Buying a property abroad can offer superb investment and lifestyle opportunities. Structuring the purchase properly can save you large amounts of tax and aggravation.
Many people have found out the hard and costly way that buying property in Spain is sometimes not as simple as buying at home. Don’t assumethat the purchase procedures will be the same. And what’s more important: Unfamiliarity with the language complicates matters.
Yet buying a property abroad can offer superb investment and lifestyle opportunities. Structuring the purchase properly can save you large amounts of tax and aggravation. Making sure that all of the right checks are carried out and that the property is safe to buy can save you both lots of money and sleepless nights. To buy a property safely you need specialist advice from someone thoroughly familiar with the legal system.
There are many issues prospective buyers need to be aware of: properties with no title deeds, others built without Planning Permission or with a demolition order hanging over them, Bank taxes owed on the property, structural faults or defective plumbing and/or wiring. They must alsobe aware of any open spaces in the vicinity of the property. That might be built on in future, and consider any noise that may be apparent if buying in the summer months but which may not be obvious if buying at any other time.
The most important tip is to have a well-informed independent legal advisor and one who can speak both English and Spanish. We are here to help you with every stage of the process.
For many people the idea of letting out their property in Spain is attractive. It can help cover your costs but be sure that you are aware of the local regulations and have the necessary safeguards in place. Here are a few points to remember;
Always ensure that there is a valid, written agreement between you the landlord and the tenants. It is advisable to have a local legal representative draw up the agreement for you. The agreement should make it clear that the tenants should look after the property for you and that they will be responsible for any damage to the contents and/or property. In addition, clearly state who is responsible for payments for electricity, gas and telephone etc.
If possible, always check the credibility of the prospective tenant by running a credit check and requesting references. Remember at the end of the day you are letting your home to a perfect stranger and you could be many thousands of miles away. Make sure that you keep copies of all bills paid on the property and copies of agreements along with any other relevant paperwork.
The tax rate on rental income depends on whether or not you are deemed to be a permanent resident in Spain. What may appear strange to us is that the tax is paid by the tenant, a deduction for the tax is made from the rental before the net amount is passed on to the owner. Insist on proof that the tax payment has been made on your behalf.
Nonresident foreigners earning rental income are taxed at 24% flat rate on the gross income, withheld by the tenant. Income-generating expenses are not deductible.
Nonresident foreigners have to pay 2% tax levied on the cadastral value of any unrented Spanish urban property. If a new property value was set after 01 January 1994, the applicable imputed income tax rate is 1.1%.
Still some homeowners are not aware of the tax implications of owning a property in Spain.
The taxes for property owners in Spain are:
1.- IBI TAX ( PROPERTY TAX/LOCAL RATES)
This tax is based on the value fixed by the Council ( valor catastral). This value is revised approximately every 10 years and is adjusted yearly to inflation.
The average IBI tax is equal to 0.50% to 1.7% of the value asset by the Tax Office with the official valuation being somewhat less than the actual cost or market value.
This tax is paid annually.
2.- INCOME TAX ( Impuesto sobre la renta de las personas fisicas)
This tax is payable on both earned and unearned income. This includes salaries, pensions, capital gains, property and investment income, and it is paid by residenst and nonresidents.
Spain is no longer even remotely akin to a tax haven. A harsh package of anti-avoidance measures has been introduced to eradicate tax evasion. Penalties are severe and Revenue staff are uncompromising. Careful tax planning is a worthwhile investment.
If you are taking up permanent residence in Spain, we can advise on your potential liability to Spanish income, gains and inheritance tax. We will take account of any applicable double taxation conventions and seek and find the most tax efficient way of arranging your affairs, before you become liable to Spanish tax on a world-wide basis.
We also advise on
The first thing we would say to you is that you should never sign anything until you have sought independent legal advice.
Once we have been instructed to look after your purchase for you, we will check to see that the title of the property is satisfactory. We will make sure that the person who is selling the property to you actually owns it and we will find out whether there are any charges on the property that adversely affect it.
When appropriate, we also check to see that the property, when built, had the necessary licenses and permission.
We then check the terms of the contract suggested by the person selling the property to ensure that it is fair and reasonable, or we draft a private sale contract.
If you decide to go ahead, we will arrange for the funds needed to be imported into Spain, for the title to the property to be transferred into your name in the way required by Spanish law, for any fees and taxes to be paid and for the title to be registered with the Land Registry.
We can, if you wish make arrangements for a survey on the property.
The person buying the property may attend in person before the Notary to sign the Deeds, but if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf. We can draft a Powerof Attorney for signature near your home.
If a transaction does not proceed to completion we charge at our current charging rate for the work actually undertaken.
Our standard charge covers advice about the contract, investigation of title, arranging for the completion of the transaction by the execution of a public title deed, arranging for the payment of taxes and arranging for the registration of your new title deed. In short, everything needed in a normal transaction.
Our standard fee DOES NOT include negotiation about the price of the property, sorting out any defects in the title, dealing with a mortgage or power of attorney or any advice about matters that are ancillary to the purchase. We will be happy to undertake this work for you. Any such work would be charged on the basis of our normal charging rates and the time spent on it. We will give an estimate on request.
The extras on top of our legal fees are:
We also believe that it saves agreat deal of time and effort later on if you now review your English Will and make a separate Spanish Will.
If you spend less than 183 days a year in Spain then you are generally speaking classed as a non-resident and you must:
If you would like further advice, please contact us.
We are used to acting for clients from all over the world and , generally, find that it is not necessary to meet in order to deal with the purchase of a property in Spain. Of course we are delighted to meet to discuss matters personally if that is convenient for you.
We can also offer advice, administration and management of any construction or refurbishing work to be done, mainly on villas and country properties.
If you are considering buying a house in Spain because you live and work here, or because you simply want to invest in real estate in Spain, you may want to consider taking out a mortgage with a Spanish bank.
In the process of buying an existing property in Spain, the mortgage is going to take the most time, so start work immediately. First, you go about retrieving all the documents that the bank asks for. Then they can pre-approve you, and you can safely sign the pre-agreement and pay the downpayment, knowing that you can cover the money required, and be ready for the closing on the date stipulated in the pre-agreement.
If you are non resident most Spanish banks will be willing to lend you approximately 60% of the valuation price.
If you are resident some banks will lend you up to 80% of the valuation.
In both cases the bank will need proof that you have sufficient income to make the monthly repayments.
The loan would be over a period ranging from 10 to 25 years.
If you are interested in a property still to be built, you may find that the constructers already have an agreement with a certain Spanish bank for all mortgages and you are left with little choice. If not, you would be wise to shop around for the best deal.
Don’t accept the first offer. Ask for a copy of one bank’s offer and then take it to a different bank to see if they can improve the offer – they often will.
In Spain you cannot legally buy property, a house, car, boat etc without having applied to the police for your NIE number and had your NIE documentation returned. Likewise, you cannot enter into a contract for the supply of electricity, water or a telephone line etc without giving your NIE/NIF number together with your bank details because these services will only accept clients whose bills are paid automatically from a bank. Neither can you arrange an insurance policy or order goods or services, sign on for the National Social Security, Health Service or commence a job without showing your NIE number.
The Decree (Real Decreto 338-1990) of 9th March establishes that everyone, of whatever nationality, resident or not, who has any «official business» in Spain, must have a fiscal number (NIF/NIE) which is used to identify them on all official documents.
NIE (Número de Identificación de Extranjero): This is every foreigner’s identification number in Spain and it is required in order to file taxes, establish a business, open a bank account (not necessary for foreign accounts), and for almost any other form you will have to fill out. Both EU citizens and non-EU citizens get issued an NIE.
DNI (Documento Nacional de Identidad): This is the ID number for Spanish citizens. The same number is used for the Spanish driver’s license.
NIF (Número de Identificación Fiscal): This is the tax ID number for all individuals. For Spaniards, it’s the DNI plus one letter; for foreigners, it’s the same number as your NIE. Once you have an NIE, you do not need to re-apply for an NIF; if and when you have to pay taxes, use your NIE number. If you’re a nonresident who has to pay taxes in Spain, you may get an NIF issued to you without having an NIE. This, of course, does not mean you get automatic residency in Spain, nor will it make it any easier to get residency.
CIF (Certificado de Identificación Fiscal): This is the same as the NIF, but for companies.
Social Security Number: If you intend to work in Spain, your employer will apply for your social security number when you start your first job. This number will stay with you for all subsequent jobs. If you are intending to be self-employed, you apply for this number yourself.
Once you know what the procedure is obtaining your NIF number is little more than queuing.
The Decree (Real Decreto 338-1990) of 9th March establishes that everyone, of whatever nationality, resident or not, who has any «official business» in Spain, must have a fiscal number (NIF/NIE) which is used to identify them on all official documents.
Spanish law states very clearly that the person must apply for the documents in person. However, the Spanish law also clearly states that a legalised, Spanish power-of-attorney document enables any individual to be represented by another for all legal purposes in Spain (as long as it is declared as such within the power-of-attorney).
However, regardless of the clearly stated laws, many local branches of the national police throughout Spain, choose not to allow this which is why some lawyers are unable to act on your behalf for this purpose.
Once we have received your documents (POA and copies of passports – both legalised) the NIE number is obtained within 2 weeks. Prior to sending the documents to us, they must be notarised (by a Notary Public in your area) and then stamped with the Hague Apostille.
A Power of Attorney is a document that is legally binding and grants an individual (or group of individuals) the right to act on behalf of a person for the stipulated tasks or responsibilities that are outlined within the Power of Attorney itself.
On October 5, 1961 several nations joined to create this simplified method of legalising documents through the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents.
Ask your Notary if they can provide this as an additional service to you.
Send the documents to the FCO in London with a stamped addressed envelope – this process takes about a month. For detailed information about how to do this, please follow this link: FCO Applications by Post Page
Go in personally to the FCO where they offer a same-day service. Note the FCO is located at:
The Legalisation Office
Norfolk House (West)
437 Silbury Boulevard
Milton Keynes
MK9 2AH
The Public Counter
Send the documents to the Department of Foreign Affairs (DFA) in Dublin with a stamped addressed envelope – this process takes about a month. For detailed information about how to do this, please follow this link: How-To
Go in personally to the DFA where they offer a same-day service. Note that there are now two locations in Ireland where you can do this:
Passport Office Cork – Consular Services – 1A Southmall Cork – 021 4944 765
Consular Section – Department of Foreign Affairs – Hainault House – 69 – 71 St. Stephen’s Green – (01) 408 2174
Ask your notary if they can provide this as an additional service to you.
Contact us for more information.
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