How to Buy Property in Spain
Buying an overseas property is an exciting thing to do and Spain is a great place to choose. However, it is important to go about things the right way and equip yourself with as much information as possible before settling on that dream home.
One of the most valuable pieces of advice is to instruct your own independent solicitor to assist you with your purchase, just as you would when buying property in your own country.
The Buying Process
Once you have found your property, the purchase process begins with a reservation agreement. This is a contract that freezes the purchase price and takes the property off the market for, usually, 30 days on payment of a fee of 10% of the agreed sales price. The deposit is usually held by your lawyer or your agent in a client or escrow account.
Within 10 days of signing the reservation agreement, the full private purchase contract (contrato de arras) is signed between the buyer and the seller. This is similar to exchanging contracts in the UK buying process. Within this time your lawyer should complete all the searches on the property – confirming that the seller own the property being sold, there are no mortgages or charges and that planning consents are in order.
Once both parties sign the main contract, it is binding. The arras contract or full private contract will usually require a 10 – 20% deposit to be paid. The buyer is then committed to pay the balance of the price, and the seller (once the money has been paid) must transfer ownership to the buyer. If the seller pulls out of the transaction he must return double the amount of the deposit received by way of compensation. If the buyer pulls out he will lose the deposit paid.
The property sale is formally completed when the title deed “Escritura de Compraventa” is signed before a public official called a Public Notary, or Notario. This will happen at their office and be accompanied by the agreed final payment and all the relevant purchase taxes. The Escritura is then presented by the Notary to the Land Registry for registration and the property is passed to the new owner. Final registration of the title deed can take several months.
With a new-build property, obviously completion can take a lot longer, and the payments are split over stages of the build process, and the developer should provide bank guarantees against each payment. This protects your payments in the event the developer fails to complete the property or goes bust.
Finally, make sure that you have insurance for your property, ensure all service contracts are in your name (telephone, water, electrics etc.) and register your ownership of the property with your local Town Hall “Ayuntamiento” – all of which your lawyer can help you do.
Power of Attorney
Just as in the UK, you can authorise someone (normally your lawyer) to act on your behalf with regard to your legal matters in Spain. This is often wise, as travelling to Spain to sign documents can become inconvenient or mean that you miss an essential signing date through ill-health or travel disruption.
A Power of Attorney can be either general or limited to a specific function (for example, the signing on your behalf of the Escritura (Deeds) to your intended property.
You cannot buy a property in Spain without a NIE number (Numero de Identificación de Extranjero), which is an identity/fiscal number for non-Spaniards. So, apply for this as soon as you start looking for a property.
Currently, you must apply for your NIE number in person (although the rules on this tend to change from time to time; your estate agent or lawyer, who should help you). A NIE number is obtained from the Policia Nacional, who have offices in all major towns and cities throughout Spain.
Who Does What
You can purchase Spanish property very quickly, if you are a cash buyer and you have an NIE number. Certainly, it is not unknown for the Spanish, to see a property and be the owner (with full access) later on the following day.
However, this is not the way to proceed for any foreign buyer and you should never rush to buy – or be rushed. Rather, you must always allow your lawyer and building surveyor ample time to do their proper investigations.
Indeed, never lose sight of the fact that it is far better to miss out on an amazing bargain than buy a defective property you will always live to regret.
Once you have narrowed down the area within which you want to buy, you should find a lawyer who can act for you. This is a vitally important move, with the services of an excellent lawyer critical to the success of any purchase of a fully legal, sound, Spanish property, devoid of any potential liabilities.
When looking for a lawyer, make sure that you find one who is: fluent in English; a specialist in conveyancing; completely independent of the seller/developer and your estate agent; and fully insured to a public liability premium well above the value of your purchase (and always ask to see the policy).
Furthermore, always insist that all advice from your lawyer is put in writing, something that many Spanish lawyers are reluctant to do. This concentrates the mind of any lawyer and helps to ensure a higher standard of professionalism.
Finally, always get your lawyer to inspect any paperwork or contract before you sign it, whether it relates to a property or other services (i.e. banking, estate agent, building works etc.).
Taxes and Fees
The tax you pay when you buy a property in Spain will normally depend on whether you are a tax resident there or not. Tax residence is determined by a number of factors – including how long you spend in that country, if your main home is there and if your main economic interest is there. If you become a tax resident in Spain, then you would normally stop paying taxes in your home country and pay there instead.
IVA (VAT) is payable by the purchaser when the vendor is considered a developer who pays IVA and/or this is the first time the property has been sold or transferred. The VAT rate depends on the type of property being sold: it’s 10% for residential properties and 21% for plots of land and commercial premises. Stamp duty is payable at the rate of 1.2% where VAT is payable.
If the house you are buying is a resale (second transfer) property, then you will also need to pay Transfer Tax (Impuesto sobre las Transmisiones Patrimonilaes), which is usually between 8 to 10% depending on the values of the property and the area. This will need to be paid to the Spanish Treasury within 30 days of the date the title deed is signed. You may also need to pay Plusvalia, which is a tax based on the increase in the value of the land since the last transfer, although this is not normally a huge amount.