We would like to inform you on the recommended steps and procedures before buying a property in Spain:
- Check the legal status of the home by going to the Property Registry, ensuring that the seller is the true owner and that it is free of encumbrances that may reduce the value of the property. This is validated with a Property Registry Certificate.
- Examine the existing mortgage charges; it is important to know whether the home that you are acquiring has a mortgage (this information is available in the Property Registry). If so, we recommend you ask the vendor for proof from the bank of the amount outstanding and, in the case of subrogation, you should negotiate a better interest rate with the bank, because you are not obliged to take on the existing vendor’s mortgage under the same terms; you may demand its cancellation or obtain a new loan from another entity.
- Documents that certify the legality of a home:
- Planning/construction permit. (For 1st hand properties)
- First occupancy permit. (For 1st hand properties)
- Certificate of occupancy, to ensure that the home is habitable.
- Registration forms and/or contracts from the various supply companies.
- Entry from the Property Registry for proof of an existing insurance by Law against hidden defects or faults in construction.
- Owners’ Association By-laws (or entry in the Property Registry of the deed of new construction and horizontal division).
- In the case of a resale home, ask for the receipt for the last instalment of IBI (property tax) and certification of payment of the community of owners’ fees, proving the property is burden of no debts.
- To formalise the sale, it must be through a Notary. The public deed is essential for entering it in the Property Registry and validating your rights as owner against third parties.
- Taxes on the sale transaction:
- If buying a new home (bought directly from the promoter), the vendor must pay the Value Added Tax (VAT) which is a 10% of the declared price. In case of buying a new house also the Stamp Duty is payable with a rate of 1,2 % (In Andalucía) of the declared price.
In case of signing a notarised document to be inscribed on the Registry, like a mortgage, it must also pay Stamp Duty in a rate of 1,2 % of the total responsibility (which is calculated normally in a 140% of the loan amount). Due to changes in the internal rules, this tax is now paid by the Bank.
- In the case of buying a second hand property the buyer must pay Transfer Tax calculated on the declared price or the minimum fiscal value of the property (the highest value of either of them)
In Andalucía the rates of the Tax are: 7% of the highest amount between: purchase price or catastral reference value.
- Maintenance payments once the purchase is complete:
- The owner must pay an annual Local Rate Tax (IBI) and Quarterly Rubbish Taxes, which are calculated on the presumed value of the property, assigned by the Town Hall.
- Annual Non resident Income Tax return.
- In case the property has been rented, the base of the tax would be the rental income received during the year, deducting the rental expenses. For the year 2018, the rate of tax is 19 % on the income received (for residents of the EU). (For non EU residents, the rate is 24%, and rental expenses cannot be deducted). Now British are considered non UE residents for these purposes.
- In case the property has not being rented, the tax liability is calculated on the presumed income. The presumed income is calculated based on the cadastral value shown on the IBI receipt. The base of the tax is 1,1 % of that amount and the rate for 2018 is 19% (For EU residents). (24% for non EU residents). Now British are considered non UE residents for these purposes.
- Community of Owners fees (if the property is part of an urbanization or community).
- Supplies (water, electricity, telephone…). Normally there is a minimum fee for maintenance, even if there is no consumption.
In the event of the sale, the vendor has to declare Capital Gains Tax:
In case the vendor is AN INDIVIDUAL AND A NON FISCAL RESIDENT IN SPAIN:
- The buyer is obliged to retain 3% of the price and deposit it in the Tax Office in the name of the vendor, as payment on account of the capital gains tax (this is compulsory, it does not matter if there is a gain or a loss).
- Then, the seller, presents a capital gains tax return for the difference between the sale value and the acquisition value. If there is a gain, the rate of tax to pay is 19% on the gain, for the year 2021. The tax figure to pay is compared with the amount already retained by the buyer, and if the retention higher, the seller can request the refund of the difference, to the tax office.
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