Legal and conveyancing
A General Guide to Legal Costs & Taxes in the Purchase procedure
ViewSpain advise's all clients to use a lawyer when making any purchase in Spain. The lawyer shall provide the legal guarantees for the purchase of the property, ensuring that Spanish legal requirements are met. Below is a summary of the various the legal issues involved in buying either a New 'Off-Plan' property, or a 'key ready' resale property.
New Developments and buying Off-Plan:
Your lawyer will ask the developer for all the documentation needed to guarantee the procedure, with the appropriate planning consents and without the burden of debts or charges registered against it. When purchasing a property on a new development, the developer should provide by law, bank guarantees against each payment made, and your lawyer should check that this is in place. Many developers offer bank guarantees free of charge, other developers make a percentage charge. These are vitally important as the bank guarantee protects your payments, as in the unlikely event that the developer does not finish the property or goes into liquidation, all payment that have been made, will be returned to you.
A new property is often handed over by the developer without water and electricity connected. This is another service that should be arranged by your lawyer, as soon as you have completed on the property and have the 'Title Deeds'. Connection of such services can take anything from a few days to four or more weeks following completion, depending on many factors. Therefore, we suggest that you do not make any plans to use the property during this period.
Under Spanish Law, the developer will issue you with a 10 year construction guarantee, also your lawyer will ask for all the documentation needed to guarantee the purchase procedure.
Taxes with New Developments:
- VAT (IVA) which is 7% of the property price. VAT is payable with each installment.
- Stamp Duty at 1% of the purchase price.
- Plus Valia: This is a tax paid on the increase in value of the land since the previous sale and is fixed by the local Tax Authorities. It is calculated on the size of the land. By law, the vendor is obliged to pay this tax, however it has become customary to negotiate this and it is not uncommon that the purchaser settles this amount.
- A 2% mortgage taxes is charged on the amount of the loan / mortgage if a mortgage is arranged to fund the purchase.
Taxes and Resale Properties:
As a Resale property, your Lawyer will provide you guarantees checking that the property is bought free of encumbrances, liens, charges or debts and that all payments of local contributions and community charges are paid.
The taxes involved on a Resale Property are:
- Transfer Tax (ITP) at 7% is applicable.
- Plus Valia: This is a tax paid on the increase in value of the land since the previous sale and is fixed by the local Tax Authorities. It is calculated on the size of the land. By law, the vendor is obliged to pay this tax, however it has become customary to negotiate this, and it is not uncommon that the purchaser settles this amount.
A Step-by-Step Guide to purchasing:
1. Reservation deposit - Once you have found the right property, the purchase process begins with a reservation agreement, which takes the property off the market and also freezes the purchase price. The deposit to pay at this stage is usually 3,000 euros, though this can vary. Before arriving in Spain to view properties, it is advisable to ensure that you have funds available. The best way to pay the reservation fee is by credit card or in cash. Usually the 3,000 euros is paid to the estate agent or developer once your solicitor has checked the Reservation Agreement, or can be paid to your solicitor to be sent on to the estate agent or developer, once the usual checks have been made. It is advisable for you to open a Spanish bank account at this stage. IMPORTANT – you must have an N.I.E number to buy a property or car in Spain. Your lawyer shall help you with this, but as it can take 2 to 4 weeks to come through from application, you must start the process as soon as possible so that it does not delay completion.
2. Exchange of private contracts usually occurs within 28 days after signing the reservation agreement. The private purchase contract is to be signed between the purchaser and the seller (or their authorised representatives). During this time, your lawyer has gone through the terms of the proposed contract and has completed the investigations and searches of the property and will have arranged with the seller the procedure for cancellation of any outstanding debts. It is usual to pay 10% of the purchase price at this time – this payment can be made direct to your solicitor, or into your Spanish account to be transferred on as necessary. Once this payment has been paid, both parties are tied into the contract, and neither party can pull out without incurring a substantial loss.
3. Completion (Escritura de Compraventa) - A property sale is formally completed in Spain when the title deed (escritura de compraventa) has been signed before a Public Notary in Spain, the agreed final payment has been made and possession of the property passes to the new owner. In the case of a new construction it can take 12 to 24 months before completion and usually payments are made in various stages, by bank transfers or direct debits from your Spanish bank account.
4. Registration - Once the title deed has been signed, the notary will fax a copy of it to the local land registry. Your lawyer will pay the relevant transfer taxes on your behalf and will deal with the formalities of registering your title deed. Final registration of the title deed may take several months. Your lawyer will also arrange for the transfer of accounts with utility services, such as water and electricity, through your Spanish bank account (direct debit).
A Guide to the Costs in Purchasing:
At completion, there are in 3 fees to pay when purchasing property. You should budget that the costs involved in purchasing a property in Spain are approximately 10% of the purchase price. If you have a mortgage there is an additional cost of 3% to the property purchase price.
The fees to bear in mind are:
1. Legal fees: These vary from 0.5% to 1.5% of the purchase price – these costs vary from lawyer to lawyer.
2. Notary fees: The notary charges according to a fixed scale and depending on the official value of the property. His charges may range from 300 to 1000 euros. (Double when arranging a mortgage).
3. Land Registry fees: Generally 1000€ or less. (Double when arranging a mortgage).
Wills/Testamentos:
As soon as you are a property owner in Spain, we recommend that you speak to your lawyer about arranging a Spanish Will. This shall ONLY affect your Spanish property, and shall have no affect on any of your possessions in your home country. The Spanish legal system can be complicated, so we do recommend you seek professional advice on this subject from your lawyer, at the time of purchasing.
