Legal Guides

Easy Guide to Buying Property in Spain
Taxes
Mortgages

Easy Guide to Buying Property in Spain Back to Top

Once you have found a property you wish to buy, it is essential for you to sign a preliminary sales contract with the seller, and paying a reservation deposit of between 3.000 € and 6.000 €. This contract is proof that the property has come off the market, and that you are able to buy it.

Once the property is reserved in your name with a preliminary sales contract, we usually have between 15 and 30 days to gather information on the property regarding land register and legal issues. This is necessary in order to verify whether the title deeds for the property are satisfactory, and whether the person selling the property is authorised to transfer their ownership. We also carry out an exhaustive check in order to guarantee that the property is also free from any pending charges, mortgages or debts. If there are any pending charges on the property, we will take the appropriate measures to ensure it is completely settled before the legal ownership of the property is transferred to the buyer.
If you are buying a plot of land, a survey of the land can be carried out, in order to obtain its exact measurements and to identify its borders. This study will include details on whether the land has been classed as buildable, on its access points and on its surface. Likewise, it will provide information on the different building possibilities and on the buildable area, including a detailed plan that will form part of your final title deed.

If we are dealing with properties in building phase, we will ensure that the developer has all appropriate legal permits: building license, land survey (an independent surveyor will check that the foundations designed by the architect are adequate for the type of soil,) an independent check of all building works by specialists and, finally, the ten-year warranty (similar to the British N.H.B.C.).

In the case of developments, we will obtain the necessary bank guarantees to protect your payments, should the developers fail to comply with any of their obligations.

Should our checks unveil any legal obstacles which affect the buying process, our firm will advise you in writing not to continue the process, and will ensure that the initial deposit you paid is returned in full by the selling party.

In any case, and as part of our process, we will run checks on the reputation and solvency of the builders/developers, obtaining guarantees that the property will be built and handed over in the terms and conditions established.

Once the checks on the property have been made, and after guaranteeing that the legal situation of the property allows the sale to take place, you can sign the so-called Contrato Privado (Private Contract).
The Private Contract is an important document containing information on the buyer and the seller, the description of the property on the land register, the price of the sale, the method of payment, the date the contract is formalised, the date you take possession of the property, etc.
Once both parties have signed the Private Contract and the deposit has been paid – usually 10% of the price of the property minus the reservation deposit-, the contract becomes a legally binding document. This deposit can be up to 30% in the case of “off plan” properties.

The property sale process is finalised before a Notary, with the buyer and seller signing the Deed of Sale. The Notary is a public official. His or her duty consists in identifying the buyer and the seller, and ensuring that all legal requirements have been met, and that the amount due to be paid has been settled.
If you are unable to be present in the finalising of the deeds, we take care of it by means of a power of attorney, which means we can carry out all necessary procedures in your name. In fact, and for our client’s ease of mind, it is common practice at our company to have a valid power of attorney at the beginning of all buying and/or selling operations.

TAKING POSSESSION AND HANDING OVER OF KEYS

Immediately after the deeds have been signed, the buyer is handed the property keys, and can take possession of the property.

FINAL TITLE DEEDS AND PROPERTY REGISTRATION

The property registration procedure entails the payment of all the taxes applicable to the property and the obtention of the final register stamp for the Title Deeds, which guarantees the transfer of the property. This procedure may take two to three months, depending on the Property Register, though we take care of the entire procedure, informing you when the Title Deeds have been processed before the Property Register and are at your disposal. This procedure is an important step, and takes place just after you have taken possession of your property.

UTILITIES

Immediately after the sale has been finalised, we take care of ensuring all the property’s utility contracts (electricity, water, rubbish collection, etc.) are under your name. We will also arrange all your bills to be paid by direct debit to your account.

COLLECTING DOCUMENTS

Once the Property Register has returned the Title Deeds, which could take up to three months, we will arrange the best time for you to collect it from our offices, together with the rest of documents you must keep (N.I.E. –Spanish ID no. for Foreigners-, Title Deeds, Insurance Policy, etc.).

Taxes Back to Top

The purchase of a property in Spain involves - both for residents and non-residents - a series of fiscal obligations which must be met:

TAXES ON CONVEYANCE OF ASSETS AND DOCUMENTED LEGAL PROCEDURES (ITP-AJD in its Spanish acronym) AND/OR IVA (Spanish equivalent to VAT):

The IVA tax (equivalent to British VAT) is applicable to the purchase of newly built properties and urban plots which are immediately available for building. It amounts to 7% of the purchase price to the purchase of newly built properties, and 16% to purchase of urban plots which are immediately available for building. This tax must be paid on each instalment. In addition, the obtention of the title deed is also subject to Taxes on Conveyance of Assets and Documented Legal Procedures, 1%.
It is necessary to pay the ITP-AJD taxes (taxes on Conveyance of Assets and Documented Legal Procedures), when IVA (Spanish VAT) is not applicable. The rate of ITP is 7% of the property purchase price.

Remember the costs associated to a property sale transaction are normally 10% of the purchase price, and one of the mentioned taxes is included in this 10%.

TAX ON REAL ESTATE (IBI in its Spanish acronym)

The IBI tax must be paid every year, in one payment to be made between September 15 and November 15. Failure to pay this tax may result in the initiation of sanction procedures. We can ensure this payment is made by direct debit from your Spanish bank account, so you can rest assured you will not encounter any problems.

WEALTH TAX

If you are not resident in Spain, you must pay Wealth Tax (in Spanish, Impuesto sobre el Patrimonio), which is applicable to all the assets you have in Spain. Among these assets are real estate, bank accounts and other goods of a certain value. The rate of this tax is very low, usually around 0.20% (one fifth of a percentage point) of the total value of your assets.

PROPERTY INCOME TAX

Non-residents who own properties in Spain must file their tax return with the tax authorities. Spanish authorities are only interested in the amount earned by non-residents through their activities in Spain, rather than their global income. Non-residents must pay a single tax rate on any income generated in Spain.

A typical example is the interests generated by deposits in accounts held in Spanish banks or the income obtained from renting properties. Any person who owns a property in Spain, but is not resident there the entire year, should designate a “fiscal representative” who will carry out all the procedures necessary before the tax authorities. We also offer this service.

CAPITAL GAINS TAX

Capital gains tax is payable based upon the increase between the original purchase price of a property and the selling price. This tax applies to the seller is levied at 35% to non-residents. Anyone purchasing a property from a non-resident must withhold 5% of the purchase price which is then paid to the tax authorities on account of any liability by the vendors.

The vendor then has around two months in which to pay the Agencia Tributaria (spanish tax authorities) the rest of this tax. However, there are factors that can be taken into consideration to reduce the amount paid such as the costs incurred with the original purchase, and time elapsed between the initial parchase and the new sale etc. We can assist you in this area.

Mortgages Back to Top

In Spain it is possible for foreigners and non-residents to obtain a mortgage. In our firm, and from our specialised department, we can help you find and choose the mortgage option most suited to your needs.

REQUIREMENTS

Obtaining a mortgage in these cases – as is the case with residents in Spain- entails meeting a series of requirements related to the client’s ability to meet payments, as well as to the value of the property that he or she wants to purchase.
The quota will never exceed 30% or 35% of the net monthly income of the applicant.

Taking into account the years when the mortgage loan can be returned, the maximum re-payment period is 30 years. In Spain, mortgages are given up to the age of 70.

WHAT AMOUNT SHOULD YOU REQUEST?

As part of your mortgage application process, the bank will commission an official, certified and independent valuation company to carry out a valuation. This company will provide an official report on the value of the property, becoming the guarantee for the recovery of the loan in case of non-payment.
With regard to the mortgage amount, the official loans offered by banks are - as a general rule- up to 70% of the valuation value of the property for non-resident clients and up to 90% for residents.

In a mortgage, the property acts as a guarantee; if the client cannot meet payments, the mortgage lender can repossess and sell the property to recover its money. This is why it is very important for the client to rigorously meet the monthly payments of the mortgage loan.

TYPES OF MORTGAGE

The most common type of mortgage in Spain is the capital and interest or repayment mortgage. However, in a competitive market, mortgages with an initial exclusion period are becoming increasingly popular.
In capital and interest mortgages, the loan is returned by paying part of the capital monthly, together with the interests generated. This way, the loan is returned completely once the when the repayment period has ended.

On the other hand, mortgages with an initial exclusion period consist in initially paying only the interests, and returning the capital at the end of the repayment period. During the initial period, clients only pay the interests on the loan, and none of the capital.

NECESSARY DOCUMENTS

You will need certain documents in order to apply for a loan, which vary depending on whether the applicant is employed, self-employed or retired:

Employed:
Last three pay slips.
Tax return from last two tax years.
Company certificate confirming salary and length of time at company.
Bank statements for last three months.
Reference letter from bank.

Self-employed:
Tax returns for last two tax years.
Report by accountant.
Bank statements for last three months.
Reference letter from bank.

Retired:
Last three pension slips.
Tax return from last two tax years.
Bank statements for the last three months.

Reference letter from bank.

MORTGAGE COSTS

In addition to valuation costs, there are other necessary costs related to setting up a mortgage in Spain, including the opening commission (normally between 1 and 1.25% of the loan amount), Notary’s fees, Property Register, legal fees and the tax on Documented Legal Procedures.

If you are interested in obtaining a mortgage, we can draft a detailed list of all associated costs related to setting up the mortgage, once we know the amount you are allowed to borrow.

Another legal requirement in setting up a mortgage is purchasing an insurance policy on the property and its contents. We can offer you different quotes, carrying out the necessary procedures.