The present guide offers a brief explanation of the legal aspects of buying a property in Andalucia, Spain; the due diligence that should be carried out on the property before signing the title deed, taxes and costs involved in the purchase, and the yearly maintenance costs and taxes thereafter, once the property has been bought. Steps for buying a property in Spain
Tax implications and costs Transfer tax
- Applying for a NIE number: If you are non-resident in Spain the first thing you should do is to apply for a NIE number (Spanish identification number for foreigners), as this is mandatory when you purchase any property in order to be able to have access to the land registry. You will need to apply and obtain the NIE number personally in the police station, unless you grant power of attorney in front of a notary to someone to act on your behalf.
- Contact between lawyers: Once you have agreed upon a property, price and conditions subject to contract, the lawyer of the buyer contacts that of the vendor, requesting the legal documents for the property (title deeds, property tax, utility bills, licences, etc.). It is important to check the title deeds of the vendor to confirm, amongst other things, ownership, charges, and that the property is accurately described. We sometimes find out that the reality of the property does not correspond to the registered details or with the cadastre (tax office) details, especially with older detached houses or plots. The lawyer will also check any registered debts, charges, liens and encumbrances in the land registry, and the situation of the property with respect to property tax and community fees, and any other running expenses: water, electricity, etc. The lawyer should also check in the town hall the planning regulations that applies to the property, assuring that all building and habitation licences are in place. It is important to check that the property abides to the planning law, as well as any extensions or amendments.
- Signing a private contract: Once these checks have been satisfactorily carried out, the price has been agreed, as well as the terms of payment, a private contract should be signed with the vendor, and a deposit paid. The amount paid upon signing a private purchase contract is normally 10% of the price. There are different types of private contracts:
- an option to purchase contract, where the seller is obliged to sell and the buyer can buy but is not obliged to buy, although he will lose the deposit paid;
- a private purchase contract, which ties both parties, and the seller can oblige the buyer to complete the purchase;
- a private purchase contract called “arras penitenciales” where if the buyer pulls out he loses the deposit, and if the seller pulls out (which he can, unlike with the previous contracts), he has to reimburse the buyer with double the deposit paid.It is important that this private contract includes all necessary provisions to preserve all the buyers rights in the future purchase. The contract normally provides for a term between one to three months for completion and signing of the public deed in a Public Notary, when the balance of the purchase is paid and the vacant possession of the unencumbered property is granted.
- Opening a Spanish account: The buyer should open a bank account in Spain, where he will send the funds for the purchase. Unlike other countries in Europe, in Spain normally the purchase price is paid directly to the seller in a bankers draft from your non-resident Spanish bank account. It is not usual to use escrow accounts or accounts of the solicitors or notaries. The funds for the payment of the taxes and expenses of the purchase are normally sent to the clients’ lawyer account, who will take care of these payments after completion of the purchase.
- In order to get registration of the public purchase deed, all relevant tax forms must be completed and paid into the Spanish Tax Authorities.
- Change in ownership: The final step will be to change the utility contracts for services and supplies of the property to the buyers name (electricity, water, etc.), as well as the property tax, setting up direct debits of all payments into the Spanish bank account.
In Andalucía the transfer tax is a graduating scale from 8% to 10%, depending on the purchase price:
VAT + Stamp duty (10% + 1,5%)
- 8% tax is paid for the first 400.000 €
- 9% is paid from 400.000 – 700.000 €
- 10% is paid for the price above 700.000 €
This applies only to villas - apartments, or garage/s annexed to an apartment, where the vendor is a developer, in the acquisition of newly developed properties. If VAT applies, then transfer tax does not apply.
In the case of purchasing a plot of land to build a house, the tax to be paid is 21% VAT, plus 1,5% stamp duty, with certain exceptions.
The minimum tax value for 2013 -for the moment also for 2104- for properties purchase in Marbella in 2013 and to date is equivalent to the cadastral value of the property multiplied by 1,27. This figure is the minimum value the tax office deems it is worth. The tax office can appraise the purchase price of the property if it´s under the tax value.
Notary and land registry fees
This should be approximately between 2.000-4.000 Euro in total. This will depend on the value of the purchase and the number of pages and complexity of the notarial deed. “Plusvalía municipal” tax
This is a tax paid by the vendor. It is a local tax based in the increase of the land value. In case the vendor is non-resident in Spain, as the property responds of the payment of this tax by the vendor, it is advisable for the buyer to withhold it from the purchase price and pay it into the tax office on account of the seller. 3% withholding tax
If the vendor is non-resident in Spain, the buyer must withhold 3% of the purchase price, and pay it into the tax office within 30 days, on account of the capital gains tax of the vendor. If the vendor has not made a gain, or a lower gain than the amount withheld, he will have the right to claim the reimbursement to the tax office. Yearly taxes as a non-resident Personal taxes
As a non-resident in Spain, you will pay non-resident income tax in Spain. This is a presumed income tax paid annually before the end of every year, assuming the property has not been rented, for the assets held in the previous year. It will depend on the number of days it has been held in that year. It is equivalent to 1,1% -or 2,2%, depending when the cadastral value has been last revised- of the cadastral value, at a rate of 24,75%. In case the property has been rented, the tax to be paid will be 24,75% of the net income (it has to be taken into account that depending on the tax residency of the investor, expenses derived from renting the property may not be deducted to calculate the tax). This tax has to be paid after every quarter, before the 20th of the following month each quarter (20th January, 20th April, 20th July and 20th October). Wealth Tax
Wealth tax was abolished in 2007 but reinstated temporarily in 2011. The government has stated in the 2014 Annual Budget that wealth tax is being extended for one more year, and is to disappear as from 1st January 2015. The first 700.000 € per person are exempt of the tax, and from then onwards, there is a graduating scale. Property tax
- Council tax (IBI) – it is an annual payment –paid in September- and it depends in the cadastral value of the property.
- Rubbish collection fee – it is a small fee normally paid twice a year and should not exceed 200 Euro in total.