Buyers Tips

Financing your purchase

Establishing your Budget

Costs of purchase

Buyer’s Tip

Funding a deposit

Financing the Purchase   

The Buying Process in Spain

The key steps in the legal process of buying property

Appointing a lawyer

Buyer’s Tip

Outstanding Debts and the Land Register

Planning Permission

Power of Attorney

Signing a Purchase Contract

A Trip to the Notary

Buyer’s Tip

I.V.A

I.T.P.

Plus Valia

Purchasing a new development

When buying from a new development:

An example of the purchase costs

Other legal requirements when you purchase

N.I.E and N.I.F. numbers

Moving in

Purchase Price - A warning!  

Establishing your Budget
For obvious reasons it is a good idea to establish your budget before you start
looking for a property.
Costs of purchase
Costs of purchase in Spain are different to those in the UK. In theory you could cut down on costs by not employing a solicitor (although this is not advised in most cases).
Unlike the UK, however, you will pay I.V.A. (VAT) on a purchase, 7% of the purchase price on mainland property and 16% on plots of land. This also incurs a separate charge at 0.5%.
If you buy a resale property, Property Transfer Tax is charged at 6% or 7% depending on where it is located.
Then there are the other costs like:
• Plus Valia, a tax on purchase payable to the local Town Hall.
• The costs of the Notary who “conveys” the property and arranges registration of the property in the local registry.
• Connection charges for electricity and water etc.
As a rule of thumb you should allow an extra 10% of the purchase price for these, unless the purchase price is under the equivalent of £40,000, when you should allow 12.5%.

Buyer’s Tip
Technically the Plus Valia is a tax payable by the vendor. However, it is almost universal practice for the vendor to produce a contract passing responsibility for payment to the purchaser. Often there is not much you can do about this if you don’t want to lose the property.

You have four options when funding your purchase in Spain:
• Paying cash. For example, a number of purchasers I have spoken to have sold larger homes on retirement in the UK and have bought a smaller property to retain a “foothold”. They have then used the excess funds to fund their purchase in Spain.
• Taking out a loan with a UK lender against an existing property in the UK and releasing the equity.
• Taking out a loan through a UK lender, or a Spanish subsidiary, against the property in Spain.
• Taking out a loan with a Spanish lender against the property in Spain.
Before starting your search for a property it may be worth considering how you intend to finance the purchase. If you require funding it is worth establishing in advance the amount of loan you can expect.

Funding a deposit
Before arriving in Spain you should at least make sure you have sufficient cleared funds to cover a deposit to reserve a property. In the current market properties are selling fast and you will need to act quickly to secure a property if you see one you like.
The minimum deposit is usually around 3,000 Euros (about £2,000) or more for higher value properties. If you want to pay by cheque remember that a cheque drawn on a foreign bank can take up to 10 days to clear through the Spanish banking system. An alternative is to pay cash and many agents and developers will take a credit card. Otherwise you may risk losing the property to a buyer with the means to transfer the deposit monies immediately.
If you go on an organised inspection trip it will often be a condition of the trip that you confirm that you have sufficient funding to purchase, including access to the deposit.
Once you have established your budget you will be in a position to progress your search. You will probably end up considering one of the following types of property:
• A property on a new development.
• A resale property.
• A Finca or a plot for refurbishment or development.
• A timeshare.  

Financing the Purchase
Since most Spanish exchange controls have been lifted, Spanish residents and non-residents are free to arrange loans and mortgages against their Spanish property in any currency and from any bank in the world.  
Key Tip
If you are a UK-resident and pay interest on a mortgage on a Spanish property, be aware that you cannot offset these costs against any rental income you receive from letting the property.
This is different to the case for a UK-resident buying in the UK, where under many circumstances finance costs can be offset against rental income to reduce the tax bill.

The Buying Process in Spain

As many estate agents will tell you, just because you think that you know what you want, it doesn’t mean you’re right! Even if you think you know exactly what you want, and are sure that it exists, it’s still a good idea to have a look around at what else is available. You may change your mind, but even if you don’t it will help you to get a better picture of the market generally, and values in particular. This will help you to pitch any offer you may want to make, with confidence.
Even if the price is not negotiable, as in the case of a lot of new development property, it is a good exercise to compare prices at one development with another. Knowing that you aren’t paying over the top will help you sleep at night and help you to enjoy your purchase more! So you have inspected a number of properties, and have fallen in love with your dream home in the sun, or spotted the ideal investment opportunity. You have made a verbal offer and agreed the price with the vendor, so now what happens?

The key steps in the legal process of buying property
To buy a property in Spain you and/or your lawyer need to go through the following steps:
• Consult the Land Register to check the outstanding debt situation.
• Ensure you will be able to get planning permission if you plan to do any major structural work.
• Contact the Town Hall to ensure that all other payments on the property have been made.
• If the property is free of debts and charges, and you are happy with your planning enquiries, you will be asked to sign a purchase contract (Contrato de Compra Venta).
• Sign the purchase contract (Compra Venta).
• Notarisation of the purchase contract.
• Payment of deposit, taxes, fees etc.
The situation is very slightly different for properties on new developments so we’ll look first at the usual chain of events for resale properties.

Appointing a lawyer
In theory, because Spain operates a ‘Notarial’ system (this is discussed below) for registering property transactions, you could probably get away with not appointing a lawyer to act for you. This is not recommended.

Buyer’s Tip
Interestingly, if you appoint a Spanish-speaking English lawyer the chances are he will subcontract most of the work to a Spanish lawyer in any case, so you can save some costs by going direct.

Outstanding Debts and the Land Register
The first thing your lawyer should do is consult the Land Register.
As in many EU countries, properties in Spain are registered on a property register. The sale and purchase of all property in Spain is registered in the Land Registry. The register details the property and records all financial charges made against the property and any other matters which may affect the title.
The first step is to check the registration of the property (Nota Simple), which will show if there are any charges against it. If there are any unpaid charges noted, such as unpaid mortgages or other loans secured against the property, you will become responsible for them on purchase. So if there are any unpaid charges you may want to pull out of the purchase, or agree a reduction in the purchase price, and/or obtain some kind of undertaking from the vendor that all debts will be cleared before the sale proceeds.
The lawyer should also make checks at the local Town Hall to obtain proof of payment of utility bills and Urbanisation charges These and other charges may well not appear on the Land Registry, but you will still be liable to pay them if you purchase the property.

Planning Permission
If you are buying a plot, or a house for refurbishment and extension, you will also want to check out the prospect of obtaining consent from the Town Hall and other relevant authorities.

Power of Attorney
It is worth bringing in here the subject of Powers of Attorney.
You will see that a lot of transactions in Spain need to be signed before a Notary, not just house purchases and sales, but also mortgage deeds and wills. Assuming that you are intending to stay non-resident, this may not always be convenient. The alternative is to draw up a Power of Attorney, which is a formal legal document through which you can give someone else the power to do certain things on your behalf. This would include signing papers at the Notary’s office.
The actual Power of Attorney will be drafted in Spanish (an English translation can be made available), which is then signed by you in front of any Notary Public.
For obvious reasons, it makes sense if the person you appoint as Power of Attorney lives in Spain. However, as that person will be able to undertake an extensive number of tasks in your name, the person you appoint should be somebody you trust. You might therefore consider appointing a Spanish lawyer, who will be accountable to the Spanish equivalent of the Law Society who is under a duty to act in accordance with your instructions.
A Power of Attorney can be documented and created in the United Kingdom. Notaries can be found in most major towns in the UK. The document will then be authenticated for use in Spain by the Foreign and Commonwealth office in London. Your Notary will be able to advise you on this. The Power of Attorney will then be sent to the person in Spain whom you have appointed.
If at any time you wish to cancel the Power of Attorney, this can be done simply by notifying the person you have appointed that the arrangement is now cancelled.

 
Signing a Purchase Contract
The Contrato de Compra-Venta is effectively the contract made between the purchaser and the vendor and sets out the terms under which the property will be purchased.
In the case of some resale properties where the vendor lives in another country the contract may be made with their Power of Attorney.  

The contract should contain details of:
• The agreed purchase price.
• Payment of a deposit.
• Provision for payment of the balance of purchase monies.
• Any extras that you have agreed to purchase.
• The intended date for completion together with all other relevant terms and conditions.
• A declaration that the purchaser and vendor are legally in a position to buy or sell the property respectively.
When you sign the contract, you will be required to pay a non-returnable deposit, usually of around 10%.
Once this is paid, there is a binding agreement between the seller and buyer. This means that Spain does not suffer the gazumping problem we sometimes have over here.
If the parties feel they need it, they can include a specific agreement called an Arras by which either party may back out of the contract, although the seller will be required to return double the deposit, or, if the buyer activates the clause, he will lose the deposit.

A Trip to the Notary
When the parties are ready to complete the transaction they, or their Attorneys, will attend the office of the local Notary, El Notario.
The Notary will undertake his own search of the Land Register. However, he does not check the title to the property, although he will check that there are no undisclosed charges on the property.
He will then prepare the conveyance, La Escritura de Compra-Venta, from the information supplied to him by the seller or his lawyer, El Avogado. He will check compliance with Spanish Law.

When you purchase a Finca, you should be able to establish from the Escritura the size of the area of land for sale, and the location and parcel number. The parcel number should be shown on the local Land Registry plan, the Catastro de Rustica, and this should tally with the parcel number on the Escritura. To aid identification the deeds should also show names of the neighbouring landowners on each of the boundaries. If the land has not been previously registered there will not be a parcel number on the Escritura but there will be an Archive, Folio and Finca number.
 
The Notary will then read the whole document in Spanish to both parties. When he is finished, and if they are both happy with the contents, both parties sign.
On signing the Escritura, the purchaser will be required to pay the balance of the purchase price. The Notary will witness the payment. Alternatively, if you have arranged an alternative method of payment the Notary will accept the vendor’s confirmation that the purchaser has paid.

Buyer’s Tip
The current rule is that if the vendor is resident in Spain payment can be made in Euros. If the buyer is non-resident, a bank certificate must be provided to the Notary to prove that sufficient funds have been brought into the country and converted.
If the vendor is non-resident and payment is to be made in a foreign currency, by law payment must be made outside Spain. Technically this can cause some difficulties, but there are various ways of arranging this and your estate agent and lawyer should be able to help.
Buyers and sellers will need to check the situation hasn’t changed since the demise of the Peseta.
The Escritura is then passed to the Tax Office to be assessed for duty, and then to the Property Registry for entry on the register, the Registro de Ia Propriedad. It is in your best interest to register as soon as possible. You can do this yourself but a lack of knowledge of the language could complicate things.
The registrar will contact you when the paperwork (your Form 600) is ready for collection.
However, before registration is completed all taxes arising will need to be paid. You will also need to pay the fees and other transaction costs resulting from the purchase.

Payment of taxes, fees and other transaction costs
These are the taxes and costs you should budget for:

I.V.A This is the Spanish equivalent of VAT and is charged to the purchaser at 7% of the purchase price on properties where the vendor is a developer, and 12% on parcels of land.
I.A.J.D Impuesto Sobre Actos Juridicos Documentados - the equivalent of Stamp Duty at 1/2% payable only where I.V.A is charged.

I.T.P Impuesto Sobre Transmisiones - this is transfer tax payable by the buyer for the purchase of any real estate where the vendor is not a developer, i.e. charged on resale's. Rates vary regionally between 6% and 7%.
The Notary fees and property registry fees are calculated on a sliding scale according to the value of the transaction, but should be less than 7% of the purchase price. Typically budget for around €600 for the Notary and around €200 for the land registration.
The lawyer will charge about 1%.

Plus Valia This is a local Town Hall tax on the increase in the value of the land only since the property was last sold. This literally excludes any increase in the value of any buildings on the land. It is levied at a rate of between 10% and 40% depending upon the area and the length of time since the last sale.
Legally the obligation to pay Plus Valia falls on the vendor, but it is accepted practice for the vendor to try to pass it onto the purchaser. The contract may refer to the purchaser paying tordos los gastos — all the expenses of the transaction — which would include the Plus Valia Tax. Often there is not much you can do about this if you don’t want to lose the property.
As the tax relates to increases in land value it will vary from location to location. In practice for many modern properties this tax is negligible. However, if you are purchasing an older property which hasn’t been sold for some time, then you should ask your lawyer to check with the Town Hall who will be able to give you a figure fairly quickly.

Purchasing a new development
Much of the process is identical to the above although there are one or two differences you should know about.
When you are buying a new development you will often be expected to sign the contract there and then, and put down your deposit. An English translation of the contract should be made available.
 
I’ve heard stories about people taking contracts back to their home countries for their solicitors to go through. When items have been queried the response is a shrug of the shoulders and “well, this is Spain, that’s the way it is.”
If you want to secure a property you’ll have to take a view on this. If the market is hot, you probably won’t have time to take a contract home for your solicitor to look at. You may just have to take the risk on losing your deposit if you pull out.
This is where your choice of agent becomes important. It helps if they are familiar with the developments available, the builder involved and the standard contract issued. Don’t forget that in some areas holiday homes are being built and sold by the hundreds if not thousands, and that’s just on individual developments. Unless you are literally the first buyer on a development, there is a strong probability that any blips on the contracts have been ironed out by previous buyers, or even by the agents who are relying on selling to get their commission.

 
How far one goes in taking full legal advice at this stage will vary with each individual circumstance. However, common sense will indicate whether you need to be cautious or whether you can be a little more pragmatic.
When you buy on a new development you will pay a deposit, and often sign the contract, to secure the plot. You will then make stage payments.
The amount of the deposit required and the amount of the individual stage payments will vary from builder to builder. Some will require 10% as a deposit, others less. Typically they will then require 20 — 25% of the purchase price in 30 days, 20 —25% of the purchase price after 90 days, and the balance payable on completion i.e. on signing the Escritura.
One of the differences with buying in the UK is that even though you pay stage payments, the builder retains ownership until the property is completed. The sale can only be finalised when the necessary certificates of building completion and first occupation are issued.
If the builder doesn’t complete the property, the buyer is protected by consumer protection law, and all money paid over must be paid back with interest. It is also a legal requirement of the contract.
In theory the fact that the buyer has no legal interest in the property, despite the stage payments, can and has caused complications when applying for a mortgage. However, mass development of second homes is so widespread that most Spanish banks are now prepared to pre-approve mortgages and provide some kind of bridging finance at competitive rates.

On the developments I viewed, purchasers were typically waiting 6 to 18 months for completion of the property. In extreme cases the wait time was around three years. In the meantime, if past trends continue, they could expect significant increases in the value of the property during the construction period.
However, once the contract is signed, the price is fixed at the price shown in the contract and the builder can’t increase the price during the building period.

When buying from a new development:
The developers must provide detailed plans including building specifications, proof of planning permissions and proof of ownership.
When there is common ownership or sharing of facilities between owners in every development in Spain, a Community of Owners must be established through which community charges can be shared.
If your development is contained in an apartment block, then the law is that relating to a Horizontal Division (Ley de Ia Propriadade Horizontal).
If you are purchasing in a new development, the Deed of Horizontal Division and rules of the Community should be explained to you.

An example of the purchase costs
We’ve already seen that as a rough rule of thumb you should budget for an extra 10% of the purchase price to cover the additional costs, unless the purchase price is under £40,000 when you should budget an extra 12%. Here is an example of the costs associated with a purchase.
Assuming a purchase price of 78,000 Euros the costs would broadly be:  

Other legal requirements when you purchase
N.I.E. and N.I.F. numbers
Depending on whether you intend to be a resident or a non-resident you will need either an N.I.E. or an N.I.F number.
You will need to apply for and obtain a Fiscal Number as this is mandatory. This is an identification number for use by foreigners in Spain. If you have dealings in Spain, even if you are not a full-time or tax resident, you are required to have a number.
This is obtained from your local police station at the foreigners department. However tempting it may be not to bother obtaining this number, you will find that it will cause you further inconvenience in the future if you do not have one.
Your lawyer should help to arrange for your N.I.E. or N.I.F. number.

Moving in
You should also ask your lawyer or estate agent to help you set up a Spanish bank account. This will be needed to pay for your utility services like water and electricity, and you can use it to pay your ongoing Spanish taxes.
Many estate agents will offer to help with moving in through their after-sales departments and will assist with buying furniture, installing telephones, connecting services, and helping you set up payments through your bank. Some will offer this as a free service.
 

Purchase Price - a warning!
Firstly, a word of warning about agreeing the purchase price. There has been a custom for many years to understate the sale and purchase price enabling the vendor to reduce his tax liability. You may be told that this is to your advantage as it will reduce your initial outgoings by a saving in I.V.A or I.T.P. (see below).
 
This has lead people to be tempted to under-declare the value of the property. Not surprisingly the Spanish Tax Authorities are taking a dim view of this and severe penalties are imposed if you are found out. However, even if you aren’t caught at the point of purchase, it can lead to monumental Capital Gains Tax headaches at a later date if you ever need to sell, as the declared value on your purchase is the base figure used by the tax office when assessing the capital gain you make on the disposal of the property.
If and when you sell the property and the actual price is then declared, you will be liable to pay Capital Gains Tax on the whole difference between the figure shown as the price you paid, and the price now achieved. Don’t forget that I.V.A. and I.T.P. are only charged at 7% of the purchase price. But if you are a non resident you will be charged Capital Gains Tax at 35% of the gain.
In an attempt to discourage understatement of the purchase price, if a tax inspection establishes that the value of the property exceeds more than 20% of the value stated in the Escritura, and provided that the excess is more than 12,000 Euros, the excess will be taxed both for the buyer and the seller as if the excess was a donation or a gift.
Donations are taxed for the non-residents as gift tax, which could be as high as  83%.
Unless the vendor has been the registered owner of the property for at least 10 years, the buyer has to lodge 5% of the purchase price with the Spanish Tax Authorities. This is retained until any taxes accruing have been assessed, including Capital Gains Tax.

NOTE:

please be aware that the information provided by Another World Properties is provided on the basis that it is intended as a guide and as such is not guaranteed. See the disclaimer for further information.