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GENERAL ADVICE ON PURCHASING PROPERTY IN SPAIN
Once you have found a property Richardsons will guide you through the purchase process. Your offer will be passed on to the vendors and once the price is agreed you will be required to pay a SUBJECT TO CONTRACT deposit . This deposit is fully refundable should the purchase not proceed to completion.
When starting the buying process the following steps need to be taken
- Open a bank account in Spain
- Apply for a NIE no. (numero de identificacion fiscal de extranjeros) at the offices of the Local Policia Nacional nearest to the location of the property you are purchasing
- Instruct a lawyer to monitor the conveyance of the property. This is strongly recommended although there is no legal requirement to use a lawyer’s services for the conveyance
- Ask for a Registry extract (Nota Simple). This is an up to date record of the property you are about to purchase (it will show any legal interests or encumbrances on the property). Richardsons are able to provide this within 48 hours.(this will be needed by the bank if you are applying for a mortgage)
- Once your finance is in place you will be required to sign a purchase agreement containing all the relevant conditions and date of completion
- A date will be fixed for signing the title deeds at the Notaria
On new developments your taxes are:
- 7% VAT payable on the purchase price. The tax is normally applied to any deposits and
instalments paid during the construction period.
- 1% Stamp Duty payable within 30 days of completion
- Notary Fees & Land Registry Fees applied on a sliding scale (typically not more than 1000 Euros
on a property valued at 250,000 to 300,000 Euros)
- Connection costs for electricity (150 Euros) and water (90 Euros) approximately
- Legal Fees which are typically 1% of the purchase price
On resale property your taxes are:
- 7% transfer tax (Impuesto Sobre Transmisiones Patrimoniales)
- Notary Fees (only for the second & any further copies of the Transfer deed)
- Land Registry Fees
- Connection costs as above
- Legal Fees as above
The Civil Code ( Codigo Civil ) in fact provides that the vendor pays the Notary Fees for the Escritura (Transfer Deed) and the purchaser for the second and any further copies.
This is usually a matter of negotiation at pre contract stage as it is common that the purchaser pays for all costs as part of the overall deal.
Another Municipal tax called Plus Valia Tax, which is levied on the increase of urban land is payable by the vendor. This Tax is a Local Tax and should not be confused with Capital Gains Tax.
Wills
Whether or not you have included your Spanish property in your will, it is advisable to make a Spanish will. This is a relatively simple procedure and will save your beneficiaries a considerable amount of time and expense in the future. The distribution of your Spanish estate will not depend on your obtaining probate of your native will. Your Spanish will is drawn up in double column in your native and Spanish language and will refer to your present and future assets in Spain. The document is signed in the presence of a Spanish Notary Public and filed in his office. A copy is also filed in the Central Registry in Madrid.
Upon the death of a grantor, a death certificate is sent to the Registrar in Madrid, who will then issue a certificate containing details of the will and the details of the Notary Office where it was issued. The beneficiary will then make a notarised statement accepting the inheritance, pay the Inheritance Tax and take over the estate.
All the process takes approximately 30 days to conclude. The Inheritance Tax is payable by the beneficiary and not by the estate. The amount payable will depend on the number of beneficiaries.
Fiscal Requirements and Obligation of Non-Resident Property Owners
Any non-resident owning property in Spain is liable for the payment of three taxes:
1- Local (Town Hall) Real Estate Tax
2- Income Tax
3- Wealth Tax (Capital Assets tax)
These taxes must be paid on an annual basis. Failure to pay your income and wealth tax may result in heavy fines and penalties being imposed which could eventually result in an embargo against all your assets in Spain.
N.I.E Foreigners Fiscal Identification Number for tax purposes
In order to pay your taxes you must apply for a “numero de identificacion fiscal de extranjeros” applicable to foreign residents and non-residents alike. All foreigners who have assets i.e. property, investments etc in Spain are required by law to be in possessions of a N.I.E.
The fiscal representative
The taxpayers are obliged to appoint an individual or legal person with residence in Spain, to represent them before the tax authorities in relation to their tax obligations.
The taxpayer or his representative will be obliged to notify the tax authorities of the appointment, duly evidenced, within two months as from the date thereof. The notification must be addressed to the Tax Administration or Agency Branch, at which the return must be filed, enclosing the representative’s acceptance with the said notification. Breach of these obligations constitutes a “simple tax infringement” and may be penalized by a fine of between 150, 00 to 6.000,00 €.
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The fiscal representative assures the Spanish Tax Authorities that they are reliable contact within Spain for the non-resident taxpayer. The fiscal representative is not a property manager but can ensure that you will be properly represented in relation to any official matter concerning your property in Spain. The type of issues, which the fiscal representative will process, includes governmental and local tax notifications.
Our undertaking as your fiscal representative refers to the following:
1- Filing of your annual property Wealth and Income Tax Return.
2- Checking that all local taxes and rates are paid on time.
3- Keeping you advised of fiscal matters related to your property.
4- Acting as your official representative in Spain.
5- Processing all official correspondence received on your behalf.
Non-residents who have one property reserved exclusively for their own use and enjoyment are not bound by this obligation. However the Tax Authorities will not communicate with them directly but will send notifications to the property itself giving 15 days grace in which to deal with the requirement before taking the pertinent legal action or imposing a fine. It is therefore advisable to name a Fiscal Representative in order to avoid action.
Wealth Tax
Non-residents must file a Property Tax Return, if they own property in Spain on the 31st December of each year regardless of the value of property.
Urban property must be declared at the highest of the following three values:
a- The catastral value (assessed value for urban properties according to the Town Hall and listed in its Land Office), as reflected in the Property Tax receipt (local rates) to the year to which the return refers.
b- The value assessed by the states administration for purposes of other taxes (example Stamp Duty, Death Duty, Gift Tax….).
c- The acquisition price as reflected in the title deed “Escritura”.
The net wealth (which is the taxable amount) is determined by the difference between the value and the charges (if any) registered against the Property. The most usual debts or charge are Spanish bank mortgages.
Non-residents file an income and wealth tax return every year until the 31st of December if they only own one property and receive no income from it in respect of rentals etc. otherwise the returns must be filed and the taxes paid between 1st May and 20th June each year. Each individual property owner must file a separate return. If you purchase a property during 2003, the year 2004 is the first year you will have to pay your taxes.
Income Tax
A non-resident whose only taxable property in Spain is a dwelling fundamentally for own use is liable to pay income tax on assumed income derived from the use and enjoyment of that property i.e. income in kind received from the personal use of the property. The Fiscal Authority deems that the owner of the property is receiving an annual income equal to 2% of its value (or 1.1% if the value has been revised) and a flat rate of 25% tax is imposed on that income. The valuation for the Deemed Income Tax is the one shown on the rates receipts (catastral value).
Annual Real Estate Tax
This tax, based on the catastral value, can vary widely from town to town for the same type of property because it is a municipal tax. Each municipality has elaborated a census and with assigned value for each property. The amount payable is calculated by applying the tax rate set by the Municipal Authorities to the catastral value. The tax is raised every year as a result of inflation.
The Real Estate Tax is commonly called IBI “impuesto de Bienes Inmuebles”.
Each year a Real Estate Tax Payment slip is issued for each property in the census. Municipal Authorities normally allow the payment to be made by direct debit to a bank account, which makes it easy for the taxpayer to pay the tax before the deadline and thus avoid surcharges.
The time for payment of this tax varies in each municipality, but is normally paid around the months of September. October and November in each year.
GENERAL ADVICE ON SELLING PROPERTY IN SPAIN
When you sell your property through Richardsons in Spain the following is advisable
(see also SELLING PROPERTY under SERVICES in our web page)
-1 Supply Richardsons with a copy of your Escritura or the Property No.(No. de Finca)
-2 Copies of your last Rates (IBI) receipts
-3 Receipts of last utility bills and community fees paid
-3 Usually an inventory of the furniture, fixtures and fittings etc.
The new Fiscal year commenced in January 2007 and there have been significant changes to the Law on Income Tax, Wealth Tax and non-resident Tax. The following changes apply as from the 1st January 2007.
-1 Capital Gains Tax is lowered from 35% to 18%
-2 The 5% provision retained by the purchaser for Capital Gains purposes is lowered to 3%
-3 Non-resident Income Tax is lowered from 25% to 24% for income derived from 1st January 2007
(see above under Income Tax)
These notes on this page are for general guidance only. Professional Legal advice should always be sought in any matters relating thereto. Richardsons do not make representations or warranties of any kind with respect to their content.
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