debts and other charges

We can check the building permissions by going to the Town Hall and speaking with the Director of the relevant department.

We will inform you of the results of the searches and if there is no problem with them we will instruct you to transfer the next payment (if applicable).

3 – Payments & bank guarantees for brand new builds (additional expense)

For every stage payment that you make, we obtain a bank guarantee from the builder. This means that if the builder was to go bankrupt before completing the building work, you would not lose your money.

The bank will levy an additional charge for these guarantees.

4 – Preparing Power of Attorney (additional expense)

Once the property is almost ready for completion, if you want us to act on your behalf we will ask you to give us power of attorney. Power of attorney will enable us to complete for the property on your behalf without you being present.

5 - Pre completion checks

Just prior to completion we will make further checks on the property to ensure there are no outstanding debts which you could inherit with it. Council tax, electricity & water, and community of owners will all be checked before you sign for the property on the day of completion.

We also obtain a fresh Land Certificate from the Land Registry on the morning of completion to ensure that ownership has not changed since signing the Private Contract.

6 – Obtaining your NIE number .

This is a fiscal identification number and is required in order to pay taxes before you can make any transaction in Spain, such as purchasing a property. We can apply for your NIE number on behalf of you using the power of attorney, or assist you personally.

7 – Completion

On completion we exchange the balance of the price, ownership and keys of the property. This takes place in the Notary’s office. If the property is a new build we will also check that the builder has issued a ten year guarantee for any damages on the building and a certificate from the town hall which certifies that it is a liveable home.

If you did not grant us power of attorney we will help you to obtain your NIE number before the completion day and assist you at the Notary’s office on the day of completion in person.

8 – Inscription of ownership in the land registry

After signing, we will present and register the notarised deed (known as the Escritura) at the local Land Registry. The Land Registry maintains all the details of the property and records financial charges and other matters that may affect the title. Registering the deed provides the highest public level of protection.

9 – Paying taxes

From the day of signing we have a maximum of 30 days to pay the tax on the property which we will do.

10 – Transferring utilities into your name (additional expense)

We will change the water and electricity supplies into your name, although this can take some time post completion.

What other expenses incurred when buying a property?

Example:

Price of the property 200,000€

Tax @ 10% 20,000€

Notary Fee 600€

Land Registry 300€

Utilities 300€

Solicitors Fees 950€

Total Price 222,150€

THE PROCESS IN MORE DETAIL and SOME NOTES:

1.- Jointly owned Spanish Property is always held as tenants in common, not Joint Tenancy like the UK.

2.- No prospective purchaser should ever consider acquiring a property in Spain without making a search at the Land Registry.This will show ownership and whether there are any charges and encumbrances affecting the property. Sometimes land is not registered and careful assessment of the situation and options available will need to be explained to the clients. The office copy entries and the Escritura will confirm the description of the property and its boundaries. However, no property plan is likely to be part of the Escritura or the office copy entries.

3.- The first notarial copy of the seller's Escritura de Compraventa (title deed) should be obtained and checked, and this will indicate whether there are any special conditions affecting the property and whether all the tax and registration procedures on the previous transfer have been completed.

4.- Where there is construction on the land, it is necessary to check that the corresponding declaration of new building (‘Declaración de Obra Nueva’) has been executed and registered and that the surface area and description of the property in the title deeds are correct.

5.- Where land is being acquired it may also be advisable to inspect the ‘Catastro’ (mapping office) in order to check the surface area of the property.

6.- Searches should also be made at the local Town Hall in cases of land sold for building purposes or new properties to check that they have general and detailed planning permission.

7.- New dwellings should have certificates, issued by the local planning office, confirming that they comply with planning rules and are fit for human habitation.

8.- As certain taxes and debts are attached to the property, prospective purchasers should check that there are no outstanding payments.

9.- Flats and other properties forming part of a building or development complex will be subject to residents’ association rules and these should be examined by the prospective purchaser.

10.- The authorised use of the property will also need to be checked with the planning authorities to ensure that the property meets your needs. Thus, for example, if the property is part of a residential area, you may not be allowed to rent the property on a short holiday letting basis.

11. The coastal protection law (Ley de Costas) prohibits the building of properties within specific distances from the shoreline and imposes limitations on nearby properties.It is important to check these matters before the property is purchased.

12.- Tax planning considerations: whether the property should be bought in joint names, as a life tenant, in the name of a company or using a trust will require careful consideration and should be decided before contracts are exchanged.

13.- Trusts cannot acquire property in Spain; however, companies incorporated by a trust and charities can acquire property.

14.- The concept of trust and the concept of legal and beneficial title to a property are alien to Spanish law.

15.- Bare trusts are not be recognised in Spain. However, they are normally upheld by the English Courts even if they refer to land in Spain if there is a relevant connection with England. An English judgment dealing with immovable property situated in Spain will not be directly enforceable in Spain, but if the judgment is construed as an issue of capacity of one of the parties (which under Spanish law is governed by that party’s law of nationality) or as a contractual debt, such judgment given in England will normally be effective in Spain. Thus, if a property in Spain is held by a person as a trustee for another, the beneficiary may be able to apply to the English Courts for relief if, for instance, the trustee fails to implement the beneficiary’s instructions as to the transfer of the legal title of the property. Even if the trustee fails to comply with the Court Order, the Judge may be able to sign the necessary Spanish Deed of Transfer on behalf of the trustee.

16.- Bare trusts may be an effective way of avoiding the UK rules on directors’ remuneration in kind where a Spanish property is bought in the name of an English company.

17.- Residency has relevance for tax purposes when buying or selling property in Spain.

18.- When dealing with property in Spain it is very important to ensure that any transactions are carried out using the usual Spanish formalities, the appropriate taxes are paid and the documents are registered at the Spanish Land Registry. Failure to do this will result in a defective title and any solicitor involved in the transaction may face claims for negligence, especially if time has elapsed and the transferor can no longer be found, or in the case of a company, it has been dissolved.

EXCHANGE OF CONTRACTS

It will often be necessary or advisable to exchange written private contracts before signing the Deed of Transfer (Escritura de Compraventa), which is prepared and executed before a Notary and registered in the Land Registry.Care should be taken to ensure that the terms of the contract are suitable for clients’ needs.

In accordance with Spanish consumer protection laws, purchasers who buy unfinished properties from developers are entitled to receive adequate insurance or bank guarantees to secure any staged payments.

COMPLETION

The Spanish Deed of Transfer (Escritura de Compraventa) is signed by the parties simultaneously before a Notary.The Notary is independent and will ensure that the document is correctly drawn and completed and that the parties have sufficient legal capacity to act.

A non-Spanish Notary's signature and seal must be legalised with the ‘Apostille’ legalisation under the Hague Convention of 5th October 1961.

FEES AND TAXES

The Notary charges a fee for preparing and completing the Spanish Deed of Transfer.In addition, fees will be payable to the Land Registry for registration.

The purchase and sale of property in Spain is liable to tax on the following basis:

1.VAT (known as IVA in Spain) or Property Transfer Tax at 10% of the price and in the case of a first transfer direct from a developer plus stamp duty normally at 1%.

2.VAT for commercial properties, parking spaces or purchases of building plots from a corporation or property developer will be assessed at the standard rate, which is currently 16%.

3.A Local Authority increased land value tax (Plusvalia) is also payable on the transaction, the amount depending on the surface area of the property.

Most taxes are paid by self-assessment.However, the tax office can revise the amount of tax paid.It has a period of four years to do this.

Non-resident foreign individuals must obtain a Foreigner’s Identification Number (NIE).A Fiscal Representative may also have to be appointed.

Liability for payment

Purchasers are usually required to pay all the expenses, costs and taxes of a transfer, excluding the Plusvalia tax.

After signature, the official copy of the Spanish Deed of Transfer must be presented to the tax office within 30 working days of the date of execution, so that the transfer tax or stamp duty can be paid.

REGISTRATION

After the taxation procedures have been carried out, the Deed of Transfer should be sent to the Land Registry for registration.

ONGOING EXPENSES

A prospective purchaser must take into account that there will be regular expenses affecting the property, such as:

Residents’ Association fees when the property is a flat or part of a development complex. Purchasers have to comply with the Residents’ Rules.

Refuse collection and council tax will be charged annually by the Local Authority.

Gas, water, electricity, telephone.

Annual Income tax: Non-resident foreigners are required to declare income earned in Spain. Property owners are deemed to obtain income from their property amounting to 2% of the property rateable value (a lower rate of 1.10% applies to certain property).This notional income, together with any actual letting income obtained from the property, is taxed at 24% and an annual income tax return must be filed.

Wealth Tax: Wealth tax has now been abolished.

PLEASE CONTACT US IF YOU WOULD LIKE FURTHER INFORMATION, OR YOU WOULD LIKE A.S.K LEGAL SERVICES TO ACT AS YOUR LEGAL REPRESENTATIVE IN SPAIN.

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