This could be an absolut dream but I have to say it could be as well a nightmare…
Living here is great, it doesnt matter if you prefer the mountains or the sea, you can have both. Great weather and the life is much more relaxed then back home.
So I want to buy a property, there are lots of properties on the market, so I should be able to find the house of my dream. My agent is showing me around all these lovley areas, there are lots of nice houses, plots and apartments for sale I the style of some of them is just amazing! And there it is, the house I was dreaming of! The house I want to live the rest of my life in!
It only needs a bit of renovation, nothing big and of course it needs to have my stamp on it. And the best thing is, I do have the money to buy it!
So I bought it. I renovate it, move in and it feels great. I would like to extend it a bit, so I go to the town hall to get a licence. The guy just looks at me blank… Something is wrong… Then he says no, I cant extend it, because I dont have a house to extend… I panic, I show him my escritura that I bought the house. He looks at it, fine, but the problem is the guy I bought the plot from was not the official owner… The plot! No house in the papers, the seller was not the owner… My dream just crashed… What now?
Everybody I guess heard stories like it, but what can I do, that my dream stays a dream and doesnt become a nightmare?
First of all: NEVER sign a contract before you have confirmation that the property belongs to the seller and is free of debts and charges.
This can be done by obtaining a Property Registry Report (Nota Simple) from the Property Registry (Registro de Propiedad). The agent who sells you the property should be able to read the papers and know what is what. If you are not sure about him, then find a lawyer and show him the papers!
Be sure that the seller has the Title Deed (Escritura de compraventa) and check if everything that is on the plot is actually written in the Escritura. Especially if you buy rural property there may often be title deeds that do not correspond to what you are actually buying. Make sure the house is stated! And everything else that is built on the plot. If not, then tell the seller, he has to write it into the papers, that is very often possible, but make sure he doesnt do that on your costs!
If you have found your ideal property and agreed on the price a Deposit Agreement (Contrato de Arras) will be signed which is a simple contract which specifies the amount of deposit that is paid by the buyer to the seller. Normally the deposit amounts to 10% of the price of the property if not agreed otherwise. The Agreement also states up to what date the selling will be completed.
I recommend that the Deposit Agreement specifies that if the buyer withdraws from the transaction the deposit is lost and if the seller withdraws then double the amount of the deposit has to be returned to the buyer.
At the time agreed on by the buyer and the seller a Public Deed of Sale (Escritura de Compraventa) will be signed which is the moment when the new owner takes over the property and the full price is paid. It is obligatory that this must be signed in the presence of a Spanish Notary. Together with the original title deed you get the proofs that the property is up to date with all payments like the local property tax and any other utility payment.
If there is a mortgage on the property, the bank will be at the Notary as well and the mortgage will be taken out there and then.
With this escritura the property with the new owners can be inscribed into the land registry (Registro de Propiedad) and the appropriate taxes can be paid.
You should then also be registered as new owner with the local government registry of property and owners (Catastro).
Yes, there is quite some paperwork involved, but it is worth it to make sure the property will be yours and everything is legal.
What does it cost? Here is a list (actual data stated in July 2012, it might chance):
Apart from the actual purchase price of the property there are a number of costs and taxes that you have to pay. On one side there are the costs associated with buying and selling property and on the other hand the costs associated with owning a property in Spain.
Costs of selling and buying a property in Spain
Solicitors Fees (gastos de abogado): If you hire a lawyer to help you through the buying process, he normally charges 1% – 1.2% of the purchase price.
Agency fees: Estate agency fees or commissions are paid by the seller. We charge between 2% and 5% depending on where the property is and the type of property.
Notary fees: Notary fees are paid by the buyer and amount to about 0.5% of the declared purchase price plus 18% value-added tax (IVA) until September 2012, then the IVA rises to 21%.
Property Registry Inscription Fees: Fees related to the inscription of the new owner in the land registry are paid by the buyer and are calculated in relation to the declared purchase price and depend also on the property and the area. The fee also has the IVA on top.
Banking costs: To pay for the property you need a Spanish bank account and you may have to transfer the money. The money is paid by a banker’s draft cheque. That means there are costs for the transfer as well as for the cheque.
Obtaining your N.I.E. Number (tax- and identification number): To purchase a property in Spain you need a Spanish Tax-Number, which you get in the local police station. You pay a small fee about 10.80€ for the modelo you have to fill in and if you want somebody else to do it for you, you pay that person as well (it should not be more then 25€).
Transfer Tax ( Impuesto sobre Transmisiones Patrimoniales ITP): applies if it is a resale property from a private seller. It is a tax buyers have to pay and it amounts to 7-8% of the declared purchase price. If you buy a newly built property from a developer it is 8% value-added tax plus 1-2% Stamp Duty, if you buy a commercial property or a plot from a developer you pay the actual current IVA.
Retention Tax (Tributación de no residentes): That is the tax the seller has to pay if he is not a Spanish resident. It amounts to 3% of the declared purchase price. Normally it is laid down in the title deed that this amount will be withheld by the buyer and that it is the buyers responsibility to pay the tax within 30 working days.
Capital Gains Tax: The capital gains tax is a tax sellers have to pay the year after they sell their property, if the seller is not a Spanish resident it has to be paid after 3 months. It amounts at 21% of the amount gained by the selling, that means the difference between the old Escritura price and the new one, minus the 3% retention tax.
There are some exceptions:
– if the money of the sale is reinvested in 2 years into the taxpayers new main residence, if he for example has to move because of a marriage, new job or a divorce.
You don’t pay this tax if:
– the seller is older then 65 years and has been a legal resident in Spain for the last 3 years
– the seller already owned the property for more then 10 years on the 31.12.1996
Local capital gain tax (Plusvalia): A small localised tax based on the increased value of the land since the last sale of the property. The amount depends on how long the seller has owned the property and on the municipality. The tax is normally paid by the seller, but this depends on the sales agreement.
And what does it cost to own a property in Spain?
Apart from the general maintenance costs there are some taxes and fees property owners have to pay.
Property Ownership Tax (Impuesto sobre Bienes Inmuebles IBI): local tax for residents and non-residents, calculated on the value of the property inscribed in the catastro (valor catastral), this value is different from municipality to municipality and vary from 0.3% – 1.1%. The value in the catastro is usually lower then the market value.
Annual Wealth Tax (Impuesto sobre Patrimonio): a tax residents and non-residents have to pay at the end of each year. For non-residents who only own property in Spain it is mostly based on the value of the Escritura with a tax rate of 0.2% – 2.5%, depending on the value of the property.
Mortgages will be credited on the value.
Personal income tax (Impuesto sobre la Renta de No Residents IRNR): a tax non-residents have to pay; if the property is owned by more then one person, for example a married couple, each owner has to pay the taxes separate. The amount depends on the use of the property.
If you use it as a secondary home you declare a percentage of the catastral value (valor de catastral), it is normally 2% (1.1% if the value was revised after 1st of January 1994), the tax rate for this is 25%, which has to be declared as “income”. Of course this amount changes if you didn’t own the property the whole year.
If you rent the property you have to pay the income taxes of the rent.
Other costs: Water, Electricity, Rubbish, Insurance and on some properties community fees. If you don’t live in Spain it is practical to have a Spanish bank account and pay this by direct debit.
So if you found the house of your dreams and you want to buy it, there are some things, you should look into, before you buy:
– Ask for a Nota Simple, here you see if the seller is actually the owner, if there are debts like mortgages on the property and if the property is written into the papers. Means the “La declaración de la obra nueva” has to be done already, the house is written in the deed.
– Ask for the last bills to find out if they are paid, like water bills, community bills, electricity
– Ask for the last payment of the Property Ownership Tax (IBI) to make sure all Taxes are paid
– Make sure you have a NIE – Number, a Spanish Tax-Number you need to buy a property in Spain.
– Open a bank account, so you can transfer the money for buying the property and you can pay all bills that will come after the purchase. Or:
– If you need a mortgage, choose the right bank. The bank will value the property and lend normally between 60 and 70% of the sales value to non residents and sometimes more to residents. It is always good to go to more then one bank to ask for a mortgage, because the banks might try to undercut the fees of the competition. The process is similar to other countries in that the bank will check your income and your tax declaration if you are a non-resident, and if you have a life insurance.
If the seller already has a mortgage on the property it is possible to transfer the mortgage to the buyer, what can reduce the costs to set the mortgage up.
– If you are settled and you want to sign the deposit agreement or purchase contract you should know at what time you are ready to buy, because that date will be stated in the contract. So you should have a NIE then and if you need a mortgage it should be ready to the time stated. By signing this contract the buyer has to pay a deposit of 10% of the selling price. It is advisable to state the so called Arras Penitenciales 1454 Código Civil in it, which states that if the contract will not be fulfilled, the party that breaks it has to pay for it. If the Buyer breaks the contract he looses the deposit, if the seller breaks it he has to pay the double amount, what is then 20% of the price, to the buyer.
– Make sure that the sales agreement states which party will pay the plus valia, normally the seller has to pay this tax, but in Spain sometimes the buyer pays it or both.
Finally to the Notary where you will get the Escritura Publica de Compraventa, which is a selling contract, which is signed in front of the Notary. This Escritura is needed to register the property in the new name. The notary checks, that the seller is the owner by the time selling and he also sends the important data of the Escritura to the Register, so no other Escrituras can be brought in for the same property but in different names.
The property will be paid in front of the Notary, part of it with a banker’s draft cheque the rest in cash.
If you have the Escritura you finally can make the property legally yours by going in the registro and the catastro.
Don’t forget to change the contracts of water, electricity, community, phone, etc.