Investors need to know what to expect when they buy property in a foreign country. Our Buyers’ Guide will assist and advise you on the process of a property purchase in Spain.
Selecting your property requires careful thought as the investment you choose today will have a direct effect on your future assets. Taking into account the right factors, such as location, quality and market trends, is of utmost importance.
Do keep an open mind when it comes to choosing the best property to suit your needs. Often what you think exists is not as readily available as you think and after much research and planning you may even end up deciding upon something completely different than you originally planned.
If you decide to buy in an up-and-coming area which is not yet built up, bear in mind that empty plots will be built on one day, so your property will sit amongst ongoing construction for many years to come and it may even lose its lovely view. Make sure also, that there is some “breathing space” on your land to avoid being overlooked from every angle.
If you had bought after the increase, then you would have lost a 31% gain!!!
The buying process is relatively simple although the fiscal and cultural variations between countries make it advisable to get your own independent solicitor for ease and peace of mind.
At the earliest possible time we recommend you apply for an NIE number (a foreigner’s identity number). This number is necessary when carrying out any financial transaction in Spain including buying a property.
The NIE numbers are issued at the National Police Station in the town where you are purchasing the property and you need to apply for these in person. Unfortunately, there are few hard and fast rules with regard to making the application as each town has its own rules. You will need your passport and a photocopy and complete the application form in duplicate using black ink. It is always useful to have several spare photocopies of your passport. You should go to your nearest National Police Station usually between the hours of 9am and 2pm and complete the NIE application form, but be prepared to queue.
Often, your estate agent will assist with this formality and they generally know the procedure in the area where they operate and will give you further guidance as to what additional, if any, documents you need to present.
To download a a free of NIE application form please click here.
Once you are the owner of the property you should ensure there is adequate building insurance and contents insurance is in place. If a mortgage was used to buy the property, this is a mandatory requirement. Buildings are often insured by the community if the property is on a complex.
Mortgage options in Spain include either a European mortgage or a re-mortgage through an existing property.
Normally non-residents can borrow only 70% of the purchase price. However, it is possible to have a combination of 70% European mortgage and 30% re-mortgage. Interest rates in Spain are currently lower than in the UK but the costs for arranging the mortgage are high. If you are buying a new build property, a firm mortgage offer will only be given once the property is completed and a property valuation has been carried out.
The relevant taxes (either IVA (VAT) if a new property or Transfer Tax if a re-sale property) must be paid within a fixed period of time to avoid fines. It is your lawyer’s job to ensure the appropriate completed forms are sent to the tax authorities on your behalf. Stamp Duty is payable after completion of the property at 1% of the purchase price.
Please see our Spanish tax information page for info on taxes payable for Spanish property purchase.
Once the taxes have been paid, then Deeds (escrituras) can be delivered to the Land Registry for registration. This is probably the most important stage of the purchase and it is vital that the property is “inscribed” in your name from the start, to protect your interests.
Spanish inheritance law is very different and quite complex compared to UK law so it is important to have a Spanish will in place to ensure your wishes are respected. Technically a valid British will can be used in Spain but a Grant of Probate would have to be obtained which can be a lengthy and expensive business.
The level of inheritance tax paid by your heirs can be significantly affected by the way that a Spanish will is prepared. At the moment inheritance tax is higher if you are a non-resident. Wills have to be signed in front of the Notary and you have to be present for this. A Power of Attorney is not acceptable so ensure you arrange for your will to be signed either upon completion of your property or on one of your planned visits to Spain.
Re-sale purchase tax: If you are buying a resale property, you are required to pay the ITP (Impuesto de Transferencia de Propiedad or Transfer Tax) which stands at 7%.
New properties purchase tax: buyers of brand new houses in Spain pay 7% IVA (VAT) if the house is finished or is being built at the time of the purchase, plus 0.5% stamp duty.
However, if you buy land in Spain, commercial premises or parking spaces in garages, then the VAT payable rises to 16%.
Increased patrimony tax (Capital Gains): this is payable to Spanish Treasury must be paid by the vendor. The purchaser withholds 5% of the total purchase price to ensure the seller declares it. It represents the difference between the current (official) sale price and the original purchase price when the seller originally bought the property, plus the value of any reforms and improvements carried out since then.
Land, commercial premises or garages separate from buildings where the
vendor is a developer or trader.: 17% (16% VAT and 1% stamp duty) is payable.
Notary and Property Registry fees vary between € 1,200 and € 2,500 each
depending on the value of the property. Therefore you will need to account for
around 8% of the purchase price for resale residential property or 8 - 9% if VAT is
paid (for new properties). To this you must add approximately 1% for lawyer's fees.
The vendor normally covers agent's fees unless otherwise agreed.
Annual local rates (IBI) are payable and are calculated from rateable value of the land. The rateable value takes into account the value of the land plus buildings as well as location, and usage and the tax is calculated at 0.85% of this value eg. a 2 bedroom beachside complex apartment in Marbella paid rates of €1.219/ £870 in 2003 and a free standing beachside villa in the heart of the "Golden Mile" paid annual rates of €2,500/£1,785 in 2003.
The Town Hall sets this charge according to the property and this must be paid every 6 months. It will never cost more than about £200 per year. Water consumption is paid quarterly and is metred in cubic metres.
The purpose of the Community is to own and maintain the common areas within the community or urbanization. Depending on the size of plot, each homeowner must pay a contribution towards upkeep in the community areas and its services.
Community charges vary according to urbanization. A typical 2 bedroom apartment in a building with a hall porter, swimming pool, and a small garden, could cost between €120/£85 to €300/£215 per month or in a luxury development it could be as high as 600/£428.
An individual villa in an estate of villas could be liable for lower community fees as its private gardens and exteriors are not generally maintained by the community. Community fees cover the road and roadside garden maintenance, as well as services maintenance, and security.
Typical rates for private gardeners are about €14/£10 per hour. A full-time gardener’s salary could be around €1,000/£715 per month. Social security is an additional cost to full time wages and stands at around 40% of the salary.
Cleaners fetch full-time salaries ranging from €600/£428 to €800/£571 per month plus approximately €120/£85 per month social security contributions. Part time help usually costs anything from €8 to €10 / £5.7 to £7.15.
Electricity is billed bi-monthly and is the most expensive service in Spain. Minimum rates are charged whether you are in residence or not, and the minimum varies according to the amount of electricity your house could potentially use with all power and lights turned on.
A minimum charge for an apartment might be around €25/£20 per month. Charges for a villa are from around €70/ 50 per month, depending largely on the extent of the electrical installation. Usage is €0.08 /5.7pence per Kwh plus tax.
The telephone bill is also charged bimonthly. Standard rates can be in the region of €20 per month including a touch dial telephone. There are telephone companies offering substantial savings and ADSL broadband is available virtually everywhere.
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