LEGAL4SPAIN.COM - Blog-Updates

LEGAL4SPAIN.COM - Blog-Updates

Topics

Spanish Wills
Estate Planning
Probate in Spain
Spanish Assets Sales

USEFUL LINKS FOR SPANISH PROPERTY OWNERS:

Estate planning for Expats

How to access healthcare as a permanent resident of Spain

Selling a Spanish Property Out of Probate

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:36:02

September 21st, 2015

In many cases, whether spouse-to-spouse inheritance or passing down the family line, beneficiaries wish quickly to sell inherited Spanish properties.

In order to complete a Spanish property sale following the death of an owner (or co-owner), the succession process must be completed first.

The seller or sellers must be alive; have legal capacity demonstrated in the personal attendance at the Notary’s on completion of the sale, or be validly represented under Power of Attorney.

In many areas of Spain (even in an active market), the process of selling a property can be fairly lengthy.

There is no problem therefore (in order to get ‘the ball rolling’), in marketing a Spanish property for sale before completion of an inheritance case. But obviously, the legal position must be made clear to any interested parties. Furthermore, any contractual commitment entered into must be of a conditional nature- completion of the sale being subject to prior completion of the inheritance.

The following is a brief summary of the principal ‘paperwork’ and logistical items to attend to, before putting a property on the market for sale.

1. Property Title The original Title Deed (‘escritura’) will be needed- or if it cannot be located, then an official copy should be obtained from the Notary’s. The Registered Title details can be extracted from the Title Deed; and an up to date copy of the Registered Title should be obtained from the Property Registry. In many cases, there are discrepancies between the official Spanish property title and the position ‘on the ground’. So, it is often necessary to get the title updated prior to a sale. Banks (for buyers’ mortgages) and well advised buyers generally will wish to see correct property description in the title. Discrepancies can otherwise seriously impact on achievable value. The title rectification process can be fairly lengthy- usually with architects’ certificates and retrospective Town Hall approval required. So, it is always best as early as possible to be aware of any such issues; and to ensure that they are correctly addressed.

2. Energy Performance Certificate. In order to market a Spanish property for sale, owners are legally required to obtain an up to date Energy Performance Certificate. Competition in the market now for this service means that it is generally a fairly quick and economical exercise.

3. Local Rates Information. The rates details for the property will be needed, together with proof that there are no rates arrears. Reference numbers can usually be found on the receipts for rates (IBI/ SUMA) sent out by the local Town Hall (‘Ayuntamiento’) or the paying bank. Missing information can be obtained from the ‘Catastro’- rates department of the Town Hall.

4. Planning Permission. Such evidence as is available from the time of acquisition of the property will be required, to prove compliance with planning legislation; and permission for the legal occupation of the property. For any missing documentation, official copies- or confirmation of legal compliance- can be obtained from the planning (‘urbanismo’) department of the Town Hall.

5. Community Details. Full details of the Community Administrator should be available, together with a copy of the Community statutes and (if possible) copies of the minutes of recent Community meetings. A summary of Community charges over recent years will be needed; and also details of any forthcoming charges, which have already been notified. The most recent statement/ receipt of Community charges will be needed; and before signing the sale and purchase deed (‘escritura de compraventa’) before the Notary, a Certificate by the Community Administrator confirming that there are no arrears of Community charges will be required.

6. Tax Issues. Capital Gains Tax liability will need to be considered; and also for non-Spanish resident sellers, a tax retention of 3% of the sale price is made on completion; and fairly stringent conditions apply to reclaims, even in the event of a sale at nil gain.

7. Services Contracts. Receipts for the most recent payments of property outgoings (principally electricity/ water; and if applicable, gas) will be required, together with the latest contractual terms of supply- in the absence of copies, these can be obtained from the local offices of the services supply companies. Apportionment between seller and buyer needs to be addressed following completion of the sale.

8. Power of Attorney. If the sellers do not anticipate being personally present in Spain for the legal sale process, then it will be necessary for a Power of Attorney (containing the necessary legal powers to sell and carry out associated administrative tasks) to be signed in favour of the appointed representative/ legal adviser. A well prepared Power of Attorney for the inheritance case should include the relevant provisions, to save duplication.

9. NIE Certificates. NIE (Spanish fiscal) numbers will be required for any registered owner; and up to date NIE certificates will need to be provided to the Notary on completion. These are also required for beneficiaries anyway, so will be available from the inheritance documentation.

10. Mortgage. If there is an outstanding mortgage on the property, details will be required as to the arrangements / requirements of the lender as to redemption; and also any charges which will apply. A mortgagee representative also needs to be available at the Notary’s on completion. So, often this dictates the timing and location of completion.

11. Bank Account. Any Spanish property seller will require a current bank account in Spain into which the completion monies can be paid. Usually a lawyer’s client account will have been opened for the inheritance case and can be used for this. It is advisable to be certain in advance, as to the charges which will be applied in crediting the completion monies to the account; and for the onward transmission of the completion monies. Spanish bank charges can be surprisingly high; and the manner of payment of the purchase price; and onward transmission/ form of Foreign Exchange service used, can significantly affect the costs.

12. Legal Representative. In order to be fully protected in any Spanish property transaction, it is essential to appoint in writing a legal representative, who is independent- both from the other party to the transaction; and also from the estate agent negotiating the transaction. The appointed legal representative must be duly qualified, registered with the applicable Colegio de Abogados (Law Society equivalent); and up to date with their professional practice requirements. They must also carry adequate professional indemnity insurance cover. It is also essential that all communication is in a language which both the property owner and the legal representative speak perfectly. There should be no risk of any misunderstanding. Usually a specialist lawyer will have been engaged for the inheritance case; so they are generally the logical choice for handling the legal aspects of the sale.

13. Estate Agent Appointment. The issue of estate agent appointment in Spain can be something of a potential minefield; and is worthy of an entire separate article! Suffice to say for now that it is an area which needs to be extremely carefully handled and documented.

The above is a non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team is always available to provide preliminary advice on a no-obligation basis in relation to probate and/or a sale or purchase of a Spanish property.



Avoiding Legal Problems with Spanish Property Transactions

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:34:25

April 6th, 2015

As the Spanish property market news headlines switch to recovery mode- with sales on the increase, profits to be made; so the prominence recedes of the Press focus during the recessionary period, of the supposedly ‘high risk’ nature of Spanish property ownership- from demolition orders for planning defects; through properties falling down with no right to compensation for distressed owners; to unscrupulous intermediaries disappearing with client funds.

But the common theme throughout the previously reported disaster cases must not be forgotten. In the vast majority of problem cases of Spanish property ownership, there was no independent professional legal representation at the time of purchase or sale; or perhaps worse still, reliance upon unqualified/ incompetent legal representation.

Obviously non-Spanish owners of Spanish properties wouldnever dream of property dealings in their own country without proper legal representation. So it is quite astonishing that in Spain, often with no knowledge of the legal system or even the language, private investors decide to ‘take a flyer’ in terms of the detail of the Spanish legal process!

It is precisely because of the well-documented risks in Spanish property ownership and the frequent lack of clarity as to transactional costs and taxes, that independent professional legal representation is essential for Spanish property purchases and sales.

With proper professional advice, instead of taking a high-risk gamble, owners of Spanish property can invest intelligently and securely in real estate in Spain.

Some key points for buyers and sellers of Spanish properties:

1. Ensure that your lawyer speaks your language fluently. For a significant investment such as real estate, everything must be completely clear.

2. Ensure that your lawyer is qualified and registered in Spain with the Colegio de Abogados, to be certain of professional regulation. (And check that there is adequate professional indemnity insurance in place to cover the risk of anyproblem with their work).

3. Ensure that your lawyer is dual qualified and professionally regulated both in Spain and in your own country, to have a full grasp of all the tax implications of your Spanish property investment. This enables dealings in Spanish real estate to be conducted in the most tax efficient way, having regard to your tax liabilities both in Spain and crucially, also in your own country.

4. Ensure that your lawyer acts independently from the estate agent, developer or other parties to the transaction. If there is any connection, ensure impartiality and the usual professional clearance of anyrisk of conflict of interests.

5. Ensure that your lawyer provides you at the outset with a clear written budget of all costs and taxes; and undertakes to follow up at the end of the case with a final, clearly detailed cost and tax summary.

6. Ensure that your lawyer operates an individually designated client accounting system for your full financial security.

7. Ensure that your lawyer provides a written report on title, well in advance of a contractual commitment, confirming all title and planning information in relation to the property. All parties to a transaction must be completely clear on all aspects before a contractual commitment is made.

8. Ensure that an initial private contract is entered into, with a deposit paid on exchange of contracts. This provides security for both parties; and protection against wasted/ abortive costs and unscrupulous behaviour in terms of last minute negotiations.

9. Ensure that your lawyer (usually in conjunction with the estate agent) attends to the transfer of services to the property following completion.

10. Specifically ask your lawyer to confirm the above points, to ensure that nothing is overlooked; and that you are fully protected by your legal representation.

The above is a non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.



Preparing for Selling a Spanish Property

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:30:36

December 2nd, 2014

Advance preparation for the sale of a Spanish property can simplify and speed up the sale process; and minimise transaction costs.

The following is a reminder of the principal ‘paperwork’ items to attend to, before putting a property on the market for sale.

1. Title Deeds. The original Title Deed (‘escritura’) will be required- or if it cannot be located, then an official copy should be obtained from the Notary’s. The Registered Title details can be extracted from the Title Deed; and an up to date copy of the Registered Title should be obtained from the Property Registry. Sometimes there are matters which may require attending to before the property can be sold- for example, references to previous mortgages may need clearing off the Registered Title; or there may be inheritance issues which require completion; or title/ property description corrections.

2. Energy Performance Certificate. In order to market a property for sale, Spanish property owners are legally required to obtain an up to date Energy Performance Certificate. Usually, estate agents are able to recommend local authorized certificate providers.

3. Rates Information. The full rates details for the property will be required, together with proof that there are no rates arrears. Reference numbers can usually be found on the receipts for rates (IBI/ SUMA) sent out by the local Town Hall (‘Ayuntamiento’) or the paying bank. Missing information can be obtained from the ‘Catastro’- rates department of the Town Hall.

4. Planning Permission. Such evidence as is available from the time of acquisition of the property will be required, to prove compliance with planning legislation; and permission for the legal occupation of the property. For any missing documentation, official copies- or confirmation of legal compliance- can be obtained from the planning (‘urbanismo’) department of the Town Hall.

5. Community Details. Full details of the Community Administrator should be available, together with a copy of the Community statutes and (if possible) copies of the minutes of recent Community meetings. A summary of Community charges over recent years will be needed; and also details of any forthcoming charges, which have already been notified. The most recent statement/ receipt of Community charges will be needed; and before signing the sale and purchase deed (‘escritura de compraventa’) before the Notary, a Certificate by the Community Administrator confirming that there are no arrears of Community charges will be required.

6. Capital Gains Tax/ Accounting. If applicable, (check with fiscal adviser) all construction/ works invoices and other accounting paperwork should be collated to be ready to provide along with fiscal submissions relating to Capital Gains Tax liability- principally to ensure readiness for claiming any applicable deductions/ allowances.

7. Services Contracts. Receipts for the most recent payments of property outgoings (principally electricity/ water; and if applicable, gas) will be required, together with the latest contractual terms of supply- in the absence of copies, these can be obtained from the local offices of the services supply companies.

8. Power of Attorney. If the sellers do not anticipate being personally present in Spain for the legal sale process, then it will be necessary for a Power of Attorney (containing the necessary legal powers) to be signed in favour of the appointed representative/ legal adviser.

9. NIE Certificates. NIE numbers will be required for any registered owner; and up to date NIE certificates will need to be provided to the Notary on completion.

10. Mortgage. If there is an outstanding mortgage on the property, details will be required as to the arrangements / requirements of the lender as to redemption; and also any charges which will apply.

11. Bank Account. Any Spanish property seller will generally require a current bank account in Spain into which the completion monies will be paid. It is advisable to be certain in advance, as to the charges which will be applied in crediting the completion monies to the account; and for the onward transmission of the completion monies. Spanish bank charges can be surprisingly high; and the manner of payment of the purchase price; and onward transmission/ form of Foreign Exchange service used, can significantly affect the costs.

12. Legal Representative. In order to be fully protected in any Spanish property transaction, it is essential to appoint in writing a legal representative, who is independent- both from the other party to the transaction and also from the estate agent negotiating the transaction. The appointed legal representative must be duly qualified, registered with the applicable Colegio de Abogados (Law Society equivalent) and up to date with their professional practice requirements. They must also carry adequate professional indemnity insurance cover. It is also essential that all communication is in a language which both the property owner and the legal representative speak perfectly. There should be no risk of any misunderstanding.

The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.



Costs of Selling a Spanish Property

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:28:29

October 14th, 2014

Before setting a sale price, Spanish property owners who are considering selling should be aware of all the associated costs and taxes, in order to be able accurately to calculate the net amount they will receive from the sale.

The costs and taxes on selling a Spanish property can typically be in the range of 10-15% of the sale price, in total. The following is a reminder of the principal areas to consider.

1. Estate Agency Fee. The seller usually covers the estate agency fee. The applicable percentage of the fee needs to be individually negotiated in each case. It will be determined by the nature and location of the property; its price; and the detail of the service which will be provided by the estate agent. The typical range of estate agency fees for ‘ordinary’ Spanish property sales is 3-5% plus IVA. (A higher % applies if it is a low value transaction).

2. Energy Performance Certificate. In order to market a property for sale, Spanish property owners are legally required to have an up to date Energy Performance Certificate. Usually, the estate agent will be able to recommend a local authorized certificate provider. In terms of pricing, it is a fairly competitive market now; and there are a number of certificate providers covering wide areas, so it is easy to determine a fair price for this service.

3. Tax Retention on a Spanish property transfer. When a non-Spanish resident owner of a Spanish property sells, the buyer has to retain 3% of the declared sale price and pay this to the Spanish Tax Authority. So, this is a 3% deduction from the amount the seller receives. In some cases, the retention can be reclaimed subsequently, but the reclaim process can be quite convoluted and expensive to pursue.

4. Plus Valia Tax. When there is a transmission of a Spanish property interest, the local Town Hall is entitled to charge Plus Valia Tax, which is calculated by reference to the rateable value of the property and the period of ownership. In a sense, it is a hybrid between a stamp duty and a local level capital gains tax. The amounts in question vary widely from area to area; and in some areas the charge is surprisingly high. So, it is always essential to have a clear idea in advance of the Plus Valia which will be payable on a sale.

5. Community Administrator Certification. It will ordinarily be a term of the sale that the seller pays all outstanding community charges up to the date of completion. This is confirmed by the provision of a Community Administrator’s Certificate, which the seller procures (and pays for). The charge for the provision of this certificate typically ranges from 50-100 Euros.

6. Capital Gains Tax. A seller of a Spanish property might potentially face an obligation to account for any profit in Spain and/ or in their home country (if a non-Spanish resident). But this is a case-specific issue, so advice should always be sought in both jurisdictions before proceeding with a sale, to ensure full fiscal compliance.

6. Legal Fees. Expert independent legal representation is essential when selling a Spanish property (please see our previous Blogs for details). The cost depends on the value of the transaction and its complexity. But typically, 0.75- 1% plus IVA (usually subject to a minimum fee level) should be budgeted for.

7. Bank Charges. Bank charges in Spanish property transactions can be surprisingly high. Some Spanish banks even charge to receive funds; and always to transfer funds following completion. Often the charge is a significant %. So, this should be confirmed in advance. If net sale proceeds are to be repatriated to the seller’s country of origin, then (if outside the Eurozone), a specialist Foreign Exchange broker should be used. This will improve on the direct bank to bank FX rate; and there is then greater control over the timing of the transfer; and agreement of the applicable FX rate. This specialist service can also be useful, in case Tax Authority source of funds certification is required.

8. Mortgage Redemption Charges. If the property is owned subject to a mortgage, then before agreeing a sale, the terms of redemption of the mortgage (or its transfer to another property) must be confirmed with the bank. Sometimes a substantial redemption fee can be payable.

9. Notary Costs. Although technically this should be a shared cost, it is often the case that the buyer pays the Notary fee. But sellers need to be aware that this is an area of possible negotiation. The amount of the Notary fee will depend on the value and complexity of the transaction. But we recommend that the budgeted figure is around 0.75-1% plus IVA. So it is important to agree before exchanging contracts, how this cost will be borne.

10. Property Registry. The buyer almost always bears the Property Registration cost, so this should not be an issue of concern to the seller. But as an aside, the Property Registration cost also depends on the size/ complexity of the transaction; and also the type of property and its location. The Property Registration cost is typically around 0.5-0.75%.

In conclusion therefore, most well advised Spanish property owners will assume a typical range of 25-30% to cover the ‘in and out’ costs and taxes when assessing the total cost of buying and then later selling a Spanish property.

This general commentary is not intended to be exhaustive; and case-specific legal advice should always be sought.

The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.



Costs of Owning a Spanish Property

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:25:39

September 1st, 2014

Before committing to the purchase of a Spanish property, it is important to have a full understanding of the on-going costs and taxes associated with Spanish Property ownership.

1. Rates (IBI/ SUMA). Town Hall rates are payable by almost all Spanish property owners (whether resident in Spain or not). The amount is calculated by reference to the rateable (Catastral) value of the property- an important figure, also for other taxation purposes. Some Town Halls charge rates in installments; others in a single annual charge. Following a property transfer, it can take the Town Hall up to a year to update their records with the new owner’s name.

2. Rubbish Collection (Regogida de Basura). Some Town Halls include rubbish collection services in the rates charge (above). But, some Town Halls chare separately for this aspect of local services – either in installments or annually. In applicable areas, all property owners have to pay this, irrespective of whether or not they are Spanish resident; and irrespective of the number of days they occupy the property, actually generating rubbish!

3. Non-Spanish Residents Tax (Renta de no residentes imputada de Bienes Inmuebles). This tax is payable annually in arrears by Spanish property owners who do not live in Spain, but who own property in Spain for their personal use. For example, the tax is payable by 31 December 2014 in respect of the calendar year 2013. The tax is calculated by reference to the Catastral value (see above). The Spanish Tax Authority in effect, charges a tax for the lost opportunity of renting the property out- (which would otherwise generate a taxable Spanish income). It is a difficult head of taxation to explain/ justify. Perhaps an assumption at one time was made that non-Spanish resident property owners would rent out their Spanish property, but would not declare the rental income to the Spanish Tax Authority. For legally/ fiscally compliant Spanish property owners, it is generally regarded as an unfair tax; and therefore an (unavoidable) irritation.

4. Tax on Rental Income. This head of taxation is for owners of Spanish properties (whether resident in Spain or not), who do actually rent out their property. The applicable rate of taxation is 24.75%. Specific fiscal/ accountancy advice is needed in each case, not just to meet fiscal filing requirements; but also to ensure that deductions and allowances are properly applied, to minimize the taxation burden as much as legally possible. If a non-Spanish resident rents out their property for only part of the year, then an apportionment has to be made between the period of imputed rental income (see 3 above) and actual rental income.

5. Wealth Tax. Both Spanish residents and non-residents need to consider whether they are liable to pay Spanish wealth tax each year. The Spanish Tax Authority regularly changes the requirements. Generally, the exemptions are substantial. In the vast majority of cases of non- Spanish resident owners of Spanish properties, as it is only their assets in Spain which are taxable, the allowances are more than sufficient to provide a full exemption.

6. Community Charge. The vast majority of Spanish properties form part of a Community of owners. Each individual owner must pay their proportionate part of the Community (or block) costs. The amount and regularity of payments depends entirely on the nature of the Community; its facilities; and timing of the expenditure cycle (i.e. whether in a period of routine maintenance/ expenditure, or if exceptional work is to be carried out). In the purchase of a Spanish property, a buyer must: obtain Community charge payment history; review recent Community meeting minutes and resolutions; and make enquires of the Community Administrator, in order to be clear as to the anticipated liability.

7. Parking/ Street Access. Some Town Halls enforce an obligation for Spanish property owners to pay an annual charge/ tax for a ‘Vado Permanente’, being a right of access from the property on to the adjoining road (where applicable). Again, this is a difficult tax to explain/ justify, as it presupposes that the property owner has paid the rates on the property; and local car tax. But then an additional annual tax is levied in applicable cases, in order to be entitled to move your car from your property on to the public road! At the time of purchase of a Spanish property, an enquiry should be made of the local Town Hall to see if this charge applies. Also in some areas, there are street parking/ local residents’ street parking charges.

8. Utilities/ Services. Spanish property services costs are very much case-specific; and a full understanding is necessary before buying a Spanish property. The nature of the services available varies according to the location of the property and the type of property. For example, some areas have mains gas supply, others don’t. Rural properties may have Community arrangements for the (non-mains) supply of water; some Communities include mains supply water charges in Community charges, others do not. Most properties have postal delivery services, but some do not. Also, following the purchase of a Spanish property, in order to have services contracts put into new owners’ names; independent certification of the installations (and updating works) may be necessary. So in all cases, this must be carefully investigated and budgeted for.

9. Insurance. In all cases of Spanish property ownership (as it differs from property to property), a full understanding is needed of the extent of the insurance cover which applies through the Community services/ charges; and the ‘gap’ which the individual property owner needs to cover- either with their own insurance policy or accepting the risk personally. In many cases, a good starting point is to ask the insurance agent who deals with the Community cover. It can be beneficial to have the Community insurance and individual homeowners’ insurance through the same agency/ insurance company, in order to avoid the risk of gaps in insurance protection.

10. Bank Account. All Spanish property owners need to have a Spanish bank account, for the payment of property outgoings/ local taxes, etc. Spanish banks distinguish between Spanish residents’ bank accounts and non-residents’ accounts. The account charges also vary according to the type of account. In selecting a Spanish bank, branch location and facilities are obviously important factors. However, a full understanding is also necessary of the applicable charges. Unlike many other countries, banks in Spain charge separately for everything imaginable- account holder certification; account ‘maintenance’; issue of debit card; obligatory postage of statements (despite internet access); receipt of funds into the account; funds withdrawal; issue of cheques; etc. Banking in Spain can be a surprisingly expensive business; and there are significant differences in charges from bank to bank. So, claims of ‘standard practice’ should be disregarded; and as with other services, ‘shopping around’ is recommended in selecting a Spanish bank.

This general commentary is not intended to be exhaustive, but a handy guide to some of the regular costs/ taxes Spanish property owners face.

The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.



Costs of Buying a Spanish Property

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:24:53

August 12th, 2014

In budgeting for the purchase of a Spanish property, buyers should be prepared for all the associated costs and taxes, to ensure that the total cost of purchase can be properly assessed.

The associated costs and taxes can easily add up to an additional 12-15% on top of the purchase price; and the following is a reminder of the principal areas to consider.

1. Survey/ independent valuation. The buyer must be satisfied as to the property’s true open market value and its physical condition, before entering into a contractual obligation to purchase. Independent professional advice is recommended; and the cost will depend on the nature and complexity of the property and advice needed. But typically (if not included in a mortgage budget), 0.5-1% plus IVA should be budgeted for as a minimum, for obtaining reliable independent professional advice of this nature.

2. Purchase taxes. The rate of purchase tax the buyer faces depends on where the property is situated. Also, whether the seller is a developer selling a newly built property; or it is a private/ resale of a property. But this tax alone can be as high as 10% of the purchase price, so it is essential for buyers to be clear at the outset as to the applicable tax rate for an intended purchase.

3. Tax retention on a Spanish property transfer. When a buyer purchases from a non-Spanish resident seller, the buyer has to retain 3% of the declared purchase price and pay this to the Spanish Tax Authority. But although the buyer takes responsibility for this retention and accounting to the Spanish Tax Authority, it is actually an amount paid by a non-resident seller on account of the seller’s own tax liability. So, although confusion over this issue does arise, this ‘cost’ is actually a deduction from the amount the seller receives; and it is therefore a seller’s cost, not a buyer’s cost.

4. Estate Agency Fees. The buyer should only be responsible for agency costs if a property finding service has been contracted. Otherwise, the estate agency fee should ordinarily be a cost covered by the seller.

5. Mortgage costs. A buyer who is taking out a mortgage to fund a Spanish property purchase typically needs to budget on an additional cost exposure of 2% plus IVA, taking into account: survey/ independent valuation (to be recommended even if there is no mortgage- see above); additional Notary/ registration fees; and lender charges.

6. Legal Fees. Expert independent legal representation is essential when buying a Spanish property (please see our previous Blogs for details). The cost depends on the value of the transaction and the complexity. But typically, 1-1.25% plus IVA (usually subject to a minimum fee level) should be budgeted for.

7. Bank Charges. If the purchase monies are coming from outside Spain and from non-Euro currency, then a specialist Foreign Exchange service should be used. Otherwise, up to 3- 5% can be ‘lost’ in a direct bank to bank FX/ transfer.

Additionally, some Spanish banks even charge to receive Euro transfers above a certain value. So, sometimes it can be cheaper to make multiple smaller transfers. This should be checked in advance.

Spanish banks will also charge for issuing the bankers’ draft on completion, and that alone can cost between 0.25-1% of the amount being paid. The type of cheque required and applicable charges should be specifically discussed with the bank in advance.

8. Notary Costs. Although technically this should be a shared cost, it has become normal practice in most Spanish property sales for the buyer to pay the Notary fee, but this is an area for possible negotiation. The amount of the Notary fee will depend on the value and complexity of the transaction, but we recommend that the budgeted figure is around 0.75-1% plus IVA.

9. Property Registry. The buyer almost always bears the Property Registration charges. Again, the amount will depend on the size/ complexity of the transaction and also the type of property and location. But we recommend that the budgeted figure is around 0.5-0.75%.

10. Sellers’ Costs. Thinking ahead to the future sale of a Spanish property should also be part of the buyer’s assessment at the time of purchase. In the following weeks, we will post a summary of sellers’ costs in a separate Blog. But, all matters considered, the total cost of selling a Spanish property is generally not dissimilar to the total cost of buying (so a typical guideline range being 12-15% of sale price). Additionally, a seller might also face a capital gains tax liability following the sale.

In conclusion therefore, most well advised Spanish property buyers will typically assume a range of 25-30% to cover the ‘in and out’ costs and taxes when assessing the total transactional cost of Spanish property ownership.

The Legal 4 Spain team provides a full property conveyancing service (buying and/or selling) throughout Spain. We are always happy to provide a competitive cost estimate at the outset of a transaction on a no-obligation basis.



Always Use independent lawyers in Spanish Property Transactions

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:22:36

June 26th, 2014

It is now a clearly established general principle for Spanish property transactions, that neither the seller nor the buyer can or should leave it to the estate agent to deal with the legal work in the sale or purchase. Otherwise this puts the estate agent in an impossible position professionally; and the seller/ buyer does not necessarily get the benefit of the full professional service which they need, in order safely to deal with Spanish properties.

Quite aside from the very obvious conflict of interest issues, the skill set and professional regulation and accountability between the legal and estate agency professions differ to a significant extent. So, it is very rare that a well informed buyer or seller of Spanish property will confidently conclude that their interests are properly protected if represented by the same person for both the estate agency role and the legal function.

The more experienced and professional Spanish estate agents recognise and accept this; and due to the highly damaging publicity of scandals and scams in Spanish property dealings in the recent property boom, professional operators in the Spanish property market are more concerned than ever to ensure that clients should not be exposed to this type of
pitfall in Spanish property transactions.

However, there is a separate ‘variation on the theme’, which Spanish property buyers and sellers also need to be wise to; and that is: ‘legal advisers’ who are either connected to or (perhaps of even greater concern) employed by the estate agent dealing with the sale or purchase.

As an example, an associate was recently consulted on a Spanish property sale, with a sale/ purchase contract, which oddly contained extensive skillfully crafted legal drafting to deal with the protection of the estate agent’s commission. But then, just brief and sloppy wording as to the sale/ purchase, which left the seller legally at risk; and unable easily to withdraw from the sale- even in the event of a buyer’s breach of contract.

This was completely at odds with the reality of the transaction. What should have happened was that the property sale/ purchase should have been addressed as the main issue; with the estate agent’s commission very much as a secondary concern.

It transpired that this contract had been (perhaps unsurprisingly) prepared by the estate agent’s ‘in house lawyer’. This explained the focus on the estate agent’s commission rather than the sale and purchase agreement.

Some points Spanish property buyers/ sellers should bear in mind:

1. The Solicitors’ Regulation Authority in the UK (by way of an example) has expressed concerns about the high level of risk of a conflict of interests where a lawyer employed by (and therefore seen to be advising) the estate agent is also dealing with the legal work for the buyer or seller in the same transaction. There are specific professional conduct rules; and non-compliance can lead to grave consequences for the professional in question.

2. As such, it is a well established principle in the UK (and indeed other countries) that the estate agency representation on one hand, is one professional relationship; and on the other hand, the legal representation of buyer/ seller is entirely separate and independent.

3. Many non-Spanish buyers of Spanish properties, who are very cautious in their own home countries, following ‘normal’ conventions in terms of taking independent professional advice in property transactions, come to Spain, and (for some curious reason) relax and ‘take their eye off the ball’; and take risks that they wouldn’t dream of taking at home. The best advice when addressing a Spanish property transaction is to consider all the steps and precautions you would take if buying or selling a property in your home country; and as far as possible, apply the same principles to the transaction in Spain. In fact, in nearly all respects, there is no reason at all why things should be any different in Spain. Indeed, if anything, people should proceed even more cautiously in Spain, given the well publicised cases in recent years (particularly relating to planning issues) where investors in Spanish property have lost their property or their investment. This underlines the need for top quality, independent legal advice in Spain.

4. The reality in Spain is therefore the same as in the UK/ other countries- that the functions of the estate agent and the legal adviser are entirely distinct; and should therefore be carried out by separate and unconnected professionals, to ensure that the three parties with a substantial interest in a property transaction (namely the buyer, the seller and the estate agent) are each independently advised. Each needs their interest fairly protected, to ensure an appropriate balance of the respective interests.

5. In some cases, estate agents who disregard these conventions (against the interests of their clients, it has to be said), convince the client that the client is saving money; as the estate agency fee of 3, 4 or even 5% (plus IVA) includes legal representation. But as this is not independent legal representation, properly safeguarding client interests, it is therefore impossible for this to be seen as ‘good value’. Better that the corresponding proportion of the estate agent’s fee in such cases be applied instead to the engagement of entirely independent legal advice. Economically, this should make no difference to the buyer/ seller, as the same total fee is payable. And it should make no difference to the estate agent, as one assumes that there is a cost to ‘their’ provision of legal services in this regard, so unless they are profiting from that also, the release of this function and the corresponding cost to an independent professional should be economically neutral for them.

6. If the estate agent indicates there is no cost to the provision of ‘in house legal representation’; then that also raises alarm bells, as it is impossible to provide a high quality professional service such as legal property sale/ purchase representation without any cost base- unless the skill/ quality/ qualification/ regulatory compliance of the person/ people behind the legal service simply isn’t what it should be.

7. This article should not in any way be viewed as a criticism of estate agents in Spain generally. On the contrary, the reality is that the vast majority with whom we work are truly skilled and knowledgeable property professionals- expert negotiators and transaction facilitators. It is unfortunately the very few who potentially spoil it for the many. And this is a matter of deep frustration for all who are committed to building confidence in the Spanish property market as a secure destination for inward investment. You are referred to our Blog of 1st October 2013, with advice on appointing estate agents in Spain (prepared with the helpful input of professional Spanish estate agent contacts, as indeed has been this article).

8. Equally, a Spanish property buyer/ seller has to be extremely careful in selecting a legal adviser on a Spanish property transaction. You are referred to our Blog of 27th November 2013, with some general advice/ pointers in this regard. The title ‘abogado/ lawyer’ does not automatically imply all the necessary knowledge and experience to be able to advise a non-Spanish national dealing with Spanish property.

In relation to any proposed Spanish property sale/ purchase, please contact the Legal 4 Spain team, to ensure you have the best quality, completely independent legal representation to protect your interests fully; but always at a competitive cost.



Tax Shock for Poorly Advised Buyers of ‘Bargain’ Spanish Properties

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:15:12

January 8th, 2014

Expert professional legal advice is always necessary when purchasing properties in Spain, both to avoid legal problems; and also to avoid unwelcome tax surprises.

A detailed fiscal analysis is essential in order to evaluate costs and taxes at the time of the transaction. But furthermore, to assess the risk of exposure to future tax liabilities.

Anyone who has bought or sold property in Spain will be aware that Spanish properties have two values- the market value; and the official fiscal value.

Prior to the collapse in Spanish property prices over the last 5 years, in the majority of cases, the market value exceeded the fiscal value. But now in many cases with reduced market values, the fiscal value exceeds the market value.

Buyers of Spanish properties pay a transfer tax of 8-10% of the declared purchase price.

But if the fiscal value of the property is greater than the declared purchase price, during the 4 year period following the transaction, the Spanish Tax Authority can demand an additional amount of transfer tax, by substituting the (higher) fiscal value for the declared purchase price.

For example, take a Spanish house previously fiscally valued at 500,000 Euros. Quite commonly, this may now be sold for 250,000 Euros. The buyer now pays the transfer tax of 25,000 Euros. However, the buyer must budget for a further 25,000 Euro tax liability, which may be demanded (along with interest/ penalties) any time within the 4 years following the purchase.

This is nothing new- but it is convenient for many advisers involved in Spanish property transactions to ‘play down’ the risks. Also, many advisers are inexperienced; or lack legal and fiscal expertise; and are therefore simply unaware of the risks.

At Legal 4 Spain, our mission is to be clear with our clients as to the risks and liabilities in Spanish property dealings. This ensures that all relevant legal and financial details are ‘factored in’ to the negotiation of a price and budgeting.

Armed with the correct advice and knowledge, property investment in Spain needn’t be viewed as the risky proposition many commentators would have you believe.



Avoiding the pitfalls with Estate Agents in Spain

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:01:06

October 1st, 2013

In Spain, many estate agents offer a high quality, professional service at a fair cost. But (as is also the case in many other countries), since professional accreditation in Spain is voluntary, there are many less reputable operators in the real estate sector; and a quick scan of postings on the internet predictably confirms many ‘horror stories’.

Reasons for problems in estate agent appointments include:

• A lack of clarity at the outset on target sale price and charging structure.
• A demand for an excessive commission (bearing in mind that officially recommended commission levels are generally 3-5% plus IVA).
• An agreement that the estate agent receives money from a buyer/ holds money for the seller. Funds should always pass under the responsibility of a professionally regulated lawyer; and should only go to the credit of a designated client bank account.
• An estate agent offering to secure a fixed price for the seller, but receiving commission instead, from the buyer. That can mean the estate agent (and not the seller) keeps any amount secured for the property over and above the figure stated. Instead, the estate agent should always be appointed as the agent of the seller; and be paid an agreed percentage (or fixed fee) by the seller, which accords with official guidelines.
• Where an estate agent says that independent legal advice is unnecessary; or recommends the use of the estate agents’ own lawyer. This does not guarantee best impartial professional advice; but instead creates a real risk of conflict of interests.
• Exclusivity generally; and automatic extension of an exclusivity period.
• Failure to secure confirmation of any of the points listed at the end of this article.

A client of ours who is an elderly widow, asked us to address this subject. Unfortunately she had consulted us only after being persuaded to sign (incredibly) a legally binding automatically renewable exclusive term contract with a city centre estate agent in Spain, which effectively guaranteeing a minumum property sale commission of 21% plus IVA.

By way of a contrast, having consulted one of the principal (voluntary) professional bodies in Spain (the Colegio Oficial de Agentes de la Propiedad Inmobiliaria); their recommended fee scale for a property sale in an equivalent case is usually in the range of 3-5% plus IVA.

So, whilst clients are best protected by appointing an estate agent who is officially an ‘Agente de Propiedad Inmobiliaria’ (or proven current member of equivalent professional body or association); the points you should check with an estate agent in Spain before appointing them include:

• Proof of relevant official professional qualification by a nationally recognised academic/ professional body.
• Confirmation of professional regulation and complaints procedures.
• Certification of current valid professional indemnity insurance, to provide cover in the event of negligence.
• Demonstration of experience and knowledge of the market generally, in order to be able to provide reliable advice, so as best to protect clients’ interests.
• Demonstration of detailed knowledge of the title to the property in question; and its local and regional planning law status.
• Confirmation of willingness to work alongside and cooperate with other professionals (e.g. lawyers) involved in the transaction in question.
• A clear explanation of the nature and extent of the service to be provided- in writing; in a form approved by your lawyer; in your own language; and signed as agreed. The terms must include full details of all applicable charges.