Guide to Buying
NEGOTIATING THE PURCHASE
Once a suitable property has been found, the purchase terms and price will need to be agreed with the seller. Your Lawyer will complete the appropriate searches and investigations of the property (charges debts etc. in the Land Register) and arrange with the vendor the procedure for the cancellation of any outstanding loans.
Once a verbal agreement has been made, the next step is to confirm the terms of the purchase in writing. Funds are usually lodged in a local bank account or with your Lawyer in order to show the seller there is a real intention to purchase. It is normal practice in Spain to include a down payment to reserve the property until the completion of private contracts.
EXCHANGE OF PRIVATE CONTRACTS
Upon acceptance of the offer and terms by the vendor the next step in the sales process is to execute the contracts of sale or to sign an option to purchase. This may take place within two weeks following formal acceptance of the offer or sooner. The private contract of sale or option will reflect all the agreed terms of the offer and sale and include the date for final completion at the Notary. It is customary practice at this stage to pay a percentage of the purchase price which is normally non-refundable should the purchaser not complete.
N.I.E. (Número de Identificación de Extranjeros)
This is an identification number for use by foreigners in Spain. If you have dealings within Spain, even if you are not full time or tax resident, you are required to have a number. This is obtained from your local Police Station at the foreigners' department. There maybe a temptation not to obtain this number however it will cause you great inconvenience in the future if you do not have one.
Depending upon the Local Parliament in which the property is located NIE will be compulsory to pay the taxes. Therefore if the voluntary period to pay the taxes is exceeded a fee will be charged.Your local lawyer will deal with it.
FINAL COMPLETION AT THE NOTARY
A sale is formally completed in Spain when the public title deeds of purchase are signed in front of a Notary, the final payment has been made, and possession is given to the buyer. The "Escritura" (deed) is the title document which specifies the name of the owner and includes a detailed description of the property. Under Spanish law it is necessary for the "Escritura" to be signed in the presence of a Public Spanish Notary.
The Notary is a public official who is responsible for recording the sale on the public record stipulating the title deed has been signed in his presence and understood by the parties concerned.
The purchaser may attend the signing of the deed in the presence of the Notary or grant a Power of Attorney to representative to attend on their behalf.
Once signed, the Notary will fax a note of the title deed to local Land Register, and your Lawyer will arrange:
Payment of the relevant transfer taxes associated with the purchase
Registration of your title deeds (which may take up to 3 or 4 months)
The transfer of accounts with the local utility suppliers, e.g. water, electricity and organise payment through your bank account
There are in principle two fees and three taxes to pay when purchasing property in Spain. As a rule of thumb, you should budget the combined total of these amounts to be around 17% (if you are taking out a Spanish mortgage) and approximately 12% (if cash buyer) of the purchase price. Brand new property with mortgage approximately 20% and without a mortgage approximately 15%.
1) Notary fees: They vary depending on the value of the property and various other factors. Allow 1% of the property price for initial planning purposes.
2) Land Registry Fees: These vary according the locality, type and value of the property. They are not strictly taxes but rather administrative fees but, for the sake of completeness, are referred to in this document.
1) IMPUESTO SOBRE TRANSMISIONES PATRIMONIALES (ITP): Transfer tax payable when you purchase either land, house, apartment or a building plot from a private owner. Depending upon "Local Parliament" (Comunidad Autónoma) it can be 7% or 8% of the declared value of the property as expressed in the "Escritura de Compraventa" (Deed of conveyance). This has led people to be tempted to underdeclare the value of the property. Though this practice was and is widespread, IT IS A SERIOUS MISTAKE. Severe penalties are payable in respect of under declarations which, in addition, can lead to monumental Capital Gains Tax headaches at a later date, as the declared value on your purchase is the base line used by Authorities when assessing the Capital Gain you make on the disposal of the property.
You should be aware that when buying a bargain property the tax authorities have a minimum price for a property and it is this price that is used to calculate the transfer tax on real estate transactions. It is therefore advisable when buying a bargain property to find out the minimum price according to the tax authorities. By doing this you will know the total cost of the purchase, and how much money you will need in order to avoid getting a shock later when you have to pay the taxes.
2) IMPUESTO SOBRE EL VALOR AÑADIDO (I.V.A.): This is the Spanish equivalent of VAT. It is paid instead of I.T.P. when you buy from a Developer rather than the private individual. 10% if brand new property.
3) AJD (Stamp Duty): In addition to IVA you will also have to pay a document tax or stamp duty which can be up to 1% of the purchase price.
4) Plusvalía: It is due to the increase of the legal value of properties. Normally payable by the vendor but it may be stipulated that the buyer pays. Who pays this will be discussed in the negotiations and in consultation with your Lawyer.
5) Capital Gains Tax (Impuesto sobre la renta de no residentes): Only when the vendors are also Non Residents, there is a tax applied which consist on the retention of 3% of the property sales price. This tax is normally payable by the vendor.
1) IMPUESTO SOBRE BIENES INMUEBLES (I.B.I.): This is the main local property tax affecting owners of properties in Spain. The amount of the tax is calculated by reference to the "valor catastral" (official value of the property) registered in respect of all properties in Spain. The percentage of that valor catastral charged as tax varies from area to area. The official values were, until recently, very low. They are now rapidly rising pursuant to a policy of the Spanish Government that will result in the official values approaching the real value of the property. In general terms, IBI will cost less than taxes on a similar property in the U.K.
2) CONTRIBUCION TERRITORIAL RUSTICA: This is the same as IBI but for properties located in rural areas.
3) TASAS Y CARGAS: Some municipalities raise additional taxation in relation to the services that they supply to people in the area. They may include rubbish collection, cleaning of the streets and beaches, etc. Municipalities can also include a charge for the use of a vehicle in the area, although not all do. The amounts of these "tasas" y "cargas" are not generally high.