We would recommend that a contract be prepared even though it is possible to proceed directly to completion with the signing of the escritura (title deed) on payment of the full purchase price. The latter option is only advisable in rare circumstances. Having a prior contract allows a date for completion to be specified and requires the buyer to pay a deposit and thus become “locked in” to the transaction. It should stipulate who is to pay the fees and taxes on completion and provides certainty for both parties.
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.
As a current owner of property in Spain, you should already have an NIE (sometimes also referred to as a NIF) number. In fact 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 on a Spanish purchase takes place on the signing of an ‘Escritura’ (title deed). Escrituras have to be signed by the buyers/sellers in person or by their duly appointed Attorney. If you do not wish to travel to Spain to complete in person then we can arrange for completion to take place with one of our agent lawyers signing on your behalf under a Power of Attorney. The Spanish Power of Attorney would be drafted by us and tailor-made to suit your particular circumstances. It can be signed at our offices or we can arrange for you to sign it before a local notary to you.
When the new escritura is signed the notary in Spain will require proof in the form of a certificate showing that all community fees (if the property is subject to them) have been paid up to date. The notary will also require proof that the property is up to date in the payment of rates (IBI) to the Town Hall.
Fees and taxes payable on completion
As a seller you would normally expect to pay:-
1) Plusvalía tax. This 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 but in the absence of any agreement to the contrary it is the responsibility of the seller.
2) 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.
3) If the property is mortgaged, and the mortgage is being cancelled on completion of the sale then the costs involved in the cancellation would be payable by the seller.
There are other fees and taxes payable on completion, which include:-
1) Land Registry fees, which are usually paid by the buyer.
2) Transfer tax or VAT. The percentage of tax charged varies between some regions (5% / 7%) and the buyer pays this tax.
3) Spanish Notary’s fees for drafting the new escritura are again usually paid by the buyer.
4) Stamp Duty (AJD tax) may be charged, particularly where a mortgage is financing the purchase and is paid by the buyer.
Personal Tax Liability
From the moment that you acquired the property in Spain you have had 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 have not rented out the property or earned 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 have not been complying with your tax responsibilities in Spain, the Spanish tax authorities will pick up on this on a sale and will seek to recover back taxes for a certain number of years from you. Typically these will be recovered from the 3% deposit made on account of capital gains tax but you may find you have additional tax to pay depending on the sums involved.