Property conveyancing in Andalucia

Buying a property in Spain is a big decision. Not only is it an investment which may involve large sums of money, but the process also involves a complicated conveyancing system. Taxes, urban planning and legal paperwork need to be borne in mind.

Andalucia Lawyers are able to assist in all aspects of the process, giving you peace of mind as well as saving you money.

We have wide experience in buying property in inland Andalucia, (especially in rural Granada), rural and inland Jaen, and also on the Costa del Sol in Marbella, Sotogrande. In order to choose the right home, it is prudent to assess what is available on the market, examine the physical features of the property, and then assess the property’s legal status.

You can look for a property yourself or find an estate agent to do the looking for you. The agency is generally engaged by the seller, so it is the seller who must pay the agency its fees. At any case, before you sign any agreement please contact www.andalucia-lawyers.com.

• Signing the agreement

When you sign the purchase agreement, you and the other party are giving your formal consent to the deal. The seller hands over the keys to the home and the buyer (or the bank that is financing the transaction with a mortgage loan) hands over the money.

The general rule is that housing purchase agreements are concluded in a notarial deed. The notarial deed is a public document authorised by a notary, who writes down the wishes of the parties, judges their identity and legal capacity, draws up the document according to the parties instructions, and gives authenticity to the contents of the documents.

No matter what kind of agreement was made, the seller is responsible for any hidden or latent defect in the home, even if the seller did not know about them. If there are any such defects, the buyer can choose between abandoning the agreement or getting a proportional discount off the price.

There are important difference between Spanish and English law. A Solicitor/Lawyer will provide legal guarantees for the purchase of the property, ensuring that

There are significant differences between Spanish and English law. A Solicitor/Lawyer will provide legal guarantees for the purchase of the property, ensuring that:

• At the Land Registry the property is free of debts, encumbrances, charges, and is up to date in all its payments.
• Title Deeds are properly executed.
• Local Council documents are transferred.
• Taxes and costs to be paid in the transaction are correct.
• Taxes to be paid in the future are provided for.
• Other essential requirements (eg application for NIE number for fiscal purposes) are undertaken.

Once you have chosen a property, the purchase terms and price will need to be negotiated with the seller. Lawyers may also assist the selling agent when negotiations with the owner become complex or difficult. Depending on who is buying the property, be it yourself, your children or a limited company for example, will change the process of the conveyancing transaction. However, the usual steps for buying a house in Spain are set out as follows:

Reservation document: normally agreed with the estate agent and held for a period of 15 days until you sign a private contract.

Exchange of private contracts or sign an option to purchase. It is very important to ask you if you want to have a binding or non-binding contract. There is also a specific agreement called “arras” which may be entered into between the seller and the buyer, where either party may rescind the contract, but if this occurs, the seller returns double the deposit or the buyer loses the deposit. It is customary practice at this stage to pay 10% of the purchase price. Both will reflect all the agreed terms, general and specific conditions of the offer and set out the date for final completion at the notary.

Completion at the notary office: The notary will check compliance with Spanish law, but does not check the title to the property. The notary will make a check at the Land Registry immediately prior to the signing of the title deeds to ensure that there are no undisclosed charges on the property.

In Spain, a sale is formally completed when the public title deeds of purchase are signed before a notary, the final payment is made, and possession is taken over by the buyer.

• Registration.

Once signed, the notary will fax a note of the title deeds to the local land registry. Your lawyer will also pay, on your behalf, all the relevant transfer taxes associated with the purchase and will handle the formalities of registration of your title deeds. Final registration of the deed may take up to one month.

• Costs involved in purchasing a property.

Estate Agents: rarely below 5% of the house price.

Notary fees: the scale is fixed by law and may range from 200euros to 800euros depending on what is agreed as the price of the house.

Registry fees: Normally 50% of the Notary fees.

Legal fees: 1% of the purchase price , with a minimum of 1500-1800euros whichever is the greater, plus value added tax (IVA) currently charged at 16%.

If you own, or are thinking of buying, property in Spain, you need to be aware of all the tax implications and what your tax liabilities are, both in Spain and your home country if you are not resident in Spain. These vary depending on where you are tax resident and what you intend to do with the property: holiday home, to rent out, an investment to be sold on, or as a future main home.

On buying the property, there will be purchase tax (ITP) at 7% or 8% depending on the particular region (8% applies in Cataluña, Baleares, and in Andalucia on the excess over 400,000euros). In the Canary Islands the rate is 6.5%. On new properties acquired from a developer, however, there is no ITP but Spanish IVA (equivalent to VAT) at 8% is payable. There is no IVA in the Canary Islands; instead, a sales tax (IGIC) of 5% is levied on new property from a developer.

On a residential property, IBI tax (equivalent to UK council tax) is paid by the person who occupies it on the 1st of January in any year (that would be you if it is a holiday home or only rented for short lets). IBI is calculated on the basis of the notional rental value (valor catastral) of your property multiplied by the tax rate fixed in your locality.

There may also be other local taxes raised annually by the town hall, which can incur a 20% penalty if unpaid by the due date.

• Taxes

Transfer tax at 7% is payable in the case of a re-sale property. When buying a house from a promoter or developer 8% VAT, plus1% stamp duty is payable. On buying a plot of land, commercial premises or garage spaces, the tax is 18%.

Local Tax called Plusvalia is normally payable by the seller but it may be stipulated that the buyer pays. Plusvalia ranges from 30euros to 1500euros. Who pays this will be discussed in the negotiations and in consultation with your lawyer.

After signature, the first copy of the escritura must be presented to the tax office within 30 days from the date of completion, so that transfer tax can be paid. Failure to do so will result in a fine.

• Buying from a developer

There is a legal requirement for builders to be covered by an insurance policy or bankers’ guarantee, protecting the buyer´s payments against the risk of the builder going bankrupt.

There must be a full contract containing all the clauses of the purchase with building specification, planning consent, plans etc.

It is a legal requirement, set out in specific Regulations, for the buyer of a property to be given clear information about the purchase process and building specifications of dwellings bought in Andalucia.

The Regulations specify the required information to be given to the purchasers of a house or lessees in Andalucia. The Regulations are applicable to developers and any intermediaries relating to any kind of publicity made by a company or individual towards the sale or lease of dwellings.

The Regulations demand from accredited estate agents, developers or any other intermediary, to have to make available to the purchaser a document with clear and sufficient information about the characteristics of the house and economic condition of the offer. For infringement of the law fines range from 5000euros up to 400000euro depending on the case.

It is hoped that the Regulations will increase confidence in the real estate sector. The Andalucian government wishes to enforce the new law, by improving purchaser information and also by inspections of estate agents and developers in Andalucia. It is the first time the second hand housing market has been regulated in this way.

Anyone interested in buying an off plan house, will receive an AID (Abbreviated Information Document). If you are buying a second hand house, you must receive the Information File. Both documents specify the physical and legal characteristics of the dwelling, as well as its price and method of payment. The new law clearly forbids the agents, developer and intermediaries, to keep silent about the AID or the File or convey an error to the buyer. Finally all estate agents offices (including virtual ones) should display a sign saying “the buyer will have the right to get a copy of the correspondent Abbreviated Information Document of the house”.

If you are planning to sell your house it is advisable to get legal advice in order to protect your interests when preparing the transaction and assistance with the tax implications of the sale especially in relation to Capital Gains Tax.

• Capital Gains Tax (CGT)

Looking ahead, when you eventually come to sell your Spanish property capital gains tax will be due on the gain, at 19% on the first 6,000euros and 21% on the balance. Spanish residents will have to add in other gains and investment income when calculating the tax due.

For Spanish residents, gains on disposal of the main home are exempt where you have lived in the property for at least three years and you are:

• 1. Over the age of 65; or
• 2. The full proceeds of sale (i.e. the selling price) are reinvested in a new main home within a certain period.

There is also a local tax known as the “Plusvalia” which exists in urban areas on the growth in the value of land, and which is allowed as a cost of disposal in calculating the mainstream capital gains tax.

For UK residents, the gain would be taxable in the UK, but as with rental income, under the terms of the double tax treaty, any tax paid in Spain by UK residents can be credited against the tax due in the UK.

If you are looking to sell your property in Spain, you need to be aware of CGT. According to all the International Treaties regarding double taxation signed by Spain and other countries, capital gains on the sale of properties are taxable incomes where the asset is located, so by selling your property in Spain you are subject to Personal Income Tax in Spain.

If a property is worth more than you paid for it when you come to sell or dispose of it, you may be liable to pay CGT. In simple terms the gain is the difference between the sales value and the acquisition value and this income is chargeable when the capital gain takes place.

The acquisition value is the actual amount for which the property being transferred was acquired, plus the expenses and taxes inherent in the acquisition (excluding interest) paid by the person now transferring. The taxable gain is reduced depending on the year of acquisition by applying coefficients established each year in the State General Budget Law. In order for these coefficients to apply, the property being transferred must have been acquired at least one year before the transfer date.

Nevertheless, if the property being transferred was acquired before 31 December 1994, the gain calculated as above is reduced by 11.11% per year for each year (above two) during which the asset was held. This holding period is calculated by taking the number of years between the date of acquisition and 31 December 1996.

The transfer value is the actual amount for which the transfer was made, less the expenses and taxes involved in the sale.

The tax rate is 19%, for the first 6000euros and 21% for the balance.The seller has three months from the end of the period in which the purchaser of the property must pay a withholding tax (which is one month from the date of the sale), to file form 212 and declare the aforementioned calculations.

When a non-resident individual or company disposes of Spanish real estate, the person acquiring the property is liable to withhold 3% from the sales price and pay it in to the Treasury (by filing form 211), regardless of whether or not he/she is a resident. This tax withheld is a payment on account of the seller´s tax on the gain obtained on the transfer.

Nevertheless, if more than 10 years elapsed between the date of acquisition of the property and 31 December 1996, then there is no capital gain or obligation to file a return and there is no obligation to withhold and pay the aforementioned 3%.

If the tax withheld is not paid, the liability for the tax is attached to the property.

In the case of capital gains, where the amount withheld exceeds the actual tax payable, the taxpayer is entitled to a refund of the excess (by filing form 212). The Administration has six months from the refund filing deadline in which to issue a provisional settlement. If six months elapses and the refund order is not issued for reasons attributable to the Administration, interest will be paid on the outstanding refund amount.

• Tax on rental income

Where the property is to be let, the rental income is taxable in Spain, regardless of your residence status. Spanish residents will pay tax on the income and any rental income from abroad at the progressive scale rates from 24% to 45% (from 2011). There is a reduction of 50% available (60% from 2011) against net rental income applicable to long-term lets which would normally be for at least one year in duration.

Non-Spanish residents are taxed at 24% on the gross income. The tenant is obliged to withhold 24% from the rent and pay it to the Spanish tax authorities.

Where the property is not used as your main home, a purely notional income is deemed to arise for periods where the property is not actually let, normally based on 2% of the valor catastral as shown in the IBI notice for the year, taxed at the scale rates for Spanish residents, and 24% for non-residents.

If you are UK resident, the income will also be taxable in the UK. Both countries will apply their own rules to calculate the tax, so the taxable amount is likely to be different in each country. You can offset the Spanish tax actually paid against the UK liability to avoid double taxation, but if the UK tax is higher, further tax will be due in the UK.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our knowledge of current taxation laws and practices which are subject to change. Tax information in these pages has been summarised; an individual must take personal legal advice specific to their situation.