• Buying the property

The different type of properties will require different type of legal advice. We are going to review the following types of property and some taxes, mainly those affecting non residents.

Buying property off plan

From several points of views, this is one of the most complicated transactions: you purchase a property that you cannot see, you are paying to the promoters when the construction has not even started in many cases, etc.
When making a deposit, we recommend you to know:
1) the vendors, promoters with all their details
2) that there is a building license
3) all the plans: the property plan and drawing and the location plan for the whole project, urbanisation or block in order to know exactly the situation of your apartment.
4) The description of the property as detailed as possible, including the garage and store room if these are also going to be part of the purchase.
5) The square metres of the property, excluding common areas. The square metres of terraces, porches, patios…
6) The specifications, materials, quality, finishing, kitchen, equipments, etc.7) The price, way of payment during the construction and VAT.
8) The details of the mortgage if you can take over a mortgage arranged with the promoter. (bank, interest, period and rest of the conditions, including any commission or charges)
9) The special bank account where your payments will be made to the promoters
10) The guarantee that you will be given for your payments in advance
11) The date of finalisation
12) A quote for any change or modification that you wish to make in the property.
13) The date of finalisation and delivery of the property and the penalties for the promoters in case that the property is not finalised on time.
14) The interests or penalty that the promoters impose on you in case of the delay in any of the payments.
15) When the property is inside a golf course or gardens with pool, etc, the date of finalisation of the rest of the areas.

All the above would also be checked carefully by your lawyer. The lawyer would also check the vendor and promoter’s companies, the land, in order to check any previous liabilities or charges. Special attention will be given to the guarantee of your payments in advance.
Listen to your lawyer and follow the legal advice, especially in these kinds of properties. Make sure that your lawyer is not the same lawyer engaged by the promoters. Some experience and expertise are required to deal with properties under construction.

Buying second hand property.

The advantage of buying a second hand property is that you can see what you are buying; you can check it and make a survey on it if you wish before buying.
Your experienced estate agent will give you valuable advice when the property is shown to you. Good estate agents will show you the property and let you know about the area, the construction, the facilities, the transport, and the schooling possibilities for your children and what’s more important, all the details of the house that you need to know.
The legal process is simpler than the previous one, but it also requires expertise, knowledge and experience. When you see a property that you finally want to buy, you normally sign a contract whereby you pay a deposit, between 5 to 10% of the total price, when your lawyer has checked the property and documents and they are in order. You will then have a period of time, depending on what has been agreed between the parties, to pay the rest of the money and receive the property.
It is usual and advisable that completion takes place with a notary public in Spain so that the contract is notarised with legal effects for the public and your title will be strongly protected once it has been registered within the land registry.
Our legal system provides a number of guarantees to the purchaser and it is important to take advantage of all of them. Your process to buy the property will be finished when the public deed of purchase (“Escritura de compraventa”) has been registered in the land registry. The completion of the deed of purchase is equivalent to the delivery of the property.
Problems affecting the previous title or affecting the property in any way, should be solved before buying the property.

Buying a plot of land

This is also a complex transaction, especially nowadays with all the changes in the town halls around the coast. The difficulty depends on the type of the plot that you want to buy and again, the expertise and experience of the lawyer would be needed.
When you buy a plot in an “urban” complex with a building “project” already approved, it is important to make sure that the building license is protected against any change in the town hall or in the Community Government (Junta de Andalucía).
If you wish to buy a plot in the countryside, probably in the “middle of nowhere”, you should know in advance the possibilities of construction, if any, and other important matters like how viable it is to have water and electricity there. A report carried out by a specialist would be really useful.
It would also be important to engage a topographer in order to know exactly the extension of the plot and its boundaries as the only way to be completely sure. Normally the descriptions stated in the land registry are old and have never been updated.

• How to buy your property?

Spain should be now considered as “high tax country”. We are far away from the old days where taxes were almost non existent in Spain.
Spain has not only caught up with the rest of the European countries, but it is today one of the most expensive countries in terms of taxes.
As said at the beginning of this article, the estate planning should start before you buy a property either if you are going to retire in Spain or it is just an investment or a holiday home.
Some tips depending on your plans would be as follows:
• If you are going to become resident in Spain:
Apply for your residency first and become a legal and tax resident. If you do not intend to buy your house immediately, you may start saving some money in a special bank account that you will only use for buying your house in the future. This would have beneficial tax treatment in your income tax declaration.
Once you have become resident, you may buy your house which will be your main home. You will benefit of some tax deductions when making your income tax return as long as you keep all the invoices, bills and taxes paid on your property purchase.
A mortgage in your house might also be beneficial in order to enjoy some other tax advantages.
Finally, if after you have bought your property, you think that it might not be the ideal house, you may wish to wait for three years before selling and buying again so that you will be able to obtain a tax exemption for reinvesting the money in your next main home.
Reducing taxes is always possible when you make your plans in advance, carefully and having a good legal and tax advisor.
• If you just want to buy your holiday home:
It is also important to know how you are going to buy your property. There are several choices that you should be aware of before taking the step. Your choice will depend on your family situation, economic circumstances, professional situation, your tax residency, and some other factors.
Normally you and your partner or spouse will buy the property in joint names. But you can also include your children in the deed of purchase, you can buy the property with your already existing “foreign” company, you can buy it with a Spanish company or finally with a more sophisticated structure consisting in an offshore company with Spanish company.
I should insist that all the choices above should be considered before making the investment in Spain.
For example, if you are over 65, you may wish to include your children in the deed and therefore save some inheritance taxes for them in the future. This is a personal matter and only you should make the decision, but always important to know that you can do so, the way to do it and the advantages of doing so.
If your intention is to buy several properties to rent them out and obtain an income, you may think about the possibility of setting up a Spanish company as they have some good tax advantages. You would not enjoy any tax advantages if you buy the property as a non resident individual.
Even the use of an offshore company would be advisable if you buy a plot of land considered as “rustic” for tax purposes, because the annual tax is based on the assessed value and normally the value for tax purposes is extremely low for these types of properties.
If you have an existing holding company in your country and your country has a double tax treaty with Spain, why not consider buying the property with your own company?
And finally we have more complex structures for “expensive” properties and when there are certain circumstances. An offshore company combined with a Spanish company can be recommended only when the costs of such a structure are worth it.
Once again I should insist that the right time to go for one way or another should be before buying the property. Any change that you make afterwards is always difficult and extremely expensive.
How many times I have heard the expression …”if I had known this before”…

When asking for a mortgage in Spain, please think that our banking system is completely different to your country banking system. A Spanish bank may require some financial information, an accountant’s statement, and some other documentation and information. A Spanish bank normally requires that you also provide a personal guarantee.
A mortgage given by a Spanish bank is made by a notarised deed, the deed of mortgage, which normally is signed at the same time when you complete the purchase of your property with a notary public. Both deeds, the deed of purchase and the deed of mortgage are registered in the land registry and there will be a land charge until the deed of mortgage is removed by another public deed, normally when you have finalised repaying the loan to the bank.
Conditions as interest and how and when it is revised, arrangement commissions, early repayment commission, period, compulsory insurances, etc are important to know beforehand.
You pay stamp duty on the mortgage, plus notary and land registry fees.
It is important to know that a mortgage reduces the wealth tax and the Inheritance tax as both taxes, as hereinafter explained, and are based on the net value of the assets.

• The costs for buying property

Normally they depend on the type of property. If you have arranged a mortgage the total costs will increased.
In most of the property purchase guides, you can see that the costs are approximately 10-11% of the total price of the property, but the actual amount may vary from one case to another.
If it is a property off plan, bought from the developer, you will pay 7% VAT plus 1% stamp duty. Notary and registry fees are set in accordance to the price of the property. Legal fees are normally 1%-1,5%, but they might be higher for complicated property purchases like property on plan.
A second hand property is not subject to vat but the transfer tax or stamp duty is 7% of the total price.When buying a plot, you pay 16% vat plus 1% stamp duty.
When buying a garage or store room in your block you will pay 7% when you buy them together with your apartment or house. If you buy them afterwards, the vat is 16%.
If you buy commercial premises, you always pay 16% vat.
Sometimes you are also required to pay a municipal tax which is known as “plusvalia”. In order to calculate this tax you have to know when the land or the property was bought and the increase of the value of the land in accordance to the Town Hall.