Although the Spanish conveyancing system is very different from the system we use in England and Wales, there is no reason why your purchase should not go through smoothly, especially if you seek legal advice from the outset.
Ideally you should seek legal advice before entering into a contract, signing any documents or paying over any monies, whether you are buying a new property ‘off plan’ or a resale. Checks on title, land registry searches and enquiries at the local Town Hall should be made as soon as you have found the property you want to buy to ensure that the title is clear of charges and encumbrances and to verify the planning position. Enquiries should be made to establish whether utilities payments, rates and community of owners’ fees (if appropriate) are up to date. We can arrange for all of these searches and enquiries to be carried out for you.
If you have already signed a contract, the searches and checks mentioned above must still be made and we will be able to advise you as to your rights and obligations under the contract. Not only do checks have to be made and searches obtained on the property you are proposing to buy but in addition, checks should be made on the sellers; if they are a Company, at the appropriate Companies Registry; if the sellers are individuals, checks should made to see whether they are a resident or non-resident.
If the property is mortgaged then the buyer, unless he is to take on the seller’s mortgage, will want the mortgage to be cancelled before the property is registered in his name. However, it is not sufficient simply to pay the balance of a mortgage debt to a Spanish mortgagee bank and be satisfied with a mere receipt of payment. Just as a mortgage has to be signed before a Notary and registered at the Land Registry, so must a deed of cancellation of a mortgage be signed before a Notary by the Spanish Bank and subsequently registered at the Land Registry. This deed will attract stamp duty (AJD tax) and Land Registry fees as well as the fees of the Spanish Notary. We can make the necessary enquiries as to the status of a seller’s mortgage to ensure that cancellation and registration of the cancellation is carried out.
If you require a mortgage to complete your purchase then completion has to be coordinated with the lender’s legal department. You should not rely on the lender making all the enquiries and searches that need to be made to protect your position and ensure that you get a problem free title. We can advise you as necessary and liaise with the Spanish lender. There are fees connected with obtaining a Spanish mortgage – the mortgage deed will attract the Spanish equivalent of stamp duty and there will be registration fees involved at the Spanish Land Registry. These are usually deducted by the lender from the amount loaned or included in the ‘administration fee’ and enquiries need to be made to ensure that adequate budgeting has been carried out.
Whether you are buying a property, selling a property, opening a bank account, inheriting an asset in Spain or otherwise transferring a Spanish asset, you will need to obtain an NIE number (número de identificación de extranjeros) or Foreigner’s Identity number. This number is required by Spanish law and can be obtained in person from the Spanish police or from the Spanish consulate in London. In some regions NIE numbers can be obtained by a third party holding a valid power of attorney on your behalf and we would be happy to advise you as to what steps and documentation are required on a case-to-case basis.
Completion of a property purchase in Spain is traditionally carried out in person at the Spanish notary’s office. More often than not most foreign purchasers chose not to attend in person, or are unable to attend for a variety of reasons, in which case completion can be carried out by an attorney acting on their behalf. The attorney must be properly authorised to do so by a Spanish power of attorney which we would draft and organise for you.
Fees and taxes payable on completion
In addition to the purchase price there will be a number of extra fees to pay. These will include, but may not be limited to:-
i) Land Registry fees, which are usually paid by the buyer.
ii) Transfer tax or VAT. The percentage of tax charged varies between some regions and the buyer pays this tax.
iii) Spanish Notary’s fees for drafting the new escritura are again usually paid by the buyer.
iv) Stamp Duty (AJD tax) may be charged, particularly where a mortgage is financing the purchase and is paid by the buyer.
v) Plusvalia tax is a type of municipal capital gains tax charged by the local Town Hall. This tax can be negotiated between the buyer and the seller as to who pays it. By its nature it is a ‘Seller’s’ tax but a buyer should make sure that the question of who is to pay this tax is covered in the contract for the purchase of the property if there is one, or expressly dealt with in the pre-purchase negotiations if no contract is being used.
vi) Capital Gains tax. This is payable by the seller and the rate and method of collection depends on whether the seller is resident or non-resident in Spain for tax purposes. If the seller is resident in Spain then we will advise on a case-to-case basis as to the liability to this tax. If the seller is non-resident then the buyer will pay 3% of the purchase price to Hacienda (Spanish Inland Revenue) on account of the seller’s capital gains tax liability. The buyer will then only pay 97% of the purchase price (or balance thereof) to the seller on completion. The seller then has the right to apply for a refund of any balance of the deposited monies that may be due to him after deduction of tax.
Personal Tax Liability
From the moment that you acquire a property in Spain you will have an obligation to file an annual personal income tax return in Spain. The tax year runs in accordance with the calendar year i.e. from January 1st to December 31st. Even if you do not rent out the property or earn any other form of income in Spain, you should still be filing annual tax returns as a notional income tax based on a fraction of the value of your property in Spain will still be charged. In the majority of cases the amount of tax due is very small but if you do not comply with your tax responsibilities in Spain, the Spanish tax authorities will pick up on this on a future transfer in title and will seek to recover back taxes for a certain number of years from you. Many foreign owners of property in Spain choose to engage the services of a fiscal representative in Spain to assist them with the filing of their annual taxes.