The Steps to Buying a Home in Spain
Stage 1: Holding Deposit
The first step when you find a property that you want to buy is to enter into negotiations with the owner regarding the price and terms and conditions of sale. This is a non-binding process. We always advise our clients to use a solicitor for the purchase and can recommend lawyers suitable for the transaction that speak your language. After your offer has been accepted, the next step is normally to put down a reserve deposit to take the property off the market. The amount of the deposit varies from property to property depending on the price and other factors. The reserve agreement will normally be subject to legal checks being carried out and will set a timescale within which the private contract or public deed should be signed.
Stage 2: The private contract – Contrato privado de compraventa
This is a simple agreement between the Buyer and the Seller in which the Seller agrees to sell the property, and the Buyer agrees to buy the property at the price agreed. This will contain all of the relevant details such as a description of the property, purchase price, and date of completion. At this stage the Buyer will be expected to pay a deposit, which is normally paid to the Seller’s bank account and is usually 10% of the agreed purchase price, but this amount can vary. Within the contract there is normally an arras clause. Should the seller decide to withdraw from the sale, the Buyer is entitled to receive double of the deposit as compensation. Should the Buyer decide to withdraw from the sale, the deposit is lost. The Buyer and Seller may choose to change this clause if they prefer. Prior to entering the contract, the following checks will need to be carried out: (a) Check on planning status (b) Check on title and charges on the property
Stage 3: Completion of Public Deed – Escritura de compraventa
Prior to completion, non-Spanish buyers will need a Spanish tax number or NIE and a bank account in Spain. On the completion date, the balance of the purchase price (sales price minus deposit) and any fees payable by the Buyer must be paid. The Seller and Buyer then sign the Public Deed (escritura de compraventa), which is equivalent to the title deeds of the property. The buyer is then issued with the public deed of conveyance (escritura de compraventa) in front of a Notary Public, who certifies the property transfer, and a copy of the Public Deed will be passed to the tax office and on to the Property Registry. The Notary Public in Spain is a public official who is required to witness the deed of sale. However, an expert and independent legal advice should be used to protect your own interests.
When buying a New Build Property from a developer (or bank): VAT (IVA, Impuesto sobre Valor Añadido) and Stamp Duty (AJD; Actos Jurídicos Documentados) apply. VAT and Stamp Duty are applicable for residential properties that have never previously been occupied or for commercial properties and buildingplots of land. VAT is a national tax that does not vary depending on the property’s location (with exception of the Canary Islands). At present VAT is 10% on the purchase price for residential properties (villas, apartments, etc.), and 21% for commercial properties and plots of land. Stamp Duty (known as AJD) is a percentage of the purchase price (this varies depending on the autonomous region where you buy, but the base rate is 1%(in Catalonia 1,50%).
When buying a Resale Property from a private individual: Transfer Tax (ITP, Impuesto sobre Transmisiones Patrimoniales) applies: This tax applies if it is a resale property that has been used before. The general ITP rate varies from region to region between 6% and 11% Solicitor’s fees: It is not obligatory by law to seek legal assistance for a property purchase but it is very strongly recommended to do so. Often a fixed fee, the fee can vary due to the amount of work required to be done by the solicitor. Notary’s fees and land registry fees: Depending on the purchase price and complexity of the deed, usually between €1,000 and €2,000, but can be more.
General Running Costs:
Local Taxes – (IBI – Impuesto Sobre Bienes Inmuebles) These are calculated on the rate-able value (Valor Catastral) of the land assigned by the Spanish Tax Office. It is advisable to ascertain annual local rates for a property before purchase as this differs depending on the region.
Community fees (only applicable when purchasing an apartment not for standalone houses). The community fees are paid monthly or every three months and depend on the expenses of the community of each property.
Non-resident income tax (IRNR; Impuesto sobre la Renta de No-Residentes) You pay this version of income tax in Spain if you are not a tax resident in Spain. It also applies if you own property in Spain:
The property is exclusively for personal use and you do not rent it out: Although you do not earn an income from the property, in the eyes of the Spanish tax authorities you still derive a benefit from owning a property in Spain and therefore have to pay an imputed income tax. The tax base for IRNR is 2% of the cadastral value of the property, or 1.1% if the cadastral value has been revised since January 1st, 1994. The cadastral value of the property is much lower than the actual value. This tax usually equates to approximately 0.2% of the property value, though it varies depending on the exact circumstances.
You rent out the property and therefore pay tax for the periods your rent out the property: The base for the applicable tax rate will be the income that you receive from renting out the property. Various costs can be deducted if you are a tax resident in the European Union. Costs for property management and maintenance of the property are examples of possible applicable deductions. If you have no other source of taxable income in Spain the rate for the above mentioned taxes is 24,75%.
Wealth tax for non-residents (Patrimonio) Current legislation prescribes that whoever owns property in Spain (residents and non-residents alike) has to pay an annual wealth tax based on the net value of their assets in Spain after permitted deductions, such as mortgages. The tax is based on the net value of your property and other assets in Spain (stocks, bank funds, art collection) with a tax-free allowance of €700,000 for non-residents and €500,000 for residents. The tax rate works on a sliding scale with marginal rates starting at 0.2% and rising to 2.5%. Also, if two clients are purchasing the property the wealth tax is divided by two (e.g. 800,000€ property purchase by a couple would count as €400.000 each and the tax is not applicable).
Administrative requirements: Prior to completion non Spanish Buyers will need a Spanish tax number or NIE and a bank account in Spain: You are required to obtain a NIE number (Número de Identidad de Extranjero) which is a Spanish tax identification number that enables you to make an economical transaction within Spain. This NIE number can be obtained and organized through a Power of Attorney if you do not have time to attend an appointment and collect all the required documentation. A Spanish bank account is needed to be able to provide a bank cheque from this Spanish bank account for the final signing of the Public Deed (escritura de compraventa) in front of the Notary Public in Spain.