Procedure of purchasing property in Spain

In Spain, as in any other country, it is usually a good idea to rent a flat for a few months before buying a property so that you can get to know the area. This is particularly wise in Spain as property transfer taxes mean that you may well end up losing a lot of money if you sell your house too soon after you bought it.

There has been something of a property boom on the coasts of Spain in recent years and house prices have doubled in some areas in 18 months. The boom In Spanish property prices is spreading inland too, but in general inland property prices are cheaper and haven't been rising as fast as they have on the coasts.

For anyone considering buying a home in Spain, the single most important piece of advice is to find a good solicitor. Do not simply rely on the estate agent's "recommended" lawyer. Most of the horror stories about people buying houses that don't exist or that have an enormous mortgage attached to them involve people who did not follow this simple advice. It is also a good idea to ask a surveyor to carry out a survey on any property you intend to buy, although this is not a requirement for a Spanish mortgage.

The Procedure
Buying property in Spain is not really that complicated. Firstly you should make sure your solicitor checks the property registry, which will show immediately if the seller owns the property and whether there is an outstanding mortgage (mortgages can be sold on with the property in Spain). Then, unless you are paying in full and in cash immediately, a private contract is drawn up containing all the details (description of the property, purchase price, date of completion etc.)and you will be expected to pay a deposit. The amount of the deposit can vary, but is usually around 5-15%. Finally when you have paid in full, you will get a public deed of conveyance (escritura) which will be issued in front of a Notary Public and will then be passed to the tax office (see below) and on to the property registry.

Be aware that you will also have to pay tax when you buy a property. The amount you pay will vary depending on the type of property and the nature of the seller. If the seller is a property developer you will pay 7.5% in VAT and stamp duty unless the property is a piece of land or commercial property, in which case you’ll pay 16.5%. If the seller is not a property developer on the other hand, you should pay 6% in property transfer tax.

On top of the tax you will also have to pay the Notary (usually between E400 and E800) and the property registry inscription fees (65% of the notary fee). You may also be asked to pay the "plus valia" (or "value added") tax, which is a tax on the increase in value of the land - even though this is supposedly the seller’s responsibility. If you are asked to pay this tax, make sure you establish exactly how much it will be as it can vary substantially.

The Private Contract
It is common practice for the buyer and seller to confirm the details of the purchase in a private contract, with the buyer putting down a non-refundable deposit of between 5% and 10% of the purchase price. This reserves the property and allows the buyer sufficient time to arrange payment of the balance. If another buyer comes along and purchases the property despite the existence of the private contract, the first buyer can claim double the amount of the deposit back. If the buyer fails to complete the sale, the deposit is forfeited. Pay the deposit into an escrow or bonded client account, where it will stay until the sale is finalised. The estate agent will probably have a standard contract available which you should have your lawyer read and comment on.

The contract you sign should identify the property and the seller and buyer. It should state that the property is sold free of all charges, liens and mortgages. Before signing, your lawyer should check to make sure that no back taxes are owed on the property and that its original registration is in order. Back taxes are checked with Hacienda or the Town Hall and are the only debts not listed at the Property Registry. If you are buying the property 'off-plan', make sure the contract states that the payments are deposited into an escrow account. This is usually a little more expensive but it means that your funds are secure if there are problems.

Power of Attorney
If you are not likely to be in Spain to sign the contract or conclude the purchase, a general power of attorney is frequently used to appoint a legal representative in Spain. The document is in a standard format that lists the actions that can be carried out by the holder - including buying and selling property. A Notary can prepare the relevant forms and will print copies for you, retaining the original document in his offices. You will need copies authorised by the Notary to use the power of attorney at a bank or during a property sale. The only document required to establish power of attorney is a national identity document or passport of both the 'giver' and receiver'. The procedure will cost approximately 60 euros.

On average, the cost of buying a property in Spain will be in the region of 10% to 15% of the purchase price depending on the complexity of the procedure and the area of Spain in which you are buying.

The notary - EUR 300 to EUR 600
The notary charges a standardised fee which varies according to the amount of land, the size of the property and its declared purchase value.

The registry fee - EUR 300 to EUR 600
The inscription of the property in your name in the official property register

The transfer tax - 6% to 7% of the declared purchase value
Transmisiones Patrimoniales in Spanish, is 6% (7% in Andalucia) of the value declared in the contract. If you purchase a new property from a developer, this tax will be value added tax at 7%.

The document fee - Ѕ% to 1% of the declared property value
This is equivalent to stamp duty and is currently Ѕ% (1% in Andalucia) of the declared property value.

The municipal tax - 10% to 40% of the increase in value of the property
This municipal tax is on the increase in the value of the property since its last sale. It is called 'plus valia' and can vary from 10% to 40% of the annual increase, depending on the length of time between sales and the town in which the property located. This can be a large fee so you would be wise find out exactly how much it will be by going to the municipal tax office and asking in advance.

Your lawyer - approximately 1% of the property valueYour lawyer - approximately 1% of the property value
The lawyer will charge you around 1% of the value of the transaction, unless there are some unusual complications

The tax deposit - 5% of the declared purchase value
If you are buying from someone not resident in Spain, you will deposit 5% of the total purchase price at the town hall in the seller's name as a guarantee against his future tax liabilities. You pay the seller 95% of the price, and pay the other 5% directly to the town hall. This serves as a guarantee against the non-resident seller's various Spanish tax liabilities.

Deciding who pays which taxes
This list of fees pretty much covers the extent of the major expenditure when buying a property in Spain. The buyer and seller are free to agree whatever terms they choose as there is no Spanish law requiring that one of the parties must pay any particular tax. Typically, the seller pays the notary fees and the municipal tax, as he is the one making the profit on the increase in the property value, while the buyer pays the transfer tax and the registry fee, as he is the one who is interested in making sure the property is registered in his name.

Deciding the declared property value
Until recently it was common practice to declare a low value for the property in order to minimise the transfer tax. Now most lawyers advise both parties to declare a realistic market value. If the Spanish tax agency discovers that the value was under-declared by more than EUR 12,000 or 20%, they can (and do) apply heavy fines. The safest way is to ask at the payment office of the nearest tax agency and they will tell you exactly what value they assign to a particular property

If and when you resell the property, you will be liable for Spanish capital gains tax on any profit made. Although it is tempting to declare a low value now, you will be liable for tax on a much bigger profit when you later sell.

Check list to completion after finding a property

1. Get qualified, professional legal assistance working solely on your behalf
2. Review the seller's title deed
3. Review a recent nota simple
4 .Review the full catastral certificatation document
5. If buying in an urbanisation, check the plan of building plots
6. If buying a plot of land, check that building is legally possible
7. Review the IBI receipt or the declaration of new construction
8. Review the community charge receipt and the statutes if buying in a communally owned development
9. Review the sellers utilities receipts
10. Draw up a private contract in Spanish and have it translated into your mother tongue
11. Agree a price, method and currency of payment
12. Sign the escritura de compraventa in the presence of a notario
13. Pay the required fees and taxes, and the 5% tax deposit to Hacienda if you buy from a non-resident
14. Establish how and when you will receive the escritura publica, making you the legal owner.

Points to Remember:
• Builders should have an insurance policy to protect against bankruptcy.
• Agents charge high commissions.
• Buyers and sellers of resale properties should be aware of the agent's commission.
• Deposits and stage payments should be made to a blocked account.
• An English speaking abogado is essential to the property buying process, principally for advice on contractual and payment terms.
• Spanish banking is reasonably efficient but its procedures are very different. Choose a major bank, with English speaking staff, close to your new home.
• Although mortgages are available from Spanish banks, they are relatively small.
• The notario, a State appointee, at the final step of the buying process offers great safeguards on legal matters.
• A gestor is necessary to deal with the bureaucratic way of life.
• Ensure that someone has checked the debts on a property.
• Spain 's peculiar laws carry them over to the new owner.
• Wish to avoid problems? Always take legal advice from someone who speaks your native tongue and understands Spanish property law.