All you ever need to know about buying your dream property in Spain
Buying a place in the sun is exciting, and Spain has a lot of sun, over 320 hours of it in fact! You can find out more about the area here. Nevertheless, it is wise to do things correctly and arm yourself with as much knowledge as possible before deciding on that dream home.
One of the most important things to do is to appoint your own independent lawyer to help you with the purchase, just the same as you would do when buying a property in your home country.
The Buying Process
Once you have found that dream home in the sun, the buying process gets underway with a reservation agreement. The purchase price is then frozen, and the vendor/agent takes the property off the market for an agreed amount of time, usually 30 days. A fee of 10% of the agreed sales price is paid as a deposit, and the reservation contract is signed. The deposit will be held by your agent/lawyer in a client or escrow account and taken off the final purchase price.
- Shortly after the signing of the reservation agreement, and usually within 7-10 days, the full Contrato de arras, (private purchase contract) is signed by both the buyer and the seller. This is very much similar to exchanging contracts in the UK buying process. By this time your lawyer should have completed all the necessary searches required on the property and should be able to confirm that the seller does indeed own the property, that there are no mortgages or charges against the property, and that planning consents are in order.
- Once both the buyer and seller have signed the main contract, it becomes binding. The Contrato de arras contract usually requires 10 – 20% of the full purchase to be paid as a full deposit. This commits the buyer to pay the balance of the full price, and, the seller (once the funds have been received) must transfer ownership to the buyer. If the buyer then pulls out of the purchase, they will lose the deposit, but, if the seller pulls out, he will have to pay back double the deposit by way of compensation. A creative way of nipping good old gazumping in the bud, not so relevant nowadays, but still offers stability for both buyer and seller at what can be a tense time during the buying process.
- The sale of the property is formally completed once the title deed or, “Escritura de Compraventa” is signed before a Notary, or Notario (a public official). This happens at their office and will be accompanied by the payment of the agreed final balance, and all the associated purchase taxes. The Escritura is then presented to the Land Registry by the Notary for registration, and the property is handed over to the new owner. The final registration of the title deed has been known to take several months.
The process is a little different with a new-build property since completion can take a lot longer, payments can be split over different stages of the build process. The developer should provide bank guarantees against each payment. This guarantee will protect your payments in case the developer goes bust or fails to complete the property.
It is hugely important to make sure that you have adequate insurance for the property, make sure all utilities and service contracts have been changed to your name, (electricity, water, telephone and internet etc.) and register the new ownership of the property at your local Town Hall “Ayuntamiento.” Your lawyer should be able to assist you with this.
Power of Attorney
Just the same as in the UK, it is possible to authorise a third party (typically your lawyer) to act for you and deal with all your Spanish legal matters. This is often a wise move, as not only can travelling to Spain to sign documents become inconvenient, or mean that you miss an essential signing date through ill-health or travel disruption, it can also work out expensive if multiple trips are needed.
A Power of Attorney can either be limited to a specific function, such as signing the Escritura (Deeds) to your intended property on your behalf or can be general and cover a whole range of requirements.
It is not possible to buy a Spanish property without your NIE number. (Numero de Identificación de Extranjero) This is just a tax number for foreign nationals, that is simple to apply for. Again, your lawyer should be able to help you with this. Ideally, apply for this as soon as you start the search for your dream property.
- You can apply for your NIE yourself, or, dependant on the rules in the region ask your appointed lawyer to take care of this for you.
- Your NIE number can be obtained from the Policia Nacional. They have offices in all the major towns and cities throughout Spain.
Who Does What
Spanish property can be purchased very quickly if you are a cash buyer and you have an NIE number. Assuredly, it is not unheard-of for the Spanish, to see a property and be the owner later the next day!
But! this is not the recommended way to go for anyone not familiar with the Spanish buying process, and we would heartily suggest that you never rush to buy, or be rushed into buying by unscrupulous agents. A better course of action would be to give your lawyer and building surveyor plenty of time to conduct their investigations comprehensively.
It is always much better to miss out on a fantastic bargain than buy a property with problems that come to light later, which you live to regret.
As soon as you have decided on the area where you would like to buy, you should locate a lawyer form that same area who can act for you as Spanish bureaucracy changes between regions. This is an important move, as the services of an excellent lawyer are critical to the smooth purchase process of a completely legal, sound, Spanish property, without any possible liabilities.
When you are looking for a lawyer, remember you will need one who is is:
- Fluent in English:
- A specialist in conveyancing
- Independent of the seller/developer and your estate agent
- Fully insured to a public liability well above the value of your purchase (ask to see the policy).
Furthermore, insist that all the advice from your lawyer is put in writing, many Spanish lawyers are reluctant to do this, insist as it focusses the mind of your lawyer and supports a higher standard of professionalism.
Finally, always get your lawyer to examine any paperwork or contracts before you sign them, No matter what it relates to, i.e. banking, estate agent, building works etc.
Taxes and Fees
The amount of tax you pay when buying a Spanish property will largely depend on whether or not you are a tax resident. Tax residence is defined by several factors – including how long you spend in Spain, if Spain is where your main home is, and if your main economic interest is there. If you become a tax resident in Spain, then you would then stop paying taxes in your home country and pay tax in Spain instead.
- IVA (VAT) is a tax payable by the purchaser if the vendor is deemed 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 you are buying a resale house (when you will not be the first owner), then you will have a Transfer tax (Impuesto sobre las Transmisiones Patrimonilaes) to pay. This ranges from 8 to 10% depending on the fiscal value of similar property in the area. This you will need to pay 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, this is not normally a huge amount.