Foreigners buying property in Spain is becoming very popular. Since 2008, housing prices have fallen dramatically in Spain, which is why foreigners are very fond of the Spanish property market.
Why not take this opportunity to own a property on the other side of the Pyrenees? Find in this section all the things you need to know when buying a property in Spain.
Step 1: Getting a NIE number
If you want to buy a property in Spain, first of all, you will need to apply for a NIE number (foreigner’s identification number). The NIE is the identification number given to each non-Spanish resident. European citizens as non-European receive an NIE number consisting of the letter “X” or “Y” and a series of 8 digits.
To apply for a NIE number, you will have to go through Spanish administrative services and several documents must be filled in and completed in Spain. You may have to keep going back and forwards and documentary evidence which proves the need for a Foreigner Identification Number is required.
In order to avoid several visits to Spain and administrative formalities which can be complex, TAS Consultoria can help you with your NIE number and all the necessary steps to obtain it. Given our experience and presence in Barcelona, TAS Consultoria usually manages to get your NIE in one day.
Step 2: Be sure to check the documents of the property
If you decide to purchase a property, it is imperative that you ask the seller some documents to certify the legality of the home before selling it; such as building permits, a property registration certificate, the license of first occupancy, the residence certificate, administrative authorization permissions, and electricity, gas and water bills.
The Spanish Government advises to claim the latest tax records on real estate properties, a formal confirmation and an official document showing that the house is not for rent. It is also recommended to check the status of the property with the Housing Registry Office, a state agency whose officials will inform you (free of charge) and provide the documents requested through the website. Finally, it is essential to study the mortgage privileges by contacting the bank and to seek the necessary advice from a lawyer. Of course, once you own a home in Spain, it is up to you to take the necessary steps to register at the Registry Office.
Step 3. Sales agreement
Once an ideal property has been chosen, the first thing you need to do is make a verbal offer. Once the parties have passed a verbal agreement, the next step will be to formalize the terms of conditions of the offer by writing a sales agreement.
The sales agreement is rarely signed by the notary in Spain. However, although this agreement is a private deed, it is a law between the parties and it will be very difficult (unless otherwise agreed by the seller) to reconsider its terms at the time of the reiteration of sale by the notary. When signing the agreement, you must be vigilant while negotiating and writing closing conditions (obtaining a loan, purge easements or charges on the property…)
There is no law regarding reservation fees but they usually amount to 10% of the sale price of the property. The payment of the booking deposit ensures that the property is off the market and is reserved for you at the agreed price. It is important to determine the method of payment of the 10 %. Cheques in Spain are often non-existent and a lot of the time the estate agency will ask you to pay in cash. It is advisable to pay only by bank cheque or get an escrow deposit on a notary’s account, however this is a very unusual practice in Spain but it is not impossible. It is a little more complicated and a long process, but it is sometimes necessary to do so to safeguard the best interests of the purchasers.
Step 4. Private contract
Upon acceptance of the offer by the owner, the next step of the process is to sign a purchase option agreement. This usually occurs within two weeks after the formal acceptance of the offer.
The professional firm that you are working with would complete its research and investigation on the property and would organize, with the seller of the property, the procedure for debt cancellation. It is essential to know that the Spanish notaries have by no means the same role as the French notaries who carry out all legal and planning checks on the property before the sale. These checks in Spain must be carried out upstream by the buyer or by the professional firm that will ensure that legal, administrative and national regional and local building regulations have been complied with.
The private contract of sale will contain all the terms and conditions of the offer and sale and will indicate in particular the date of execution of the deed before a notary. At this point of the negotiations, the buyer usually makes a deposit of 10 % of the purchase price which is not refundable.
It is also common to ignore this step and skip the deed if the buyer has the money and is not dependent on a mortgage.
TAS Consultoria, consulting and accounting expertise, can advise and support you in these legal proceedings and revise the contract of sale.
Step 5. The deed
A sale is formally completed in Spain when the deed of purchase is signed by a notary, when the final payment is made and when possession is given to the buyer. The appointed day, the buyer and the seller (or their agents) will go to the notary to sign the deed of purchase and sale called “Escritura of Compraventa”. It is at this point that the payment of the remaining balance (90%) is made and possession is given to the buyer with the handing over of the keys.
Once this deed has been signed, the notary will fax a copy of this act to the local land registry. The professional firm you are working with will organize the payment of assignment fees related to the purchase and will take care of the registration formalities to register the title of ownership. It takes up to two months for the final registration of your title to be made. Similarly, your professional firm will do all the necessary to manage the transfer of accounts with the local utility providers such as water supply and electricity and will organize their payment through a local bank.
Step 6. Tax on capital transfer of property
Once the purchase has been officially made, you will need to pay tax on capital transfer of property called “Impuesto sobre Transmisiones Patrimoniales” in case the property is not new. This tax is between 8 and 10% of the sale price. In the event that the property is new, you will then have to pay VAT called “IVA” in Spain and which is amounted to 10 %.
Step 7. Charges and taxes
- Property tax “IBI”
In terms of expenses and taxes that you will have to pay, what are they? If you decide to buy an apartment in Spain, you will have to pay annual property tax called “IBI” in Spain. This tax is paid annually and is calculated on the basis of cadastral valuation or taxable value of the land assigned by the Spanish tax authorities. Cadastral valuation reflects the value of the land plus the value of the construction according to the type, location and use.
- Community charges
You will have to pay monthly community charges which generally include caretaker salary, community garden maintenance, lift maintenance, repairs of community elements, garbage collection, water for irrigation of the community’s garden, electricity for lighting communal areas, insurance, security and management fees. In general, the Community Property is a legal entity formed exclusively by the owners of building apartments or houses in a subdivision. The purpose of the Community is to ensure the maintenance of common elements owned in the apartment or subdivision in question, each owner is required to participate in the expenses incurred in the maintenance areas and community services under a proportional arrangement between different owners. The percentage of costs attributable to an owner is usually set according to the size of the apartment or land, compared to the total area of all apartments and land. The budget for annual community fees is at the annual general meeting of owners, who, in person or by their authorized representatives will have to approve the budget by a majority vote of those attending the meeting. Spanish law requires that the President of the Community is the owner of a property in the same complex and is elected by vote by the other owners. The President receives no compensation for this role.
It is important to underline that in an apartment bloc, the Community of Owners should insure the building to its replacement value. The individual insurance policy of the apartment should therefore not ensure the full value of the apartment; if only damage inside the apartment, its contents and third party liability. It is also advisable to ensure the building at first loss in case the Community has not combined insurance.
- Income Tax in Spain
You will also have to pay an annual tax on income in Spain, whether you are a Spanish resident or a non Spanish resident. “Non-resident owners of real estate properties in Spain must present the Income Tax for Non Residents (IRNR) because they must declare the obtained rents from their property.” There are two types of charges regarding rents of real estate:
- Rent obtained from the rental of real estate: 24% on income obtained from the letting of the property (income minus expenses).
- Tax on real estate rents derived from personal use of real estate property: 24% on 1.1% of the cadastral value of the property.
In case you are a Spanish resident, you must present your Individual Income Tax Return (IRPF) and declare your income, regardless of their source. Fiscally speaking, if a person resides in Spain for more than 183 days a year, they are considered a resident, although they are not officially.
- Tax on capital gains and retentions
Tax on capital gains for non-residents is fixed at 21 % for 2012 and 2013, allocated on the profits made from the difference in the value of the property between the year of purchase (purchase price plus costs) and the year of sale (sale price minus the costs). Tax on capital gains for residents for 2012 and 2013 is fixed at 21 % on a first part of 6,000€ profit, at 25 % on amounts between 6,001€ and 24,000€ profit, and 27% on amounts from 24,001€ profit.
Regarding the sale of real estate belonging to tax residents in Spain, where the real property is the standard home, the funds received from the sale may be intended for the purchase of another standard residence during the two years before and after the sale of the first house. If the total amount of the sale is reinvested in the new house, the tax received for the sale of the former home will be totally exonerated. However, if only one part of the amount received for the previous sale is reinvested, the tax liability will be reduced in proportion to the amount actually reinvested.
Under the new law, all non- resident sellers, regardless of the date on which they had acquired real estates, are subject to a retention of 3% of the sale price, which is paid to the tax authorities by the buyer on behalf of the seller, which is applied against the tax on capital gains from the seller.
- Learn to differentiate built square meters and real square meters
You should know that in Spain there is a difference between built square meters and actual square meters. We advise you to check the actual square meters of the property you want to buy because there are often misunderstandings. A Spanish seller will argue that the size of the property is 60 square meters house built, whereas in reality it is 48 square meters.
- Using professional services
While it is true that using a professional firm in your project is adding additional costs to investment costs (taxes, notary, registry, etc. . ), it is also an important security in order to avoid waste of time and money. TAS Consultoria, a consulting and accounting expertise firm in Barcelona, advises you and assists you in every step of your property purchase in Spain. Our legal experts will be at your side in the negotiation of the contract and will be responsible for reviewing the sales contract. Discover our real estate coaching and consulting services with our real estate package and do not hesitate to contact us either by telephone at +34 93 159 24 77 or by email : firstname.lastname@example.org.