Buyers guide
Companies or parties that do not have residency papers in Spain do not have a legal entitlement to sell property. Before entering into negotiation ask to see an agents registration papers, this will include their license number and will provide more information regarding the agent. It is advisable to engage an English speaking Spanish solicitor. Make sure the solicitor has indemnity insurance to cover possible negligence or fraud. If you purchase a property in Spain, seriously consider making a Spanish Will. This can be drawn up by a notary and avoids the cost and complication of having a British Will imported, translated and registered at a later date.
Before considering placing a deposit on a particular property you must see, at the very least, the following three documents: The sellers own title, Escritura Publica. The Nota Simple, a property registry note, a paid-up IBI receipt, or Valor Catastral, this ensures that the taxes on the property are paid. A plan of the property including the area occupied by the property, which gives the exact specifications regarding the building and the land attached to it.
Choosing the area. Location is very important. Stay in the area for several weeks. The cheapest property is not necessarily the best buy. Consider rental or investment potential. Set a price limit. Do not look at properties out of your price range. Add 10% to the price to cover taxes and fees. 7% VAT on new properties or 6% transfer tax on secondhand properties. 1% legal fees.
Deposits, Deeds & Contracts
Deposit. Having found your property, the first step is to pay a holding deposit, £1,000 - £2,000, this removes the property from the market. This sum is usually lodged to your solicitor's client account. Your solicitor should ensure the property has no debts attached and is correctly registered.
Contracts. The purchase contract is the private contract between vendor and purchaser and is binding on both parties. It is usually drawn up between 2 and 3 weeks after the holding deposit has been put down. It should specify the name of the purchaser, the completion date and the terms and conditions governing the sale. At this point the balance of the deposit, usually 10% of the purchase price, has to be paid.
Signing deeds. This is done in front of the Notary. http://www.notariado.org/english/intro.htm The Notary, a lawyer appointed by the Spanish government to ensure the change of title is properly executed. It is his job to make sure the seller is legally entitled to sell and the taxes are paid. The notary will register the change of ownership in the land registry office, this in turn is registered at the central registry of foreign investments in Madrid. The local land registry office is where all the escrituras, the freehold title deeds, relating to property transfers are recorded after the taxes have been paid. These documents are available for public inspection.
Full payment is required before the title deed can be transferred into the name of the owner. Spanish inheritance taxes are high, consider including the names of any children who would inherit.
Taking possession of the property and the keys will normally take place only when the full purchase price has been paid. Connect or transfer services, electricity and water need to be in your name.
Property Taxes & Fees
Charges and taxes. There are certain periodic payments which have to be made. Your solicitor will usually be willing to look after these matters, but you can appoint a Gestor, fiscal representative, to make the necessary payments and take care of whatever paperwork is involved. Local rates are paid to the town hall, Ayuntamiento. You need to obtain a fiscal number from the local tax administration office.
Community fees. If you purchase a property within an apartment block or complex, you are obliged to join its residents association. The association administers the general maintenance of the areas of common ownership, such as gardens, hallways, lifts, swimming pools, exterior lighting etc. An annual budget is calculated to cover these costs. The costs are divided between all the owners according to the size of their properties. All owners have a vote to agree the budget at the annual general meeting.
Patrimonio tax. This is wealth tax, calculated at 0.2% of the declared value of the property and is payable each year by nonresidents.
Impuesto de la renta. An annual tax payable by nonresidents, based on the estimated value of the property on the assumption the property is rented out, whether it is or not. The amount is approximately 0.5% of the property value.
Plusvalia tax. A one off tax on the sale of a property, calculated on the appreciative value of the land the property is on and varies between towns. It is common for this tax to be paid by the purchaser.
The Escritura. These are the freehold title deeds, which are presented before the Notary, showing ownership of the property.
Guarantees. Spanish law states that all new properties must be guaranteed for 10 years, the architect and the builder being legally responsible. Most new developments also include a bank bond within the terms of their contract, guaranteeing each stage-payment and frequently a no-later-than completion date.
Permanent residence and tax implications
Most people choose to use their property under tourist status, meaning their main place of residence is still the UK, this means they will still be liable for UK taxes on their income and worldwide assets. This situation can continue providing the person or persons are not in Spain for more than 182 days per year.
The emigrant and expatriate are usually hoping to cease to be both resident and ordinarily resident in the UK to avoid UK income tax and capital gains tax on their worldwide income and capital gains. To succeed one has to understand the meaning of the term resident and ordinary resident. Resident in the UK has a very wide meaning. A tax year starts on the 6th April and ends on the following 5th April. As a general rule, an individual will be in the UK in a particular year if; he lives in the UK for more than six months in that year or he lives in the UK for more than three months on average over four consecutive tax years or he visits the UK even just for a few minutes and has accommodation available in the UK for his use. Available does not mean the individual owns residential accommodation. Nor does it imply a legal right of occupancy - merely having a place set aside for use could be sufficient. A house, which you own, but is commercially let, is not available accommodation. Not using available accommodation on a particular visit is irrelevant. Simply setting foot in the UK can trigger residence for tax purposes.
The above rules may be overridden by double taxation agreements where the individual is resident in the UK and in another country. There is an exception where an individual is engaged overseas full-time in a trade or profession, vocation, office or employment, provided that no part of its duties are carried out in the UK, with minor exceptions, in the case of company employees. Such an individual will be nonresident even though he has a property available to him in the UK. This exception covers a person working in a self-employed capacity so long as the activities are genuinely full-time i.e. the number of hours worked are similar to those of a national of the country of residence with a full-time business or employment. It is important to note that such an individual must be either;1) Working full-time in a trade, profession or vocation and no part of the trade must be carried out in the UK.2) Working full-time in employment overseas and any duties performed in the UK are merely incidental to the overseas duties. In such a case having available accommodation will not be a factor in determining your residence status. However, the Inland Revenue take a harsh line on the definition of merely incidental duties and the more senior the employee the harder it is to establish the UK duties are merely incidental. Visiting the UK to report to your boss is usually regarded as incidental. The Inland Revenue, however, does not regard attending a board meeting, as incidental.
A husband and wife are looked at separately. Thus it is possible for the husband to be nonresident whilst the wife is a UK resident. For example, if the husband is in genuine full-time employment overseas he will be regarded as nonresident. On the other hand, his wife, if she is not employed overseas will be a UK resident and therefore liable for tax on her income, even though she is living with him, if the couple have use of the family property in the UK and she spends a few minutes in the UK with him, the husbands non-residence status could be in question. It is important to keep a detailed record of all your time spent in each country, showing dates of arrival and departure, and places stayed at. This could be all-important evidence in the event of a dispute.
Typical double tax treaty for normal residence. Usually this has a tiebreaker clause that comes into operation if you are a resident in both the UK under our rules and in the other country under theirs. The purpose is to determine in which country you will be regarded as resident for the purpose of taxes covered by the agreement, it cannot be both. The agreement often works as follows if you are resident in both countries according to each country rules; You are deemed to be resident in the country you have a permanent home available for you. If you have a permanent home available in both countries, then; You are deemed to be resident in the country with which your personal and economic relations are the closest. If this test is indeterminate, then; You are deemed to be resident in the country in which you have habitual abode, but if you have one in both countries, then; You are deemed to be resident in the country of which you are a national. UK nationals will at this point be regarded as UK residents.
British Registered Car & Driver's Licence
A British registered car can be used and kept permanently in Spain providing you;
Once Spanish residence applies a Spanish plated car must be purchased and used in Spain. A European Union driving licence issued in the UK, is effectively a British driving licence giving you the right to use it across Europe, normally without the complication of further documentation. This can be used without change if tourist status applies. However, should you take out a Spanish residence permit, you will need to register your licence in Spain. As you are now resident, just as in the UK, your licence requires to be recorded on the computer bank in case of traffic accidents or traffic violations and so a new licence can be issued in Spain, should it become lost or stolen. The Royal Automobile Club of Spain recommends residence holders to consider exchanging to a Spanish licence. The exchange called "canje" is quite straightforward, you need to present one photo of yourself, your residence permit and present your driving licence together with the necessary completed forms. Should you ever return to the UK it is equally as simple to effect the reversal once you have entered the country.
Important Notice
Due to new directives constantly being issued by the European Union Commission, this guide has no contractual value and is offered in good faith as a guideline only.
Terms and conditions governing property purchase in Spain are subject to periodic changes. All points of information included in this guide are intended as guidance only.
If you have any comments or experiences you wish to pass on, email, houseinspainuk@yahoo.co.uk