Legal formalities & costs
involved in purchasing property in Spain By Christopher
Clover
Panorama always recommends that purchasers of property
in Spain retain a qualified solicitor to represent them and qualified
financial advisors to deal with tax issues.
Purchasing property in Spain is a relatively straightforward
procedure. The "last word" in property ownership is the
property registry, which will show immediately if the seller owns
the property free of liens and encumbrances. Most frequently, unless
an immediate cash payment of the full purchase price is made, a
private contract of purchase is drawn wherein the details of the
purchase are reflected - the legal description of the property,
purchase price, form of payment, date of completion, date of possession,
etc. Upon signing the private contract, a payment on account of
the purchase price is always made which can vary substantially according
to the terms of the sale and the date of completion. A quite normal
deposit for completion within 30 to 60 days would be 10% of the
agreed purchase price.
New properties which are unfinished obviously are
paid for over the construction period, and all payments on account
before finishing must be guaranteed by a bank or insurance company:
if the property is not finished by a certain date, a purchaser has
the right to reclaim the monies paid, plus legal interests. Additionally,
a recently enacted law obliges the property developer to arrange
an insurance policy with the purchasers as beneficiaries, with respect
to any basic building defects.
When the entire purchase price is paid for the property,
the seller will issue the public deed of conveyance (escritura)
to the purchaser, free of liens and encumbrances. This deed is issued
before a Spanish Notary, is passed from the notary to the tax office
to be assessed for stamp duty if the property is a resale or second
hand property, and then presented to the Property Registry for inscription.
A provisional inscription in the registry is made immediately upon
taking title.
Property Purchase Costs
7% TRANSFER TAX (I.T.P.) payable by the buyer for
the purchase of any Real Estate (villas, flats, land, commercial
premises, garages), provided the vendor is not a developer or normally
trading in the business of resale properties.
8% (7% VAT and 1% STAMP DUTY) for any VILLA or APARTMENT,
or GARAGE that is annexed to an apartment, where the vendor is a
developer, promoter or habitual trader in these generally new properties.
17% (16% VAT and 1% STAMP DUTY) for PARCELS OF LAND,
COMMERCIAL PREMISES, or COMMERCIAL GARAGE SPACES, where the vendor
is a developer, promoter or habitual trader. This covers virtually
all NEWLY URBANIZED LAND PARCELS and NEWLY BUILT COMMERCIAL PREMISES.
This only covers resale properties when the vendor falls into one
of the above categories.
Notary Fees & Property Registry
Inscription Fees
Notary fees should amount to no more than €1000/£715,
although the cost increases according to the number of pages or
complexity of the title deed (e.g. transcription of statutes, payment
in stages, property partially finished, etc.). As an example, an
apartment costing €300,000/£215,000 will cost around
€650/£464 in notary fees, whilst a property costing €600,000/£429,000
will cost around €800/£571in notary fees. Any higher
than this amount, the fees go up marginally. The property registry
inscription fees, providing the purchase is straightforward, run
at around 65% of the notary fees.
Plus Valía
This is an "added value" tax based upon
the increase of the Town Hall index value of the land only, from
the prior (vendor's) purchase to the present sale.
This tax corresponds in principle to the seller,
but, in common practice, is often paid by the purchaser, especially
with respect to apartments or townhouses. As there are several variable
factors used in calculating this tax, especially the length of time
of ownership of the property, the amount payable can vary substantially
and should be verified before proceeding with the purchase.
Summary
The total official costs involved in purchasing
property should be less than 8% if it is a resale property, or less
than 9% if VAT is paid on the purchase price, plus the PLUS VALIA,
if applicable.
Other costs involved in owning Spanish property
Local rates
Local rates are payable annually, and are calculated
from the catastral or rateable value of the land assigned by the
Spanish Tax Office. The catastral value takes into account the value
of the land plus the value of the building, according to type, location,
and usage. Upon this value, each municipal Town Hall decides on
the percentage to be charged in respect of local rates. In the case
of Marbella, the formula applied is 0.85% of the rateable value
of the property, which is almost always far less than its true market
value.
Examples: A 2 bedroom apartment in the beachside
complex of Marina Puente Romano which is in the heart of the "Golden
Mile" paid rates of €1.219/ £870 in 2003. A free
standing, large beachside villa in the heart of the "Golden
Mile" paid annual rates of €2,500/£1,785 in 2003.
Rubbish Collection & Water Rates
The rubbish collection rate is applied by the Town
Hall according to the property and payable every 6 months, at a
maximum rate of €258/£184 per year. Water consumption
is calculated by the water meter consumption in cubic meters and
is payable every 3 months. Payment can be made directly at the Town
Hall or by bank with direct debit instructions.
Community Fees
Generally speaking, the Community of Co-Proprietors
or Homeowners' Association is a legal entity comprised exclusively
of the owners of the apartments in a building, or villas on an estate.
The purpose of the Community is to own and maintain the common elements
of the building or estate in question, and each homeowner is obliged
to participate in the expenses of the upkeep of the community areas
and services on a prorated basis with the other owners. Usually,
a homeowner's percentage of the costs is fixed by the size of the
apartment, or plot, divided by the total area of all the apartments
or plots.
A budget for the annual community expenses is presented
at the annual general meeting of the homeowners, and they or their
authorized representatives must approve the budget by majority vote
of those present at the meeting. Expenses can vary substantially
according to the services provided, and normally include salary
and social security of the hall porter, common garden maintenance,
lift maintenance, repairs to common elements, rubbish collection,
water for watering community gardens, electricity for lighting communal
areas, insurance, security, and administration fees. The President
of the community must, by law, own a property within the complex
itself and is chosen by way of vote by the co-owners. The President
has no remuneration for this role.
A typical 2 bedroom apartment in a building or area
with a hall porter, swimming pool, and a small garden, could cost
between €120/£85 to €300/£215 per month in
community fees - but could go up to €600/£428 or more
per month in a high luxury building with a large community staff
and many services.
In the case of an individual villa in an estate
of villas, community fees are often less since the private gardens
and exteriors of such properties are generally not maintained by
the community, and the community fees are limited to road and roadside
garden maintenance, basic common service maintenance, and security.
Insurance
A standard insurance cost for a €300,000/£215,000
apartment with contents valued at €48,000/34,300 would be €280/£199
per year. One should note that in an apartment building, the Homeowners'
Association is required to insure the building for its reproduction
cost. Therefore, the individual's insurance policy for the apartment
need not cover the entire value of the apartment, but only damages
to the interior of the apartment, its contents, and third party
liability. It is also advisable to insure the building at first
risk in case the Community insurance is not comprehensive. For a
villa with a reproduction value of €500,000/£357,000
with contents insured at €180,000/£128,600 the annual
insurance would be in the area of €1,550/£1107.
Gardeners
The upkeep of a private garden is essential to the
maintenance of your property and its cost will, of course, depend
on its size. As a rough guide, the hourly rate is about €14/£10.
A full-time gardener on salary would cost in the area of €1000/£715
per month, whilst a half-time salary would be in the area of €600/£430.
Apartments and townhouses have the communal garden areas tended
by a contracted gardener and the cost is included in your community
fees. A villa on a plot 2,500m2 might require a gardener a few hours
a week. A large parcel of a full acre or more may require a half
or full-time gardener. Social security is an additional cost to
full time wages and runs in the area of 40% of the salary.
Cleaning Service
Cleaning service is generally available on a full-time
salary or hourly basis. Full-time salaries range from €600/£428
to €800/£571 per month plus approximately €120/£85
per month social security contributions. Part time help is usually
charged by the hour with rates varying from €8 to €10
/ £5.7 to £7.15.
Electricity
Electricity is billed bimonthly. Minimum rates are
applicable whether you are in residence or not, and the minimum
varies according to the amount of electricity your house could potentially
use with all power and lights turned on. The minimum charge for
an apartment might be between €24 and €36 / £17
and £26 per month. Charges for a villa are from about €60
to €90 /£43 to £64 per month, depending largely
on the extent of the electrical installation. Usage is €0.08
/5.7pence per Kwh plus tax. With all the sunshine in Marbella, you
will nevertheless be using less lighting and heating than in a lot
of other countries!
Fixed-line telephone
The telephone bill is also charged bimonthly. Standard
rates vary according to the equipment installed, but can be in the
region of €18.50 / £13.21 per month including a touch
dial telephone. A 3 minute call (daytime business hours) to any
European Community country, direct dial, presently costs about €0.41
/30 pence (including VAT). There are many local and national telephone
companies that can offer substantial savings to those who wish to
spend some time studying the market., and ADSL broadband services
are available virtually anywhere.
Miscellaneous questions &
answers
Q: What if I want to buy a plot and
build my own home?
A. Providing that a building plot is situated within
an urbanization, or an area zoned within the Municipal Plan for
such use, outline planning permission will already have been granted
for the construction of a detached home. However, building regulations,
which vary considerably, dictate the permissible size of the villa
according to the size of the plot. Care should therefore be taken
before proceeding with the land purchase that one will be allowed
to construct one's chosen home on it. Panorama will be pleased to
provide a list of bilingual architects, and to arrange viewings
of some of their previous work.
Q: Are technical surveys available?
A. A building survey, as it is understood in the
U.K., is not necessary in Spain for mortgage purposes. It is nonetheless
advisable when purchasing an older property. Common things to check
for are the condition of the plumbing and electrical installations,
waterproofing, roofing, and so on. These checks, as well as a full
structural survey, can be carried out by a Spanish technical architect
(aparejador) or indeed by a qualified British Chartered Surveyor.
Any fees involved would be to the account of the prospective purchaser.
Q: Is financing available?
A: Spanish banks are highly competitive when offering
mortgages on both new properties and resale properties. It is now
common practice for most Spanish banks to offer mortgages to non-residents,
although some banks do offer a wider variety of financing packages
than others. Common terms offered are mortgages from 5 to 15 years,
often of up to 80% of the purchase price, at around 1 point over
current EUROBOR rates. The applicant must of course qualify for
the loan, especially from the standpoint of having sufficient income
to afford the monthly payments, and the bank must appraise the property
value. The appraised value, generally speaking, coincides with the
market value of the property.
Q: When I sell my property, may I remit
the proceeds of sale back to my own country?
A: A foreigner who is a non-resident of Spain has
the right to sell his property to another non-resident foreigner
entirely in foreign currency, with payment made outside of Spain.
It should be noted that, since 1997, a 5% tax retention is effected
by the tax authorities upon the sale of any property owned by a
non-resident vendor, which is applied towards the capital gains
tax (currently 35%). The profit on the sale is reduced by a small
percentage for each year of ownership in compensation for inflation.
If the amount withheld is greater than the tax due, it can be reclaimed
in part from the tax office. Those sellers today who have owned
their property prior to 1986 currently pay no capital gains tax
on a sale.
Q: Who pays estate agency fees in the
sale of a property?
A: The seller always pays agency fees, unless you
come up with a different agreement with your agency. Although the
seller remunerates his agency, the agent has an ethical obligation
to see that the purchaser gets fair value for money, and at the
end of the day, a good agent's job is to bring the buyer and seller
together in harmony. This highlights the importance of working with
an established estate agency with a strong reputation. The agency
also has an obligation to see that the title deed to the property
is passed free of all liens and encumbrances. Panorama provides
an exceptional after-sales "settling-in" service for its
clients, totally free of charge, as part of general company policy.
Q: How will I deal with standard
bills, e.g. electricity, water, telephone, rates, etc.?
A: Frequently the administrator for the Community
of Homeowners will settle these bills, but, if not, it is common
practice in Spain to issue standing instructions to your bank to
pay them on your behalf.
Q: What is an urbanization?
A: An urbanization is a planned community which
has met the standards of the various governmental agencies with
respect of the use of the land (residential, commercial, sports
area, green zones), and to providing a specific set of services
and a minimum level of quality in the construction of roads, sidewalks,
drainage, sewage systems, electricity and water installations, and
so on. Obtaining permission to develop land into an urbanization
can take a developer up to several years and several million euros
of expense. The most obvious advantage to the owner of a property
within an urbanization is the fact that the land usage is strictly
controlled. If one decides to build a house on a plot in a section
of an urbanization zoned exclusively for single family dwellings,
you are assured by law that neither an apartment block nor a rabbit
farm can be located on the adjacent single family plot!
There are several zoning classifications for rural
land outside of urbanizations. Marbella is in the process of updating
its master plan, and great care should be exercised in purchasing
land outside of an urbanization: under most circumstances, one may
not be able to build upon land which is not within an urbanization.
Q: What about taxes?
A: In addition to the annual Impuesto sobre Bienes
Inmuebles or IBI (the equivalent of Rates) paid on all property
to the Town Hall, non-residents must pay a WEALTH TAX (impuesto
de patrimonio) on their assets in Spain. The amount of tax is determined
based on the individual wealth. The cost price of the property is
usually the basis for the calculation of the tax.
Non residents are wise to appoint a fiscal representative
to handle all tax matters relating to ones assets in Spain. Official
notifications regarding your property will be delivered to your
fiscal representative, which is highly advantageous to the foreign
owner as it protects an owner from having his or her assets repossessed
by the Inland Revenue due to non-payment of taxes, for example.
In previous years, there were cases of non-residents coming to Spain
only to find their properties had been embargoed and even sold over,
all due to the fact that the owner had been officially notified
at a local address and found to be absent! To contract a fiscal
representative one need look no further than one's own lawyer who
will refer you to his own tax consultant.
Non residents who use their property themselves must also file for
Income Tax and must pay tax for any income received in Spain at
the flat rate of 25% (including real estate rental income) even
if the income was received abroad. Every non-resident is assessed
on income tax even if there is no real income (on the theory of
derived benefit) at 25% of 2% (or ½%) of the rateable value
of the property value (valor catastral), which is generally a fraction
of a property's market value. This tax is not applicable if the
owner is leasing the property to third parties, but it is applicable
with respect to the rental income received, which is taxable at
25%.
Upon the sale of real estate (when the seller is
a non-resident), there is an automatic tax retention of 5% of the
sales price, payable against a 35% capital gains tax. If the seller
is a resident in Spain, with residency permit issued six months
or more, there is a flat rate of 15% capital gains tax if the property
has been owned 1 year or more, adjusted to compensate for inflation.
RESIDENTS in Spain must of course file Income Tax
and declare the income they receive regardless of source. For tax
purposes, one is considered a FISCAL RESIDENT if one resides in
Spain over 183 days per calendar year, regardless of whether one
is officially resident or not.
Q: How long can I stay in Spain as a tourist?
A: Europeans from the E.U. can stay in Spain indefinitely.
Visas are not required for some other countries such as the United
States, but are still required in other cases, depending on one's
country of origin, and with varying lengths of stay permitted.
Q: Where can I send my children to school?
A. There are several international schools in the
area, including one in the Sotogrande area which provides weekly
boarding facilities. Pupils are taught in English, and a choice
of curriculum is offered between G.C.S.E.s and A-Levels, and the
International Baccalaureate, the latter placing an emphasis on course
work over exam results. For further information, check out the below
e-mail addresses:
Spanish state schools are based on the Baccalaureate
system. Any pupil whose year's work is considered to be inadequate
is relegated to stay in the same class for a further year and repeat
the curriculum. In general, very good results are achieved, with
a high percentage of pupils going on to University. However, as
all classes are naturally conducted in Spanish, the age at which
a child can be expected to cope with a change of language and of
curriculum should be taken into account. The younger the child,
the easier they will pick up the language. Most under-12s can become
fluent in Spanish in 3 or 4 months.
Q: Are there medical and health insurance facilities?
A: Marbella has the newest, most modern and well-equipped
Regional Hospital in Spain (Hospital Costa del Sol), in addition
to a good, well-equipped Clinic with a substantial selection of
general practitioners and specialists.
Private medical insurance is available through various
groups such as SANITAS. This can cost about €65/£46 per
person per month, depending on their age and the state of their
health. Spain's social security system now allows E.U. residents
access to the health network via a special form (E-101). For residents
who are self-employed, own a company, or are employees, your social
security contributions automatically entitle access to the Spanish
health network.
Notes:
Panorama considers the above information to
be current and accurate at the time of writing, but it is nevertheless
by its very nature abbreviated and intended to serve only as a
guide and subject to errors or omissions.
Panorama always recommends purchasers or sellers
of property to consult qualified Lawyers and Tax Advisors.
The exchange rate used in the above figures is
71.5 pence to 1 Euro (€1.40 to the pound).
By Christopher Clover, Managing Director of Panorama,
Marbella's longest established Real Estate Agency.
Real
Estate Agents & Property Developer
Panorama
Market Leaders in Quality Marbella Properties
since 1970, four generations of Real Estate Professionals
since 1904.
