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Legal Formalities & Costs Involved In Purchasing Property In Spain and common questions

We always recommend that a purchaser of property in Spain retain a qualified solicitor to represent him. Should one not already have a solicitor, we can recommend one of several who are specialized in property conveyances and are fluent in English and other languages.

Purchasing property in Spain is a relatively straightforward procedure. The "last word" in property ownership is the PROPERTY REGISTRY, which will show immediately if the seller owns the property free of liens and encumbrances. Most frequently, unless an immediate cash payment of the full purchase price is made, a private contract of purchase is drawn wherein the details of the purchase are reflected -- legal description of the property, purchase price, form of payment, date of completion, date of possession, etc. Upon signing the private contract, a payment on account of the purchase price is always made which can vary substantially according to the terms of the sale and the date of completion. A quite normal deposit for completion within 30 to 60 days would be 10% of the agreed purchase price.

When the entire purchase price is paid for the property, the seller will issue the public deed of conveyance (ESCRITURA) to the purchaser, free of liens and encumbrances. This deed is issued before a Spanish NOTARY, is passed from the notary to the TAX OFFICE to be assessed for stamp duty, and then presented to the PROPERTY REGISTRY for inscription. Should it be required, a provisional inscription in the REGISTRY can be made immediately upon taking title.

Property Purchase Costs

6% TRANSFER TAX (I.T.P.) payable by the buyer for the purchase of any Real Estate (villas, flats, land, commercial premises, garages), provided the vendor is not a developer or normally trading in the business of resales.

7½% (7% VAT and ½ % STAMP DUTY) for any VILLA, APARTMENT or GARAGE annexed to an apartment where the vendor is a developer, promoter or habitual trader in these properties.

16½ % (16% VAT and ½% STAMP DUTY) for PARCELS OF LAND, COMMERCIAL PREMISES, or COMMERCIAL GARAGE SPACES, where the vendor is a developer, promoter or habitual trader. This covers virtually all NEWLY URBANIZED LAND PARCELS and NEWLY BUILT COMMERCIAL PREMISES, and resales only where the vendor falls in one of the above categories.

Notary Fees & Property Registry Inscription Fees
Notary fees should amount to no more than €902/£566 , although the cost increases according to the number of pages or complexity of the title deed (eg. transcription of statutes, payment in stages). As an example, an apartment costing €300,506/£186,314 will cost around €481/£298 in notary fees, whilst a villa costing €601,000/£373,000 will cost around €601/£373 in notary fees. Any higher than this amount, the fees go up very slightly: eg. a €1.202,000/£745,000 villa would cost around €661/£410 in notary fees The property registry inscription fees run at 65% of the notary fees.

Plus Valia
An "added value" tax based upon the increase of the Town Hall Index value of the price per square metre OF THE LAND from the prior (vendor's) purchase to the present sale.

This tax corresponds in principle to the seller, but, in common practice, is often paid by the purchaser. As there are several variable factors used in calculating this tax (location, area of land, building volume permitted, period of ownership of the vendor), the amount payable can vary substantially and should be verified before proceeding with the purchase. The basis of the calculation remains the same whether or not the land is built upon.

IN SUMMARY, the total official costs involved in purchasing property should be less than 7%, more or less than 8½% if VAT is paid of the purchase price, plus the PLUS VALIA if applicable.

Other Costs Involved in Owning Spanish Property

Local Rates
Local rates are payable annually, and are calculated from the catastral or rateable value of the land assigned by the Spanish Tax Office. The catastral value takes into account the value of the land plus the value of the building, according to type, location, and usage. Upon this value, each municipal Town Hall decides on the percentage to be charged in respect of local rates. In the case of Marbella, the formula applied is 0.85% of the rateable value of the property, which is almost always far less than its true market value.

Examples: A 2 bedroom apartment in the beachside complex of Puente Romano Phase II, which is in the heart of the "Golden Mile" paid 123.691 Ptas. in 1998 rates ($669) (£467). A free standing villa in the luxury Ancon Sierra development, again, in the heart of the "Golden Mile" paid 127.332 Ptas. in 1998 rates ($688) (£480). A large beachfront estate with some 10.000m² of land paid 769.254 Ptas. in local rates in 1998 ($4,158) (£2,903).

Rubbish Collection & Water Rates
The rubbish collection rate is applied by the Town Hall according to the property and payable every 6 months. Water consumption is calculated by the water meter and is payable every 3 months. Payment can be made directly at the Town Hall or by bank with direct debit instructions.

Community Fees
As a general explanation, the COMMUNITY OF CO-PROPRIETORS or HOMEOWNERS' ASSOCIATION, is a legal entity comprised exclusively of the owners of the apartments in a building, or villas on an estate. The purpose of the Community is to own and maintain the COMMON ELEMENTS of the building or estate in question, and a homeowner participates in the expenses of the community on a pro-rata basis with the other owners. Usually his percentage of the costs is fixed by the size of the apartment, or plot, divided by the total area of all the apartments or plots.

A budget for the annual community expenses is presented at the ANNUAL GENERAL MEETING OF CO-PROPRIETORS, and the owners or their representatives must approve the budget by majority vote of those present at the meeting. Expenses can vary substantially, according to the services required and normally include salary and social security of the hall porter, common garden maintenance, lift maintenance, repairs to building, refuse collection, electricity for lighting common areas, insurance for building, security if required, and administration fees. The President of the community must, by law, be an owner and serves without pay.

A typical 2 bedroom apartment in a building or area with hall porter, swimming pool, and a small garden, could cost between €96/£60 to €180/£110 per month in community fees, but could go up to €360/£223 in a high luxury building with a large community staff and many services.

In the case of an individual villa, community fees are often less as the private gardens and exteriors of such properties are not maintained by the community.

Insurance
A standard insurance cost for a €300/£189,000 apartment with contents valued at €48,000/£30,000 would be €280/£175 per year. One should note that in an apartment building, the Homeowners' Association is required to insure the building for its reproduction cost. Therefore, the individual's insurance policy for the apartment need not cover the entire value of the apartment, but only damages to the interior of the apartment, its contents, and third party liability. It is also advisable to insure the building at first risk in case the Community insurance is not comprehensive. For a villa of €900,000/£558,000 with contents insured at €180,000/£110,000 the annual insurance would be in the area of €1,550/£960.

Gardeners
The upkeep of the garden is essential to the maintenance of your property and will of course depend on the type of home. As a guide, the hourly rate is about €12/£8. Apartments and townhouses have the communal garden areas tended by a contracted gardener and the cost is included in your community fees. A villa on ¼ acre plot might require a gardener a few hours a week, which costs approximately €150/£93 to €240/£150 per month. A large parcel of a full acre or more may require a half or full time gardener costing from €270/£170 part time to about €601/£373 full time per month. Social security is an additional cost to full time wages and runs in the area of 40% of the salary.

Maid Service
Generally available throughout the Marbella area on a full time salary or hourly basis. Full time salaries range from €421/£264 to €601/£373 per month plus approximately €120/£75 per month social security contributions. Part time help is usually charged by the hour with rates varying from €6 to €10 / £4 to £6.

Electricity
Charged bi-monthly with minimum rates applicable (whether you are in residence or not), varying according to the amount of electricity your house could potentially use with all power and lights turned on. The minimum charge for an apartment might be between €24 and €36 / £15 and £23 per month; for a villa perhaps €60 to €90 /£37 to £55 per month, depending largely on the electrical installation. Usage is €0.08 /£5p per Kwh plus tax. It is therefore difficult to give guidelines, but rates are slightly higher than in many European countries. But with all the sunshine in Marbella, one uses less lighting and heating than in other countries!

Telephone
Charged also bi-monthly. Standard rates vary according to equipment installed, but can be in the region of €14 / £9 per month including a touch-dial telephone. Direct dial calls area assessed on a counter system. A 3 minute call (daytime business hours) to any European Community country, direct dial, presently costs about €1.50 /93p.

Miscellaneous Questions & Answers

Q: Is financing available?

A: Spanish are highly competitive in offering mortgages on new properties as well as resales. Common terms offered are mortgages from 5 to 15 years, often up to 80% of the purchase price at 1 to 2 points over the current EUROBOR rates. The applicant must of course qualify for the loan, and the property value must be appraised by the bank. The appraised values are, generally speaking, coinciding with the market values.

Q: What if I want to rent out my property?

A: Depending of course on where you purchase, often the central administration for the apartment building or the estate (urbanization) will offer a reasonably efficient letting service. In other cases, there are property rental agents that can find you a tenant. Panorama has an in-house rental department that specializes in long term lets. It should be said that letting a property usually covers the running costs rather than making a significant return. Generally speaking, a well furnished 2 bedroom apartment in a good complex with pool, can fetch between €1.080/£670 and €1.352 /£838 per month, electricity and water paid by the tenant, the owner paying the community fees and property taxes. Agency fees for finding the tenant are roughly 10% of the annual rental. In addition, property management services are charged according to the requirements of the owner. It is advisable to contract a management company in the event that the owner does not live nearby, in order to attend to any repair jobs, payments and other issues arising during the tenancy.

There is a steady demand for villas and townhouses in long term lets, a well located and good quality 4 bedroom villa with pool and garden, fetching in the area of €3.000 / £1.860 per month. The owner usually pays for the upkeep of their garden and pool, whilst the tenant pays for the electricity and water. Holiday or short term lets, such as the month of July and August can fetch up to 4 times the price of a long term let, again, requiring an agency to source clients, and the owner or a management company to prepare the property for the let. If you are intending to use the property for part of the year, it's important to establish fixed dates of availability so that your agent can take bookings automatically. The property should have a full inventory and include laundry and cleaning services and someone to take care of the arrivals and departures. Agency fees are in the area of 20% to 30% for this type of let.

Q: When I sell my property, may I remit the proceeds of sale back to my own country?

A: A foreigner who is a non-resident of Spain has the right to sell his property to another non-resident foreigner entirely in foreign currency, with payment made outside of Spain. There is, therefore, no question of remitting the proceeds from pesetas to foreign currency as the sales price can be paid in the foreign currency itself and wherever desired.

It should be noted that, since 1997, a 5% tax retention is effected by the tax authorities upon the sale of any property owned by a non-resident vendor, which is applied towards the capital gains tax (currently 35%) and if the amount withheld is greater than the tax due, it can be reclaimed in part from the tax office. Those sellers today who have owned their property prior to 1986 currently pay no capital gains tax upon a sale.

Q: Who pays estate agency fees in the sale of a property?

A: The agent's fees are always paid by the seller, unless you agree otherwise with your agent. Although your agent is remunerated by the seller, he has an ethical obligation to see that the purchaser gets fair value for money, and a legal obligation to see that the title deed to the property is passed free of all liens and encumbrances. PANORAMA provides an exceptional AFTER SALES "SETTLING IN" SERVICE for its clients, totally free of charge, as part of general company policy.

Q: How will I deal with standard bills, e.g. electricity, water, telephone, rates etc?

A: Frequently the administrator for the Community of Homeowners will settle these bills, but if not, it is common practice in Spain to issue standing instructions to your bank to pay them on your behalf.

Q: What is an urbanization?

A: An urbanization is a planned community which has met the standards of the various governmental agencies in respect of the use of the land (residential, commercial, sports area, green zones), and with respect to providing a minimum of services and a minimum of quality control of the construction of roads, sidewalks, drainage, sewage systems, electricity and water installations, etc. To obtain permission to develop land into an urbanization can take a developer over a year and several million pesetas of expense. An owner's obvious advantage is the fact that the land usage is strictly controlled. If one decides to build a house on a plot in a section of an urbanization zoned exclusively for single family dwellings, he is assured by law that neither an apartment block nor a rabbit farm can be located on the single family plot adjacent to his!

There are several zoning classifications for rural land outside of urbanizations. Marbella has just updated its master plan and great care should be exercised in purchasing land outside of an urbanization: under most circumstances one may not be able to build upon land which is not within an urbanization.

Q: What about taxes?

A: In addition to the annual IMPUESTO SOBRE BIENES INMUEBLES (Rates) paid on all property to the Town Hall, foreigners who are not resident in Spain are subject to pay a WEALTH TAX (IMPUESTO DE PATRIMONIO) on their assets in Spain including real estate. The amount is calculated on the individual wealth.

Two examples on how to use the tax table:

If you have assets in Spain of €300.000/£186,000 you simply multiply this amount by 0,2% and find that the tax is €600/£372.

If you have assets, of, let us say, €240.404,84, the calculation is the following: on the first €163.847,92, you pay the fixed amount of €327,70, and on the difference up to €240.404,84, that is €76.556,92, you apply the % 0,3, that is €229,67 Added to the fixed payment, your total tax payment for wealth will be €557,37.

NON-RESIDENTS are now obliged to appoint a FISCAL REPRESENTATIVE to whom official notifications regarding your property will be directed. The law is highly advantageous to the foreign owner as it protects an owner from having his or her assets repossessed by the inland revenue due to non-payment of taxes, for example. In previous years, there were cases of non-residents coming to Spain only to find their properties had been embargoed and even sold over, all due to the fact that the owner had been officially notified at a local address and found to be absent! To contract a fiscal representative one need look no further than one's own lawyer who will refer you to his tax consultant.

Also, NON-RESIDENTS are subject to filing INCOME TAX FORMS and paying tax for any income received in Spain at the flat rate of 25%, including the rental of real estate, even if paid abroad. Every non-resident is assessed on income tax even if there is no real income (on the theory of derived benefit) at 25% of 2% of the rateable value of the property value ("valor catastral"), which equals ½% of the property value per year.

Upon the sale of real estate (when the seller is a non-resident), there is an automatic tax retention of 5% of the sales price, payable against a 35% capital gains tax. If the seller is a resident in Spain, there is a flat rate of 18% capital gains tax if the property has been owned 1 years or more, adjusted to compensate for inflation.

RESIDENTS in Spain are subject to filing Income Tax Forms and declaring the income they receive regardless of source. For tax purposes, one is considered a FISCAL RESIDENT if one resides in Spain over 183 days per calendar year, whether or not one holds a resident's permit.

Q: How long can I stay in Spain as a tourist?

A: Europeans from the E.U. can stay in Spain indefinitely. Visas are not required for some other countries such as the United States, but are still required in other cases, depending on one's country of origin, and with varying lengths of stay permitted.

Q: Are there medical & health insurance facilities?

A: Marbella has the newest, most modern and well equipped Regional Hospital in Spain, in addition to a good, well equipped Clinic with a substantial selection of general practitioners and specialists.

Medical insurance is available privately through various reputable medical insurance groups such as SANITAS, which costs about €42 /£26 per person per month, depending on age and state of health. There is reciprocity between the Spanish and the British Social Security systems and other EEC countries, for retired persons.

Spain's social security system now allows for Common Market contributors to access the National Health service via a special form (E-101). For residents who are self-employed or own a company, or are employees, your social security contributions automatically entitle access to the Spanish National Health.