- Before signing
- Procedure
- Taxes
- Tips
- Joint ownership
Before Signing
The main objective of this section is to guide the buyer through the whole process of purchasing a new home in our country, which culminates both the serious and enjoyable aspects.
Information To Be Obtained Before Signing
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Check that the seller is really the owner
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Check the state of charges and encumbrances on the house.
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Check the current and previous payments of the real estate tax (IBI).
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Check the payment of community fees.
A good solicitor is absolutely essential. Buying a house is definitely NOT A DIY task.
The Procedure
DEPOSIT:
In the first instance, the buyer signs a private contract establishing the property being bought, the price, the form of payment and the completion date. This document is signed by all parties without the intervention of a Notary. The parties are obliged to fulfil it but it is not valid in relation to third parties. It is usual to pay a deposit of about a 10% price.
NIE NUMBER:
This is known as FOREIGNERS IDENTIFICATION NUMBER.
It is not a social security number, but identification for tax purposes. It is compulsory for foreigners to obtain one when they have properties/interests in Spain.
The number never changes - even if the person buys and sells many different properties. In the event of the property owner selling up and moving out of Spain, that number will remain theirs, regardless of the amount of years spent away from Spain.
THE SIGNATURE OF ANY TITLE DEED IS NOT POSSIBLE UNLESS THE NIE IS PRESENTED TO THE NOTARY.
COMPLETION:
When the time comes to complete the purchase, the Title Deed (Escritura) is signed before a Public Notary. IT IS STRONGLY RECOMMENDED YOU USE THE SERVICES OF A SOLICITOR TO MAKE SURE EVERYTHING IS IN ORDER.
Your solicitor will attend the notary with you or in the event you cannot be present in Spain he/she can also represent you with A POWER OF ATTORNEY.
REGISTERING OF TITLE DEED:
Your solicitor will take care of paying the transmission tax and to make sure the property is duly registered in your name. Please, see item corresponding to taxation and cost. The solicitor will also take care of setting up all the utilities contracts for your property.
WHEN YOU BUY A PROPERTY
There are legal fees and taxes to pay on the transfer of a property.
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There are fees which need to be paid to the Public Notary and the Land Registry.
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The tax to be paid depends on which type of property is being bought:
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a) On the purchase of new properties:
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> VAT (Value Added Tax), at a the fixed rate of 8% of the declared value of the property.
> A.J.D. (Stamp Duties). This tax is in addition to above VAT above and is calculated at a rate of 1% of the declared value. -
b) On resales:
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> I.T.P. Transfer Tax at a rate of 7% of the declared value of the property.
**A good rule of thumb to calculate your budget when buying a property is to allow a 10% on top of the asked price. This will cover all taxes and costs you must pay –even solicitor's fees.
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WHEN YOU HAVE BECOME THE OWNER
As non resident owner of a property in Spain you must be aware that you will be obliged to pay certain taxes in this country:
The taxes are due in any case irrespective of the property being used very often or kept empty.
Income Tax (I.R.P.F.)
The rate is 24% applicable to the result of calculating 2% of the cadastral value of the property. The cadastral value is usually a low figure so this tax is not very high.
This tax is paid annually, corresponding to the former natural calendar year.Local tax on real estate (I.B.I.)
This is a direct tax based on the value of the house. It is known as LOCAL RATES, COUNCIL TAX or IBI (and SUMA BILL in Alicante Area). All names mean the same.
Each Town Hall Council determines the percentage to be applied to the cadaster value of the property. Every year, Town Halls increase the value of the tax by applying the percentage given by the Government in the Nation Budget act.
This is also a yearly tax and there is the possibility –strongly recommended- of setting up a direct debit.
MAKING A SPANISH WILL
Making a Spanish Will is not compulsory but highly advised.
To draw up a will in Spain to cover only the Spanish assets, makes the whole procedure a lot easier, less expensive and above all, less stressful for the beneficiaries.
All Wills made in Spain are registered in one central Registry, which makes it easy to apply for a certificate in the event of having to find out what someone’s Last Will and Testament entails. This tells the person where the will was actually signed and can be obtained within a few days. The system is so simple and straight forward here, that it would be a pity not to take advantage of it!
APPOINTING A FISCAL REPRESENTATIVE
It is very advisable to use the services of a local solicitor who can take care not only of the payment of your taxes in Spain but also to keep you informed of any essential changes in the law which may affect your interest. Besides, your solicitor can also assist you to sort out any hiccups related to your Spanish property if you are not in the country (i.e. electricity problems, letters that you do not understand....).
Joint ownership
When several people jointly own a property in shares, if the parties agree to remove their names from the Deeds in order to keep the property in just ONE name, it is necessary to sign a new title deed.
The best way to do this is by making a Dissolution of Community/Joint Ownership (as the Tax liability is lower than the one for a Re-sale or a Donation tax).
In dissolution of community, the owner keeping the property compensates the people getting out of the Deeds for the net value of their particular share. To calculate the net value of each share we need to know the value of the house (usually the value in the former Deed of Purchase), to discount any holds (mortgages, etc...) and to split the balance between all shareholders.
To complete this transaction ALL the current owners must sign the dissolution Deed, so if any of you cannot come to Spain, we can prepare a POA which can be signed in your country before a local notary public.
Please, contact us to check our current tariff of fees. Our fee includes the following services:
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Taking care of coordinating everything for completion at the notary.
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Payment of the corresponding taxes and taking care of the registration of the new title deed.
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Cancellation of direct debits/setting up new standing orders for utilities.
Regarding the tax involved, there will be a 1% STAMP DUTY on the total value of the property.
Selling your house
Our firm will be pleased to assist you in the sale of your property.
People usually think it is not necessary to involve a solicitor when selling but experience says it is more than sensible to appoint one to avoid any last minute hiccups and to make sure all your tax obligations are correctly fulfilled; here's a brief explanation of the most important topics to take into account:
1º) Details of the sale:
The seller needs to inform MAM if the property is being sold through an estate agent or making a direct sale with the buyers. If required we can prepare a sales contract in order to receive a down payment.
We need also a copy of the Deed of the house & all the contact details of the other parties.
We also will need the latest bill for water, electricity, local rates (IBI/Suma), community fees and rubbish collection.
If there is a mortgage upon the property we need your bank contact details. Coordination of the cancellation of the existing mortgage is included in our fees.
Finally we need you to confirm the sale price you are asking and an estimated completion date.
2º) Completion
Be aware that all the owners are obliged to sign the Deed of sale of the property. In order to complete you can come to Spain to sign the Deed or we can act on your behalf via PoA. If you are not able to come over to Spain, we can prepare a PoA for you to sign back at home.
3º) Fees, expenses & Capital Gain Tax
Please, contact our office to get the current tariff of fees. Our fees include the following services:
• Taking care of coordinating all parties for completion at the notary.
• Taking care of cancellation of any existing mortgages.
• Payment of your plusvalia tax.
• Calculation and serving your capital gains tax return.
• Cancellation of direct debits.
As vendor, you need to be aware that you are liable for the payment of PLUSVALIA TAX to the Town Hall where the property is located. This is not a fixed tax so we need to request a pre-liquidation to the Town Hall. We will need a copy of your last local rates.
MAM will also make all searches to see if all utilities bills are up to date and if there is any debt we will withhold the necessary funds on completion to cover such bills.
Please, note that the seller is also liable to pay CAPITAL GAINS TAX from the sale of his/her real estate property. Capital gain tax rate is 19% on the profit of the sale. In plain words, the taxable profit is the difference between the transfer value and the acquisition value.
If the vendor is a non resident in Spain the buyer is legally obliged to set aside and deposit 3% OF THE SALE PRICE with the Spanish Public Treasury on completion. This is retained by the Treasury until your Capital Gains Tax liability has been settled.
For the seller, this retention acts as a payment on account of capital gains tax arising from the transaction. Should the amount withheld be greater than the tax liability, the seller is entitled to a refund of the difference. If the amount is lower, the seller is obliged to pay the outstanding capital gains tax.
This tax computation is complex, and quality professional advice is absolutely essential from the outset, in order to get it right. MAM will help you and in many cases assist you to save what could well be a considerable amount –significantly more than our fees.
Be aware that in order to receive the money back from the Inland Revenue the vendor must have up to date the payment of his/her past non-resident income tax. At present time the Inland Revenue is taking around 6 / 8 months to return the money.
Finally, when MAM receives all the requested details about the sale, a breakdown of payments is sent to the vendor so he/she has a crystal clear budget of what the sale proceeds are going to be.
