Your Guide to Buying Property in Spain.

Your Guide to Buying Property in Spain.
Chapter 1: Introduction

It is conservatively estimated that 80,000 British nationals per annum are buying property in Spain either with the intention of permanent emigration or purely investment purposes.

With property inflation currently running at between 15% and 25%, the financial attraction is immediately obvious coupled with the thrilling feature of having a second home in the sun with the additional potential of a buoyant rental market.

Further, retirement to Spain is becoming a viable proposition. Retired couples are selling their properties in Britain at premium value and finding themselves able to afford a comparable property in southern Spain with significant cash sums to spare to boost pensions.

The cost of living is also appreciably lower. It is estimated that all Utility/Council tax (Spanish equivalent) Bills will cost a total of about £1,200 per annum for a 3 bedroom property in Spain. With the recent annual increases in Council Taxes in the UK, most individuals would anticipate to pay this sort of figure for local government taxes only.

We have prepared this guide because the Spanish market is very different from that in the UK: two examples will help to illustrate this

(a) in Spain, contracts to purchase/sell property are validated by a Notary Public (District Judge), when they become “public deeds” – this process only creates a valid transfer of the property to the purchaser. This is what estate agents will offer a purchaser when they say that they will undertake all the necessary legal work; contrary to what some people think, it does not substitute for carrying out the necessary pre-contract enquiries either yourself or via your solicitor –; and.
(b) when you agree to buy a new property being built by a developer, the property will not become yours until it is completed and the necessary certificates issued; in the meantime, you will be expected to make advance payments, which should be protected by a bond or insurance guarantee.

In spite of these differences, it is quite unbelievable that the majority of foreigners are buying property in Spain without using their own solicitor; it is not surprising therefore, that the media are highlighting so many horror stories.

The problems would not have occurred if purchasers had used independent lawyers. You would not dream of buying a house in the UK without using a solicitor – and in Spain the differences make it even more necessary.

This guide is intended to help you, but it cannot substitute for proper legal advice. We try to keep this guide up-to-date, but we cannot be held responsible for any errors or omissions. If you have any questions, please e-mail these to us at

Chapter 2: Finding the Property

If you have friends who have already bought their home in the sun, or sporting interests such as golf or tennis, then you will already have a starting point. If you’ve fallen in love with a place after visiting it on holiday, you will probably go back to see all the local estate agents. But a word of caution here: locations that are ideal for holidays may not be so ideal when you are there all year round. For one thing, you could find that in the summer months you can’t move for tourists! It may be better to look at quieter towns or villages nearby.

It is far better to spend a week in Spain and to ‘get to know the area’. It is sensible to have your legal representative in place so that if you find your Spanish home, he can immediately be instructed to make all the necessary checks on the property before signing a contract and parting with money. Don’t let an estate agent persuade you that your dream house is the ‘last one available’ and that you need to secure it immediately – it is just not true in the majority of cases.

You should also remember that additional to the purchase price, there are various taxes and fees which accompany property purchase. The general approach is to factor in a further 10% on top of the purchase price for these sums.

Chapter 3: Estate Agents

There are many estate agents on the costas, both English and Spanish (as well as other nationalities), mostly serving a small local area.

Commissions in Spain are substantially higher than in the UK and therefore use this information to negotiate better deals. Although an agent will state that developers will not discount their selling price, it should be noted that included within the sale price will be a significant sum for estate agent’s commission – far higher than estate agents selling UK property. Ultimately, they will generally drop their price. You only have to see the extent of new development on the Costas to realise that there is plenty of competition and the risk of looking elsewhere will determine negotiation.

In the UK, estate agents are regarded as one of the top 3 disliked professions (probably closely followed by lawyers). It is absurd therefore, that once British nationals have a taste of sea air and sun, they leave all those pre-conceptions behind and allow themselves to be persuaded to part with significant cash sums without legal advice. Don’t believe everything you are told and never be persuaded to buy a house immediately on the basis that you can have a discount only if you sign the contract to purchase today – The property market in Spain may be good, but it ain’t that good. There is always a tomorrow.

So far, Estate Agents selling Spanish property have had life very easy. You will quickly see that Property Particulars are very brief compared to UK Agents’ and many of the properties advertised have already been sold or have been published on the internet merely as examples.

This can be extremely frustrating but persevere. You will find the property you want as there is so much choice.

Chapter 4: Using a lawyer
In the “Introduction”, we have already explained that the differences between the Spanish and UK markets mean that you should use a lawyer. We have also pointed out that this guide is intended to help you, but it cannot substitute for proper legal advice. A lawyer may also be able to act under a Power of Attorney (poder) on your behalf in signing documents etc., which could be useful if you are unable to be in Spain on the required dates (for example, at the Notary’s office).
Chapter 5: Pre-Contract Enquiries

All the matters below will be dealt with by ABOGADOS MB. MARTIN– this is merely a description for information only and is fairly technical. Don’t worry if you do not understand it – that is our job, that is why you instruct us. Only read it if interested.

If you have found the property you want to buy, and have agreed the transaction with the agent or the vendor, the first step in Spain is usually (but not always) to draw up and sign a Sale & Purchase Pre-Contract (Pre-Contrato de Compraventa). It is usual to agree in this pre-contract that a deposit is paid at this time – usually about ?5000. When a pre-contract is signed, it is binding on both parties.
Ensure that this pre-contract agreement is made under an ‘arras’ agreement. This means that if the purchaser retracts from the agreement, unless provided for specifically in the contract, he will lose the deposit. In the event the vendor breaks the contract, a sum equivalent to twice the amount of the deposit will be paid to the purchaser in compensation. Hence, it is important to be certain for your property transaction before this agreement is made.
Equally do not sign anything without it being checked first by your solicitor – if it is the contrato de compraventa, you are committing yourself to the transaction! The contrato de compraventa is only valid if it is signed by both vendor and purchaser. It can only be signed by other parties, such as the vendor’s estate agent, if they have a notarised power of attorney (poder).
Also, before you sign the contract, your legal representative will need to see the following:
(a) Proof that the seller actually owns the property and of any charges: your lawyer will be able to obtain an extract (Nota Simple), which is issued by the Property Register (Registro de la Propiedad).
The Nota Simple shows the latest recorded details of any charges. There are many forms of charges – in Spain debts, charges or court orders are registered against the property rather than the person: these include hipotecas (mortgages), censos (ground rent or leasehold payments), usufructos (interests in the property), limitaciones (restrictions on use), multas (fines), cláusulas resolutorias (determinations, i.e. decisions about the future of the property), or embargos (court orders for distraint or seizure). This means that if the property is sold, those liabilities are transferred to the new purchaser who will be liable for them.
It may be that there are some unpaid taxes not yet recorded at the Registro, so your lawyer will also check with the relevant authorities, including Hacienda (Ministry of Finance), the Ayuntamiento (Town Hall), and the Recaudación Provincial (Provincial Rates Office), that these have been paid.
The notary must obtain a new nota simple on the day that the documents are signed, when the contract is effected, in order to confirm that the ownership and charge details have not changed since the last enquiry.

Whilst you are waiting for this proof from the Register, many vendors will be able to show you an authorised copy of the Escritura Publica, from when they bought the property. This is the title deed of the property, which will give the exact details of the owner, an approximate description of the property and will show as marginal notes whether any charges exist. But remember – an escritura is only a historical record and so is not up to date. In addition, if the current owner chose to register the property, this will be shown by the official Registry stamp.It is not obligatory in Spain to register the property: before registering it is necessary to pay the transaction taxes which are stated on the last page of the escritura (Impuesto sobre Transmisiones Patrimoniales), or VAT (IVA) and stamp duty (Impuesto sobre Actos Juridicos)), so in a few isolated cases some people choose not to register. Not registering runs the risk that other charges can be registered which rank ahead of your ownership, so we strongly advise to ask the notary to register immediately by fax.

Both registration and payment of taxes has to be in the Comunidad Autónoma where the property is situated. Taxes have to be paid at the Oficina Liquidadora de Impuestos, and the receipts sent with the escritura to the Registro. All these matters will be dealt with by your legal representative who will be able to identify relevant costs at an early stage.

It is most important that the notary files the new inscription at the Property Register immediately by fax, as any unpaid debts for which a court has imposed an embargo (seizure order) can be registered against the property at any time. If the embargo is registered after your last check, and before your inscription is registered, the creditor will have a claim to your property which ranks ahead of yours and which will enable him to force the sale of your property to repay the debt.

There have been cases where a vendor has arrived at the notary’s office to sign, where the property is in joint names, but the spouse has died. They have presented the Will, in which the property was left to them, claiming that this is enough. Not so! If one owner has died (and this unfortunately is often the case when a foreigner sells a property) and has Willed his/her half to his/her spouse, this is a transfer of ownership which must also be registered by the notary before it can be sold. So it is important to check that the exact ownership details recorded in the Registro are correct, and match up with the people who are selling.

(b) The receipts for the local annual property tax, the Impuesto sobre Bienes Inmuebles(IBI). If unpaid, this tax is attached to the property so the new owner will become liable (as well as for fines for late payment!). You should ask to see the receipt for the last year, the period for which liability for unpaid taxes can be transferred to the new owner. If the current vendor cannot produce this, you must ensure that your lawyer obtains confirmation from the Recaudación Provincial (the Provincial Rates Office) that payment of IBI on the property is up to date.The IBI receipt will also show the property’s Referencia Catastral (fiscal reference number)and also the valor catastral (value for tax purposes – similar to the old rateable value in the UK). Since 1997 all property transactions must quote the Referencia Catastral.If you are buying a new property, it is your responsibility to ensure that the property is registered for tax. Make sure that your developer has made a declaración de obra nueva (declaration of new building), and that your escritura covers not only the land but the building as well.

(c) The Certificación Catastral, which contains the only legally valid description of the property: the Catastro is a register of assessed property values for tax purposes. It contains a description of the exact location and physical characteristics of the property and a plan or aerial photo. Whereas the Registro de la Propiedad is concerned with ownership, the Catastro is concerned with the property. It is possible that a description in the Registro de la Propiedad can be inaccurate, and in the case of any dispute, it is the Catastro which is normally correct. When you obtain the certificate it will give you an exact description of the property. You should always compare this with the description in the Property Register certificate and the escritura to ensure that there is no difference. If there is any problem you should take legal advice.The Catastro records the valor catastral of the property. This is not the market value, but the assessed value for tax purposes (rather like the old rateable value in the UK). The two registers have never been linked, and as a first step to rectifying this situation all property transactions from 1997 have had to quote the referencia catastral. The intention is that the values will gradually be updated to reflect market values. There are still many properties where the valor catastral is well below the market value, where the owner pays low taxes. But you should not rely on “inheriting” this advantage – if the valor catastral is updated, the taxes will increase.

(d) If you are buying in an urbanization, the Plan Parcial: (the plan of plots of land (parcelas) for each urbanization registered with the local Urbanismo del Ayuntamiento (the town planning department of the town hall)). This assures you that the urbanization itself is registered and legal. Also make sure your lawyer makes appropriate enquiries at the Urbanismo and does a search of local town planning maps to find out whether any major new developments are planned that could affect your property.

(e) Confirmation that the property was built in conformity with the Ley de Costas(Coastal Law) of 1988: this empowered the authorities to restrict building within 100 metres of the beach and establishes a zona de influencia (zone of influence) up to 1km inland. It is essential to ensure that any new properties built since 1988 comply with any restrictions issued under this Coastal Law.

(f) If the property was built since 1988 on the coast, or in the last 10 years elsewhere, it is also sensible to see proof that a building licence was obtained and that certificates of the termination of the building (certificado de fin de obra) and a licence of first occupation (licencia de primer occupación) have been issued. If the vendor is unable to show you these, your lawyer can obtain them from the local Town Hall (Ayuntamiento). If the building does not have the necessary approval and licences, you may run into problems when it comes to registering the sale, and – even worse – the authorities could enforce the ultimate sanction of having the property demolished.

(g) Receipts for payment of the fees to the Community of Property Owners, as well as the Statutes and the minutes of the last meeting. In Spain, wherever you buy almost any kind of property in a development which has communal areas, it is a legal requirement that you automatically belong to a Comunidad de Propietarios (Community of Property Owners), which is responsible for the “legal framework of ownership of the property, of its individual parts and common areas, and the reciprocal rights and obligations of the community members”. Only if you buy a house in a town street (i.e. not on a development), or a cortijo (farmhouse), or a finca rural (land in the country) will you not have to join such a Community. This requirement is established by the Horizontal Property Law of 1960 as amended by the Law 8/1999 (although it is as much vertical as horizontal as it also applies to apartment blocks). The Community will be responsible for roads & lighting on the development, swimming pools, gardens, lifts, and general management and maintenance of common areas. In more remote areas it may also deal with water and power supplies and sewage.You will be bound automatically by the Statutes and the decisions taken at previous meetings. So it may be important to find out if the Statutes prohibit pets for example, or if a decision has just been taken to install a swimming pool at a cost to be borne equally by the members.You will also want to know how much membership of the Community costs – this can run into thousands of pounds for some urbanizations. You should ask the president of the Community for a certificate of its state of payments, because, as with the IBI, if the vendor has not paid his dues, the buyer becomes liable for these debts for the previous year, and for the current year up to the date of purchase.

(h) Receipts for all other utilities, such as electricity, water, telephone and refusecollection: unlike the IBI and the dues to the Community of Owners, in principle these remain personal debts of the vendor. However, non-payment of these could lead to practical difficulties, and could be a sign of other problems

Chapter 6: The Contrato de Compraventa (Contract for Purchase and Sale):
If your lawyer is happy with the pre-contract enquiries, you can proceed with the contrato de compraventa (the contract for purchase and sale). The contrato de compraventa is a legally binding private contract which sets out the parties to it, the description of the property and what is included and excluded, and the conditions of the transaction – price, deposit, balance and how this is to be paid, date of the sale, warranties, who pays the costs and taxes etc.
This contract will almost certainly have been prepared in advance by the estate agent, and will probably contain clauses which are more favourable to the vendor than the buyer. So make sure you go through this carefully with your lawyer and that he negotiates any unacceptable or unfavourable points with the agent.
If the vendor or his estate agent has drawn up the contract, it will nowadays probably provide that the buyer is responsible for paying all the costs and taxes, including those for which the vendor is legally responsible, such as:
· the Impuesto sobre el Incremento del valor de los Terrenos (IVT), commonly known as plusvalía Such a clause is perfectly legal – it is up to both parties to agree in the contract on who pays what, and Spanish law does not prescribe who must pay which tax. Traditionally it was the seller who paid the plusvalía and the notary’s fees, and the buyer who paid the transfer tax and the registry fee – but this is generally no longer the case. But this situation may not be as bad as it at first seems: in the past, some non-resident vendors left the country without paying. In such cases the debt was attached to the property and a seizure order issued so the buyer ended up paying anyway, or risked losing the property. Also, in the knowledge that he will probably have to pay theses costs, the buyer can make allowance for them in the offer he makes for the property. This is certainly a point to be discussed with your lawyer.
The contrato de compraventa is a private contract effecting a valid sale of the property to the buyer, which is valid between the parties to it, and obliges them to fulfil the terms contained in it. However as a private contract it cannot be inscribed in the Property Register and may not be accepted by third parties as proof of ownership of the property. As well as protecting the new owner against the registration of prior charges, an inscription in the Register is advisable to prove ownership and conformity with the rules (such as payment of the transaction taxes), and for example, without a Nota Simple (an extract of the Register entry) it is not possible to obtain a mortgage. To register the property it is necessary to convert this private contract into a public deed: this is done by the Escritura Notarial (notarial act) usually called the escritura de compraventa (deed of conveyance) – must be signed by both the vendor and the buyer in the presence of the Spanish notary when it becomes an escritura publica (public deed).The contrato de compraventa should contain the following clauses (amongst others):(a) The parties to the contract, date of sale, price, deposit and conditions of payment –such as currency, method (e.g. bankers draft) and country of delivery. The date will be the date when the escritura is to be signed at the Notary’s office, when the final balance is to be paid, and when the buyer will obtain vacant possession.Note that all parties will have to attend the notary’s office to sign the escritura, so this should be borne in mind when agreeing the date. If a person cannot be present he must arrange a poder (power of attorney) to appoint someone else to represent him. You should already have checked at the “pre-contract stage” that all the parties who are the registered owners are available to attend the notary’s office.(b) The arras agreement: that if the vendor does not honour the contract on the date stated, the penalty is to be double the amount of the deposit paid by the buyer; and that if the balance outstanding is not paid by the buyer by that date, the buyer will lose his deposit. In this case, the buyer will have no charge against the property, and the vendor will be free to sell the property to another buyer. So it is important to ensure that you have the funds available for the agreed date, and if you are obtaining a mortgage, that your lender is aware of and accepts this date. (If the penalty is not honoured, then the aggrieved party can sue for damages, and ultimately the court can order the sale of the property on the original terms.)(c) Disclosure of all the charges on the property, together with a provision that the vendor remains responsible for, and will pay, all charges up to the date of the sale. Not only should you have already seen receipts for all these charges during the “pre-contract” stage, but – especially if there is a big delay before the sale completes – you should insist that this clause also provides that the vendor will produce final receipts at the notary’s office to prove all payments are up-to-date, so the sale is free of all charges.The law now requires that the vendor must present the receipt for payment of the IBI for the preceding year to the notary, in order to allow the transaction to be notarised and registered. This is to enable the Registro de la Propiedad to be brought into line with the Catastro, and is not to prove that payment of this tax is up to date. It is still possible that earlier years remain unpaid. As was mentioned earlier, you should have either seen receipts for the preceding year, or your lawyer should have obtained confirmation from the Recaudación Provincial (Local Rates Office) that the IBI is fully paid.(d) Disclosure of whether the vendor is resident in Spain or not, with his/her numero de identificación fiscal (NIF) (fiscal number) if resident, and numero de identificación extranjero (NIE) if non-resident.If the vendor is non-resident and bought the property on or after 1st January 1987, or if the vendor is a company and it bought the property on or after 1st January 1977, Spanish law requires that the buyer must withhold and pay to the tax authorities 5% of the declared value in the escritura de compraventa. This is to ensure that the non-resident or company pays all the appropriate taxes. If the vendor is non-resident or a company, and has not owned the property for the requisite period, this clause should therefore also contain an acknowledgement that 5% of the value will be withheld by the buyer and deposited with Hacienda (Ministry of Finance) in the vendor’s name.(e) A warranty that all necessary building, completion and occupation licences have been issued (for more on these licences, see point 6 of section 5 on “Pre-Contract Enquiries» above). The newer the property, the more necessary this declaration.
Chapter 7: The Escritura de Compraventa, the Copia Simple and the Escritura Publica
As mentioned above, the contrato de compraventa is a private contract, and as such it cannot be inscribed in the Property Register and may not be accepted by third parties as proof of ownership of the property. To register the property it is necessary to convert this private contract into a public deed: this is done by the Escritura Notarial (notarial act), whereby the notary confirms that the transaction is in conformity with the relevant legal requirements and that the necessary transaction taxes have been paid, and witnesses the signing of the documents by both the vendor and purchaser. The contrato de compraventa is thereby converted into an escritura de compraventa (deed of conveyance) which can then be inscribed in the Property Registry, when it becomes an escritura publica, providing official proof of ownership to all third parties.
All parties to the contract must be present to sign the escritura at the notary’s office, including a representative of the bank if the purchaser is arranging a mortgage. If a person cannot be there, he must arrange a poder (power of attorney) to allow someone else to represent him. As mentioned above, the vendors are all the people registered as owners in the Registro. If there have been any changes to the ownership, such as a recent death of one of the owners, this change must be notarised and registered first, before the property can be sold.
The notary is a public official: his role is to ensure that the relevant Spanish legislation has been complied with, to advise the parties of their tax obligations, to certify that the contract has been signed by the specified parties, and (very important) to certify that all the money has been paid. He does not in any way advise the parties to the transaction, nor does he check that statements made in the contract are true. It is the lawyer who must be instructed to do this.
The copia simple is, as its name suggests, a simple copy of the escritura. It is the document the buyer needs in order to pay the plusvalía and to transfer or register for contribuciones (these are payments towards the local rates, the IBI), electricity, water, telephone or other services, change the address on his bank account etc. The notary will give you a copia simple once the escritura has been signed.
Usually, the estate agent will help you deal with all the utilities – water, electricity, telephone and gas.If the property is to be registered, the notary will send the primera copia (first copy) of the escritura to the Registro together with the receipts for the taxes paid. Make sure the notary does this by fax the same day. The Registro will then enter it immediately into the daily journal in order to prevent any other charges being registered ahead of yours. Once the primera copia has been fully registered it will be allocated its registration number, stamped and returned to the notary, from where it can be collected by the new owner. This process usually takes a couple of months.
Chapter 8: Costs of Purchase and Transaction Taxes

You need to reckon that in total your costs of buying the property will be up to around 10% of the purchase price – this can only be a rough guide as some of the costs – such as the IVT (see below) – are not related to the value of the property and so could vary widely. If you are obtaining a mortgage, you can of course include these costs in the mortgage amount you request, providing this remains within the maximum percentage available against the property value and on your income. This estimate of 10% includes:

The transfer tax, Impuesto sobre Transmisiones Patrimoniales, is 6% of the value declared in the contract. In some communities, the Impuesto de Transmisiones Patrimoniales has been increased from 6% to 7%.

If it is a new property, or a resale property previously owned by a company, you will pay VAT (IVA) at 7% (instead of the ITP). In addition, where VAT is involved, there is an Impuesto sobre Actos Jurídicos Documentados (stamp duty). If you buy a garage separately from the house, subject to a separate escritura, this will be regarded as a completely commercial transaction, and will be subject to VAT at the full rate of 16%. This rate also applies if you buy a business.

Your lawyer’s fees, which are likely to be around 1% of the purchase price for the work he does, plus the fees he has had to pay out, for example, for the Nota Simple, Certificación Registral and the Certificación Catastral.

The notary, registration and handling (gestoría) fees. The notary charges according to a fixed scale depending on the size of the property and its price. The fee for the registration will be around half of the notary’s fee, and the handling fees are around ?EUR 90.

If you were obtaining a mortgage, there would be the same notary and registry fees to pay for registering the mortgage deed, although the amounts will be less, as the mortgage will be less than the value of the property. In addition, Stamp Duty is charged on mortgage deeds. There would also be a valuation fee, which is usually around 0.8% of the purchase price.

There is also the Impuesto sobre el Incremento del Valor de los Terrenos (IVT) – commonly known as plusvalía after its original name the arbitrio municipal de plusvalía – a municipal value-added tax, which should be paid by the vendor. But as mentioned above, the contract may often specify that this tax should be paid by the buyer. The plusvalía is based on the valor catastral of the land (i.e. not on the value of the building), and is levied on the increase in this value since the last sale. The tax is levied at a rate between 10% and 40% depending on the area and the length of time since the last sale. So an apartment in a modern urbanization with little ground last sold a couple of years ago will pay far less plus valía than a finca rural with large grounds which was last sold 20 years ago and where the land has just been re-zoned for urban development. Your lawyer will be able to find out exactly how much the plus valía will be from the local municipal tax office, which keeps records of land values. (This should not be confused with the capital gains tax which is payable by the vendor .

Chapter 9: Annual Property Taxes and Capital Gains Tax
So, if you buy a property in Spain, what taxes are you letting yourself in for (after the actual transaction taxes mentioned in section 9 above)? [In this section we do not cover income tax itself (Impuesto sobre la Renta de las personas Fisicas), as this is too complicated to include in a guide about property related matters]
As you read about these taxes, you will see why until recently it was a legal requirement that a non-resident must have a representante fiscal (fiscal representative) in Spain to manage their tax affairs, and why, when the legal requirement was removed, most non-residents (as well as many residents) continue to use their services.
These taxes may vary depending on whether the payer is resident or non-resident. For tax purposes, residence is normally determined by whether the person is actually resident in Spain for 183 days in the tax year. There can however be exceptions to this general rule. But what is a reasonable certainty is that a person who spends less than 183 days during a tax year in Spain, and does not have residencia, will not be regarded as resident, and will therefore only pay tax to the Spanish authorities on their assets and income in Spain. Such a person would be liable to UK tax on their world-wide assets and income, and would generally obtain a set-off under the UK’s Double Tax Treaty with Spain against this for those taxes paid in Spain. For a person who becomes resident in Spain, either officially or by spending more than 183 days there, the position is generally reversed: tax is due to the Spanish authorities on their world-wide assets and income, with a set-off for any tax paid in the UK. This is however a very complex area, and you should obtain specialist advice on your tax status and its implications.(a) Impuesto sobre Bienes Inmuebles – IBI (sometimes known as contribuciones) is the annual real estate tax – the equivalent of local rates. This is paid by residents and non-residents alike. It is based on the valor catastral, which is revised every 10 years, and updated annually in line with inflation. It is paid to the local authority for services such as refuse collection, hospitals, police, schools etc. It is a municipal tax and so can vary considerably from one area to another for the same type of property (just as council tax varies in the UK), but typically it is 0.75% of the valor catastral.(b) Impuesto sobre el Patrimonio (Wealth Tax). This is paid by both residents and non-residents – but it affects them differently: residents have an exemption of ?108,000 each, so a property owned jointly by husband and wife is free of patrimonio up to ?216,000. Non-residents do not benefit from this exemption. Mortgages or other debts registered against the property can be deducted from their value, whether resident or not.

(c) Impuesto sobre la Renta (Property Owners’ Imputed Income Tax). This tax is paid by residents on a second property and non-residents on any property owned in Spain, other than land in the country, urban plots and property used commercially. It imputes 2% of the valor catastral to property owners as a notional income – this is reduced to 1.1% if the valor catastral has been revised since 1994. Non-residents are taxed at a flat rate of 25%. For non-residents therefore, this tax is equivalent to 0.5% of the valor catastral, (reduced to 0.275% if the valor catastral has been revised since 1994).

(d) The fees charged by the Comunidad de Propietarios can also be added to the list, as they are a legal requirement. In general, these charges may range from as little as EUR 300 on a flat on a small development where the local authority provides more services, to as much as EUR 3,000 on a large villa on a large development where the Comunidad takes responsibility for more services, communal swimming pool and leisure facilities etc

From the tax point of view, these charges are also relevant if the property is rented, because – for residents only – they can be deducted from the taxable income. A non-resident is liable for the total amount received from the rented property, without the possibility of deductions.

So how do you pay these taxes?

The best way of dealing with the IBI is to set up a domiciliación (direct debit) from your bank. You can include any other municipal charges with this. You obtain a form from your bank which authorises them to pay the bill, and you lodge this with your Ayuntamiento, to tell them to send the bill to your bank.

You can pay the Comunidad de Propietarios in the same way.

For the wealth tax and imputed income tax, if you are a non-resident owner of one property only, the procedure is now considerably easier. You have to complete a Form 214 where you can declare both wealth tax and imputed income tax as well as income tax for non-residents. You can file this form at the local Agencia Tributaria (Tax Office) at any time during the year. But if the property is owned jointly, both partners will have to file a form. In order to file the form, you need to take with you the IBI receipt (as this shows the referencia catastral, to enable the office to check the catastral value), and the escritura (which shows the market value).

If you are a resident, or a non-resident with more than one property, you cannot use the simplified Form 214 procedure. In this case, you (and your partner if the property is owned jointly) need to file a Form 714 for wealth tax and a Form 210 for the imputed income tax.

(e) If you let out your property, you are subject to Impuesto sobre la Renta (Spanish income tax) on the net earnings. For residents, this income is added to other income and taxed normally. Non-residents should pay a retención (withholding tax) of 25% to Hacienda on all income in Spain. This is to be declared on Form 210, normally within 30 days of receiving the income, but arrangements can be made to file quarterly. As a non-resident, this withholding tax accounts for your tax liability, and there are no further allowances or calculations. If the tenant is a Spanish legal entity (i.e. a company or organisation rather than a Spanish individual), that entity is required to pay the withholding tax (this removes the need for a non-resident owner to do this).

7. And finally, if or when you come to sell the property, there is the Impuesto sobre el Incremento Patrimonial (capital gains tax – CGT). This is now a substantial cost for non-residents, and so is worth taking into account when you purchase the property. The system of capital gains tax was changed from 1st January 1997, and the old annual allowance of 11.11% and the exemption if the property had been owned for 10 years or more were removed at that date. Since 1997 non-residents are subject to a flat rate of 35% CGT on profits from the sale of their Spanish home. Residents and non-residents both have two allowances they can claim:

(1) there is an annual allowance available to adjust the original purchase price to allow for inflation – so for example, if you bought the property in 1996 and sold it in 2000 you are allowed to inflate the purchase price by this coeficiente de actualización (inflation factor) – which in this case is 1.08; and (2) expenses of purchase, including transfer tax or VAT, plusvalía, and the notary, lawyer, registration and other fees.

Also, as mentioned above, if the vendor is non-resident, the buyer is required to deduct a 5% withholding tax from the amount paid, and deposit this with Hacienda. Generally, this is more or less a similar amount to the amount of the vendor’s 35% capital gains tax liability, and so it either forces the non-resident vendor to declare for CGT, in order to obtain any repayment due, or the retention paid is regarded as covering his capital gains tax liability.

The usufructo vitalicio is also used quite legitimately, to avoid one round of inheritance tax. Parents will purchase their property in the names of their children, whilst reserving for themselves the right to inhabit the property for as long as they live. When they die, the children simply take full possession of the property, with no inheritance tax due as it is already in their names.

Generally speaking, if you are still resident for tax purposes in the UK, and domiciled in the UK, you will be liable for UK capital gains tax on the sale of a second home in Spain (but not if this is your main residence under the UK rules). There is a double tax treaty between the UK and Spain which means that any tax paid in Spain will be available to set off against any UK tax liability – so you will not pay twice.

However, this is a very specialised and complicated area, requiring specialist advice.

Chapter 10: Buying a property in the Country, and Obtaining Planning Permission
If you are buying land or a property in the country, such as a farmhouse (finca), it is essential to find out if it is in an area where building is allowed (in which case it is called a “finca urbana”, or – if land – “suelo urbano” ) or where it is not allowed (“finca rustica” or “suelo rustico”). This classification will affect the value, and it will also affect how much of a mortgage you can raise.

Land in Spain is zoned for development, which can restrict your options. There are green zones and rural areas where development will not be allowed. There are also rules which limit building size in relation to plot size. You should therefore check with the local Ayuntamiento that you can get permiso de obra (planning permission) to build on the land you want to buy, or to renovate and extend or alter the property, and if so, what the limits would be.

In fact, this same situation applies to all land and properties in Spain: if you are buying land anywhere with the intention of building your own property, this is only possible where the land has been zoned for building (“suelo urbano”).

If you are buying on a new development (“urbanización”), it is equally important to check that the urbanización itself is in an area zoned for building, and that the necessary planning permission has been given. If a builder has failed to obtain the necessary planning permission, the authorities have the power to order the complete demolition of the development. More information on this is given in the next section.

If you are buying a property in the country to restore or redevelop, there can be other problems. It is often the case that escritura do not exist for such properties, and you need to establish your right to the property through a process known as “expediente de dominio”. This is complex, involving publication of your claim in the Boletin Oficial del Estado (the Official Gazette). Then you need to ensure that the records of the Registro de la Propiedad and the Catastro agree, and that these are in accordance with what local custom holds to be the property boundaries. You are only allowed to build on a certain percentage of the land area. You need to check for availability of utilities – especially water and electricity. You need to check for servidumbres de paso (rights of way) as these cannot be blocked. For all these you need the services of your lawyer.

Chapter 11: Buying a Newly Built Property from a Builder or Developer
The previous sections of the Guide have generally assumed that you are buying a “resale” property – one that already exists and is occupied by the owner. Now we consider the main differences if you are buying from a builder or developer; and in the next section, if you are having your own property built.

The main difference here is that the builder retains ownership until the property is completed. It is only when the necessary certificates of building completion (fin de obra) and of first occupation (primer ocupación) have been issued, that the escritura for the sale can be finalised and the sale notarised. The buyer does not own any part of the property until the sale is finalised.

There will be a contrato de compraventa, but this will be a “promissory contract” for the purchase in the future, when the building is completed. This contract will normally provide for advance payments (pagos adelantados). This is acceptable, so long as the contract also provides the guarantee (required by Law 57/68) for the return of any money paid, which is normally through a bank guarantee backed by a bond which the builder has deposited (aval bancario), or an insurance policy (garantia de seguro). Your lawyer should check that the bond or policy is in force, and that it covers all foreseeable problems.

In the event of non-completion, the buyer is entitled under Spanish consumer protection to the return of all money paid during construction plus interest. It is a legal requirement that builders / developers include such a guarantee (certificado de garantia) in their contracts which specifically provides for the return of all money paid plus interest. The builder may not charge the buyer for providing this guarantee.

The big difference compared to the system in the UK is that, as you do not own the property, you cannot arrange a mortgage to finance these advance payments.

Normally, builders in Spain obtain mortgage finance for the project from their bank. When the property sale is finalised, and the project split up into the individual parcelas, the buyer has the right to “subrogate” (i.e. take the place of) the builder in the mortgage for his particular plot. The buyer will have to complete an application similar to that for a new mortgage, and go through a similar approval process. If the buyer requires a larger loan than that available by subrogación, this would be treated by the lender as a separate second mortgage.

Traditionally the advantage of this system was that the mortgage finance by subrogación was relatively automatic – a big advantage in the Spanish system, when 20 years ago for example, there was only state-owned Banco Hipotecario which granted mortgages. However, now that the mortgage market is much more open and competitive, and mortgage offers can be obtained anywhere (at least if you are a Spanish citizen with your wages paid into your bank account) there are fewer advantages of subrogación. The main advantages are associated with the costs: generally there will be no need for a valuation, the stamp duty may be avoided (as it is not a new mortgage deed), and the cost of the notary and the property registry will be around 50% of that for a new mortgage.

But, some lenders may not accept subrogación if the buyer is non-resident, and some may charge higher rates.

Because you are buying from a developer, it is even more important to carry out the relevant “pre-contract” checks; in particular, you still need to:

1. Prove that the developer does own the land – you need to see his escritura.

2. Check that there are no loans outstanding – you need to obtain a nota simple.

3. Ensure that the developer has paid his IBI – you need to see receipts.

4. Obtain a certificación catastral and check the plan parcial to ensure that the urbanización itself is registered and to check that the property is as described to you.

5. Check with the Urbanismo, the town planning office, to ensure that the development is in an area zoned for building and that planning permission has been granted, and that there are no other developments planned nearby that could affect your new property.

6. Check that the builder has obtained a Licencia de Obra (Building Permit).

. Check that he has obtained a Certificado de Fin de Obra (Completion Certificate), and a Licencia de Primer Ocupación (Licence of First Occupation). If the building is not yet completed, make sure that the contract includes a warranty from the developer that he will obtain and pay for these certificates, and provides penalties if these are delivered late.

If you are happy with these checks, and proceed to the contrato de compraventa, you should ensure that this contains the following provisions:

1. The total price for the building, completed and ready for occupation, including obtaining the Licencia de Obra (Building Licence), Certificado de Fin de Obra (Certificate of the Building Completion), Licencia de Primer Ocupación (Licence for First Occupation).

These documents are essential, as without them you will not be able to obtain an escritura or register for utilities. The builder / developer should be responsible for obtaining these and for paying for them.

2. Arrangements for payment of any deposit and advance payments. The contract should

provide that advance payments will only be made on receipt of the architect’s certificate confirming that the relevant stage has been completed in accordance with the specification and to his satisfaction.

Normally, 10% or 15% is paid as a deposit, with further payments of 15% or 25% each when the roof is completed, when the fitting out is completed, and the balance of between 35% and 65% when the escritura is signed and the property handed over. If you buy when the construction is at a more advanced stage, it is reasonable that the deposit will be higher.

3. The guarantee (certificado de garantia), that that the deposit and any stage payments made are covered by an equivalent bank guarantee or insurance bond, and that in the event of non-completion, the buyer is entitled to the return of all money paid during construction plus interest.

4. The completion date for the building. A penalty should be provided for late completion

(completion should be specified as when all building and infrastructure has been completed, and the necessary certificates obtained).

Equally, there will be a penalty clause to protect the builder / developer that if you fail to make the payments specified, the contract becomes null and void and any rights or obligations provided by the contract will lapse. If there is any dispute the courts will decide the outcome – you may lose any deposit or other payments made, and the builder could be free to sell the property to another buyer.

5. Especially if the property construction has not yet started, a detailed plan of the property with dimensions and specification (including quality standards) of the fixtures and fittings, in particular for kitchen and bathroom – this is often annexed to the contract (memoria de calidades). Even if the building is part-completed, you should still obtain this memoria, as it will enable you to ensure that building is up to standard.

6. The builder / developer is responsible for the installation of gas, electricity and water and sewage.

7. The cuota de participación (share of the total costs) in the comunidad de propietarios

(Community of Owners). Even if this has not yet been formed, and no subscription has yet been calculated, your share will be determined by the size and facilities of your property, and this will be known. If the comunidad has already been formed, the contract should specify either the current fees, or the generally expected level of fees for next year.

8. The developer / builder is responsible for the payment of all debts on the land, especially the IBI, until the escritura is signed.

9. The buyer will only be responsible for the payment of the costs of the escritura de

compraventa, not for the segregación or division horizontal (i.e. the division of the whole plot of building land or urbanization into individual titles), and the declaración de obra nueva (declaration of new building). Both of these must also be notarised public deeds (escritura publica) in order to be legally valid, and before signing the escritura de compraventa, you should ask for proof that these have been registered. They should be paid for by the builder / developer.

10. If possible, you should try to include a provision that 5% or 10% of the construction costs will be withheld for 3 or 6 months, in case any faults should appear. Few if any builders will be happy to accept such a clause, but there is no harm in asking, and you may get some concession.

In any event, a builder is legally liable for any defects in a new property. Until May 6th 2000, this was a civil law matter: the responsibility was for 15 years after completion, but the only way of enforcing an unresolved problem was to take the builder to court. The new

Ley 38/1999 de 5 de noviembre sobre la Ordenación de la Edificación (Building Standards Act) came into force on May 6th 2000, and this provides obligatory protection. Serious defects affecting safety are covered for 10 years and the builder must have insurance cover for this. The policy must be given to the notary, and details of the policy must be included in the escritura, and without this the sale transaction cannot be notarised. Other defects affecting the habitability of the property (such as for example failure of electricity or water) – but not affecting safety – are covered for 3 years. Other minor defects are covered for 1 year. In the last two cases insurance cover is not required, but obviously if a builder can offer this as an additional guarantee – so much the better.

Once you have bought the property and had the escritura notarised, you need the copia simple in order to register the property (dar de alta) at the Recaudación Provincial for the payment of the IBI, in order then to be able to register for water and electricity supplies. This could also be included in the contract, although it may be better to ensure that you or your lawyer does this in order to ensure that it is done on time and properly.

Chapter 12: Having your own Property Built.
This is perhaps the most difficult option, generally only to be recommended if you are already familiar with the Spanish market. It goes without saying therefore that you will need the services of a specialist lawyer, as well as your architect.

The first step is to check with the local Ayuntamiento that you can get permiso de obra (planning permission) to build on the land you want to buy, and if so, what the limits would be. Land in Spain is zoned for development, which can restrict your options. There are green zones and rural areas where development will not be allowed. There are also rules which limit building size in relation to plot size. The Ley de Costas may also limit your options. The permiso de obra may cost you up to 5% of the estimated building costs.

If you are buying a property in the country to restore or redevelop, there can be additional problems. It is often the case that escritura do not exist for such properties, and you need to establish your right to the property through a process known as expediente de dominio. This is a complex process involving publication of your claim in the Boletin Oficial del Estado (the Official Gazette). Once you have done this, you need to ensure that the records of the Registro de la Propiedad and the Catastro agree, and that these are in accordance with what local custom holds to be the property boundaries. You are only allowed to build on a certain percentage of the land area. You need to check for availability of utilities – especially water and electricity. You need to check for servidumbres de paso (rights of way) as these cannot be blocked. For all these you need the services of your lawyer.

You then need to appoint an architect, and to agree a contract with him which specifies exactly what he is responsible for, timescales, and costs. His fees are recommended by the Colegio (note that they no longer fix set fees, so they can now vary) and are around 6% of the estimated costs of construction – you will be invoiced for 70% at the start of building, and 30% on completion (this will allow for any change in the final cost of construction).

The architect’s fee includes the preparation of the memoria de calidades. It is very detailed, including for example the formula for the concrete, the type of materials, and the size of pipes.

The architect will instruct an aparejador, a qualified architectural engineer, who will supervise the building, carry out on site inspections, and ensure the building is to the required standards. He will issue the architect’s certificates which are necessary to obtain the Certificado de Fin de Obra (Completion Certificate), and the Licencia de Primer Ocupación (Licence of First Occupation). The aparejador will charge around 3% of the estimated building costs.

You need to instruct your architect and your lawyer to inspect the Plan General de Ordenación Urbana (PGOU) – the Town Plan. If you are buying a plot in an urbanization, you also need to check the proyecto de urbanización and the plan parcial. These together will tell you what other developments are planned for the area, whether the urbanization is registered and legal, and anything affecting the individual plots themselves. It will also tell you what building permits will be issued around your new property, and what the building regulations are. This is a complex and specialised task, and you need your expert advisers to do it for you.

One of the complaints often heard is about “unexpected” developments, which block the wonderful view when the land was first bought. The first point here is that if you have obtained planning permission, it is logical that others will be able to in that area. The second point is that over 80% of the costas in the provinces of Alicante, Castellón and Valencia have been zoned for development, and there is still huge demand for building land – so if there is any spare land available, always assume that it will be built on. Only if you overlook a “green” zone are you likely to be saved from building development, and even here the zones can be changed unexpectedly as in the UK, so this is still no long-term guarantee. Careful inspection of the PGOU should help.

You will need to prepare an exact specification for the building, and then find a reliable builder. Your architect may accept responsibility for this, and for supervision. You need to agree a completion date, with a penalty clause for late completion. This needs to be incorporated into a legally binding contract with the builder.

This contract should include very similar provisions as in the previous section.

If you are happy to proceed, you then need to proceed with the contrato de compraventa for the land, more or less as outlined earlier in this Guide. Some of the pre-contract enquiries will not be required (depending on the history and previous ownership of the land), but you do need to make sure that the IBI are paid up to date.

In this case you will eventually have two escritura – one for the original purchase of the land, and the second for the building.

In this case there is no legal reason why you could not obtain a mortgage, but most lenders in Spain are reluctant to lend on “self-build” projects (autoconstrucción) due to the high risk that something will go wrong.