Unlocking Spanish real estate market: A comprehensive guide to buying and selling properties in Spain

Urban architecture development project for real estate property

1. BEFORE BUYING

1.1. The Arras Contract

When considering property in Spain, after selecting the ideal property, many opt to sign a preliminary agreement termed the ‘contrato de arras.‘ This is a formal commitment; once signed, it is legally binding. 

This earnest money contract requires a deposit indicating the buyer’s intent to purchase, and it has specific clauses regarding the deposit if the sale falls through. 

According to Article 1454 of the Spanish Civil Code, should the buyer withdraw, they forfeit the deposit. If the seller retracts, they must return double the deposit amount. It’s advisable to consult with a legal professional before finalizing any such contract.

Besides specifying the amount given as a deposit, this contract can and often does encompass a variety of clauses and conditions safeguarding both parties. Here are some key elements that can be included:

  • Property Description: It’s vital that the contract provides a detailed description of the property, including its location, square footage, type of dwelling, and any other pertinent characteristics.
  • Total Sale Price: Apart from the deposit, the contract should specify the agreed total price of the property.
  • Completion Date: A deadline should be set for completing the sale, which would involve signing the public deed and paying the remaining balance of the price.
  • Penalties: As already mentioned, if any party backs out of the deal, the earnest money contract establishes the repercussions. If the buyer pulls out, they lose the deposit; if the seller does, they must return double the deposited amount.
  • Possible Deductions: If there are costs the seller has agreed to cover (such as pending repairs or improvements), this should be reflected in the contract, detailing that the deposit amount will be deducted from the total sale price.
  • Specific Stipulations: There might be particular conditions related to the property, like the inclusion of furniture or an obligation to conduct certain repairs before the sale.
  • Required Documentation: The contract can specify which documents the seller must provide, like certificates proving the property is debt-free or up-to-date with taxes and fees energetic classification certificate.
  • Transaction Costs: The contract typically indicates how transaction-related costs, such as taxes, notary fees, and registration expenses, will be distributed. 

The article 1,455 of the civil code states the following about the costs of granting the deed of sale:

It says that the seller is responsible for the costs associated with formalizing the deed of sale. However, the buyer has to pay for the first official copy of the sale deed.

If the deed of sale or the private contract before it doesn’t specify who pays the notary fees or if it says they are to be paid “according to the law”, then the seller will cover those fees. But, the cost for the first authorized copy of the deed is on the buyer.

Still, both the seller and buyer can agree differently on who covers the notary fees. If they don’t have a clear agreement, then the rules in Article 1,455 of the civil code will apply

  • Resolution Clauses: If disputes or disagreements arise, these clauses establish how they will be addressed, be it through mediation, arbitration, or in the courts. In lawsuits concerning property rights over real estate or their rentals, the court that has jurisdiction can either be where the property is located or where the defendant lives. This means that if you have a dispute about a property, you can file a lawsuit either in the court of the area where the property is or where the other party lives. However, most people choose to file in the area where the property is because it makes handling evidence and other tasks easier
  • Other Specific Agreements: Depending on the negotiation between the buyer and seller, there might be other specific agreements to be included in the contract tailored to the particulars of the deal.

1.2. Property Survey

A property technical inspection is a process where a detailed and systematic review of a home or building is carried out to determine its current state, identify potential problems or defects, and evaluate the necessity for repairs or improvements. This inspection is conducted by professionals specialized in the field.

When is it advisable to perform the property technical inspection?

  • Before buying: The inspection should be carried out before formalizing the property purchase, during the due diligence period. This allows the buyer to know the real state of the property in detail and make an informed decision.
  • Before selling: A seller might also opt to have an inspection before listing their property on the market. This way, they can identify and address potential issues, which could enhance the property’s value or facilitate a faster sale.

How is it advisable to carry out the property technical inspection?

  • Hiring a qualified professional: It’s crucial for the inspection to be done by a certified property inspector with experience. These professionals have the knowledge and tools required to identify structural problems, installation issues, dampness, and more.
  • Requesting a detailed report: After the inspection, the inspector should provide a comprehensive report detailing all findings, including photographs, descriptions, and recommendations to address any identified issue.
  • Cost evaluation: If issues are identified, it’s advisable to obtain repair quotes. This can be helpful for the buyer when negotiating the final property price or deciding whether to proceed with the purchase.

Benefits of having a property technical inspection:

  • Avoid surprises: By knowing the real state of the property, the buyer can avoid unpleasant surprises post-purchase, such as hidden defects or expensive repairs.
  • Negotiation: With the information from the inspection, the buyer might be in a stronger position to negotiate the selling price or request the seller to make certain repairs before completing the transaction.
  • Peace of mind: Being certain that the property has been thoroughly inspected by a professional provides peace of mind to both the buyer and seller.
  • Preserving property value: By identifying and addressing problems promptly, the property’s value can be preserved or even enhanced.

Importance of Including an Inspection Clause in the  Preliminary Contract under Spanish Law:

In Spanish law, when buying a property, it’s common to sign a preliminary contract (“contrato de arras” or “contrato privado de compraventa”). These contracts establish the terms of the sale and typically involve a deposit. To protect both parties and ensure transparency regarding the property’s condition, it’s crucial to include a clause about the technical inspection. This clause should specify the terms, responsibilities, and potential consequences if the property doesn’t meet the stipulated conditions. By including such a clause, both parties have a clear understanding of the inspection’s significance and the steps to follow if any issues arise.

Remember, when drafting or signing a contract in Spain, it’s advisable to consult with a Spanish attorney to ensure that all legal aspects are properly addressed.

1.3. Contract with Real Estate Agent

In the Spanish property landscape, you may interact with Agents of Real Estate Property, commonly referred to as ‘APIs’.

 They are governed by regulations and standards. You are fully within your rights to ask for their credentials. While the requirements might differ based on the region, they generally include specific training and insurance provisions. It is imperative to have comprehensive information before signing any documents. While agents may provide their own recommendations, always ensure to get an independent lawyer to oversee the processes.

Importance of Legal Review of Property Agent Contracts:

While these contracts may seem standard or straightforward, they encompass several terms and conditions that can have lasting implications.

  • Understanding Terms and Conditions: Contracts drafted by property agents are structured to protect their interests. An independent lawyer ensures that your rights and interests are also safeguarded. They can break down the contractual jargon into understandable terms and highlight any potential areas of concern.
  • Legal Compliance: Spain has specific regulations governing property transactions. A legal expert ensures that the contract adheres to the local and national laws, reducing the risk of future legal complications.
  • Negotiation Advantage: A lawyer can pinpoint areas within the contract that may be open to negotiation. This could relate to commission rates, the scope of the agent’s services, or other contractual obligations. Their insights can potentially save you money and future hassles.
  • Identification of Hidden Clauses: Some contracts may contain clauses that aren’t immediately obvious but could be detrimental. This includes stipulations that bind you to a particular service or impose penalties. A meticulous legal review will identify and address these potential pitfalls.
  • Peace of Mind: Knowing a legal professional has reviewed and approved the contract offers peace of mind. You can proceed with confidence, aware that your interests are protected.

In conclusion, while property agents play a pivotal role in the property buying process, ensuring your interests are protected is paramount. Engaging a lawyer for a thorough review of the agent’s contract is not just advisable—it’s a prudent step in any property transaction.

1.4. The magic document called Nota Simple

The “Nota Simple” from Spain’s Land Registry provides essential official details about a property, including its ownership, boundaries, mortgages, and potential encumbrances.

Ensuring its accuracy and timeliness is vital. Confirming the current ownership is paramount; you must ensure that the individual selling the property is, indeed, its rightful owner. An outdated “Nota Simple” might not show recent changes in ownership or may contain inaccuracies.

Moreover, properties might have associated debts, which could inadvertently be passed on to the new owner after the purchase. An up-to-date “Nota Simple” offers clarity on any outstanding mortgages or financial burdens tied to the property. By ensuring all the information is recent, buyers are better protected from potential future legal challenges or disputes.

When the seller takes the initiative to provide the “Nota Simple”, it not only streamlines the process but also fosters an atmosphere of transparency and trust. Additionally, being fully informed about the property’s precise status can empower buyers during negotiations. Should there be unresolved issues or encumbrances, the buyer can then either request their resolution before finalizing the purchase or negotiate a suitable adjustment to the purchase price.

In essence, while the “Nota Simple” might seem like a mere document, it’s a foundational element for ensuring a transparent, safe, and equitable property transaction in Spain. Having the most recent version in hand, ideally provided by the seller, is key to a smooth and secure buying process.

1.5. Understanding Planning Status

While the ‘Nota Simple’ provides valuable details, it doesn’t encompass zoning and legality specifics. To get insights into zoning regulations, you’d need to consult the local City Hall or urban planning office where the ‘Plan General de Ordenación Urbana’ (PGOU) is available. 

Given the diverse regional regulations in Spain, it’s essential to cross-check with an independent legal expert.

In Spain, the PGOU is the master plan that establishes the urban framework of a municipality,  outlines the urban and land use planning, which is paramount when considering any development, be it residential, commercial, or industrial. These documents classify the land into different categories such as developable, non-developable, and urban, among others.

 Each classification has its own set of regulations concerning building capacity, height restrictions, distances between buildings, and other urbanistic factors. These plans provide clarity for developers, ensuring that construction aligns with the broader urban and environmental objectives of the municipality

If you’re looking at a property in an urban area, the PGOU will define the specifics of what can be built there and under what conditions. Remember, properties that have been built without adherence to the PGOU or without the necessary licenses can face serious legal consequences, including demolition orders. 

Hence, before finalizing any property-related decision in Spain, it’s essential to understand the PGOU’s implications and, if necessary, seek guidance from urban planners or lawyers specialized in Spanish urban law. This ensures that one’s investment is both safe and in compliance with the local regulations.

1.6.Community of Owners

The Spanish novelist, Camilo José Cela, humorously remarked that a community of property owners could be the origin of a major conflict, highlighting the complexities sometimes associated with homeowner’s associations. 

 The “Certificado de estar al corriente de pago con la Comunidad de Propietarios” is crucial in the making decission part of the sale route. This certificate can be obtained from the community’s president or the property administrator. Its cost varies, but it’s generally affordable. Typically, the certificate is available within a few days, but complex cases might extend the duration. 

This certificate is essential to ensure no outstanding community debts are associated with the property.

The principle of “afección real del inmueble a las deudas de la comunidad de propietarios” means that if you buy a home in a building where there’s a community of owners, you might have to pay any overdue fees left by the previous owner from the year you buy and up to three years before that. The home itself can be used to cover these unpaid fees.

In practical terms, this means that if a property owner sells a house or apartment with outstanding community fees, the new buyer could be held responsible for these debts. This real-lien system is designed to ensure that community debts are always paid, given that communal services and maintenance benefit all residents, regardless of when they purchased their property. 

1.7 Purchase Agreements: Built vs. Under Construction

1. Built Properties:

  • If you’re buying a property that’s already built, you might not need a separate purchase agreement. Why? Because many times, all the details you need are already in a deposit contract you’ve made before. Think of this like a handshake deal, but on paper.
  • But remember, even if you and the seller agree on everything in that deposit contract, you’ll still need to get everything formalized in a public deed with a notary to officially register the property in your name.

2. Properties Under Construction ( off plan):

Pro Tip: Always, and I mean always, consider getting advice from an independent property lawyer ( never the one recommended by estate agent or developer)  when dealing with these contracts. It’s like having a safety net when you’re about to make one of the biggest purchases of your life.

You can read some tips for this type of purchases in this post of our blow. We were pioneers at helping thousands of clients recovering off plan amounts after the 2008 property bubble crash. You also have a related Q&A document here

The Consumer and User Organization, as well as the Spanish Notary Public Professional organisation, advise that you propose this model to the seller or, at the very least, use it as a reference. It is recommended to request changes to any detrimental clauses. Otherwise, should the developer ever decide to enforce them, you may have to undergo a legal process for these clauses to be declared abusive and considered null and void. 

Remember, besides the stipulations in the contract, there are other provisions that bind the developer; these refer to the contents in the materials produced by the developer for the marketing of the property, such as brochures, advertisements, quality reports, and more.

1.8. The Spanish Law 57/68 Explained: Protecting Homebuyers’ Interests

Let’s break down what this Law means for you and how it ensures your peace of mind.

  1. Purpose of the Law:

Enacted on July 27, 1968, the Law 57/68 was designed to protect buyers who are putting down advance payments for a property still under construction, this law ensures you’re not left high and dry.

However, it’s essential to understand that Law 57/68 has since been repealed, specifically by the ‘Ley 38/1999 de Ordenación de la Edificación’ (Building Regulation Law) and ‘Ley 20/2015 de ordenación, supervisión y solvencia de las entidades aseguradoras y reaseguradoras’ (Law on the Regulation, Supervision, and Solvency of Insurance and Reinsurance Entities).

Nevertheless, the essence of Law 57/68 has not completely vanished. A significant part of its protective spirit is upheld through the jurisprudence that previously interpreted Law 57/68. As such, even though the original law has been officially superseded, its protective principles continue to influence and secure real estate transactions today.

  1. Guarantees for Buyers:

Developers or builders, by law, are required to provide guarantees on those advance payments. This means if for any reason the construction doesn’t complete or faces delays, your money is secured.

  1. Bank Guarantees & Insurance:

The law mandates that the advance payments made by buyers must be deposited in a special account separate from other funds of the developer. Furthermore, it’s not just about the builders providing these safeguards: the bank receiving these amounts also has a duty. They must ensure, under their responsibility, that these guarantees (either bank guarantees or insurance) are in place to protect the buyers’ payments. This added layer of verification ensures that buyers’ interests are doubly safeguarded.

  1. Safety Net for Buyers:

If the unthinkable happens, and the project isn’t delivered on time, the law ensures buyers can reclaim their advanced payments, plus interest. It’s like having an extra layer of insurance on your investment.

Key Takeaway: Investing in properties under construction comes with its risks. But with protections like the Spanish Law 57/68 in place, Spain offers a secure environment for your real estate aspirations. Always consult with an experienced property lawyer to guide you through the nuances.


2. WHILE BUYING

2.1. The Notarial Deed of Sale: What You Need to Know

One of the most crucial steps in Spain is the signing of the “Notarial Deed of Sale.” But what is it, who pays for it, and why is it essential?

  • What is the Notarial Deed of Sale?

It’s an official document that confirms the transfer of ownership from the seller to the buyer. It’s prepared and authenticated by a notary public, ensuring that both parties fully understand and consent to the transaction terms.

  • How is it signed?

Both the buyer and seller, alongside their legal representatives if necessary, meet at the notary’s office. The notary will then read out the document to ensure all parties understand its content. Once everything is clear, both the buyer and seller will sign the deed, finalizing the sale.

  • What guarantees does it provide?

Legality: The notary ensures that the transaction adheres to Spanish law and that both parties’ rights are protected.

Transparency: The deed outlines the property’s exact details, price, and any other conditions or clauses agreed upon, offering a clear record of the transaction.

Security: Once signed, the deed is a legal confirmation of the property’s ownership transfer, providing the buyer with proof of their new ownership status.

  • What’s its purpose?

It serves as the official record of the property transaction, vital for registering the property in the buyer’s name in the Land Registry. 

  • Who pays for it?

By law in Spain, the seller covers the notary costs, while the buyer pays for a copy of the deed and the property registration in the Land Registry. However, it’s essential to be aware of these customary practices and to ensure that all parties understand their financial obligations. 

  • The Unique Role of the Spanish Notary and the Importance of Legal Representation

In Spain, the role of the notary in property transactions is crucial. However, it’s essential to understand the distinct responsibilities of a Spanish notary and the pivotal role of having an attorney at your side.

A Spanish notary is a highly qualified legal professional who undergoes rigorous training and must pass competitive exams. Their primary role is to authenticate documents, confirm the legality of property transactions, and ensure that contracts and agreements comply with Spanish laws.

However, here’s what a notary does and doesn’t do:

  1. Impartial Witness: The notary ensures that the agreement between parties is made willingly and without coercion. They’re there to authenticate and make the process official.
  2. Legal Advisor (with limitations): While a notary can advise on the legal implications of a transaction, they don’t advocate for one party’s interests over another. They provide an impartial overview of the transaction’s legality.
  3. Guardian of Legality: Notaries confirm the legality of property transactions and ensure that taxes and fees are correctly paid.
  4. Document Keeper: Spanish notaries archive the original deeds, adding an additional security layer to the transaction.

This below is a list of duties to be performed by Notaries in Spanish Property Transactions

  • Verifications

Identity and Legitimacy: The notary checks the identity, capacity, and legitimacy of both the buyer and the seller.

Seller’s Title: They confirm the seller’s ownership title and record the sale within the same title.

Primary Residence Status: It’s determined whether the property is the seller’s primary residence. If so, both spouses or, occasionally, civil partnership members, must sign.

Community Fees: They ensure that the communal fees associated with the property have been paid.

Occupancy Certificate: The notary checks for the occupancy certificate, required by some autonomous communities.

  • Informing Duties

Protected Housing Status: If the property is a “Vivienda de Protección Oficial” (VPO or Protected Housing), the notary ensures all obligations and restrictions associated with such properties are met.

Lease Status: Sellers must declare in the deed, as instructed by the notary, whether the property is free from leases and occupants.

Payment Risks: Sellers are informed about the risks associated with deferred payment and potential guarantees to mitigate these risks.

Legal Obligations: Both parties are made aware of their legal obligations and tax duties arising from the sale.

  • Declarations

Outstanding Charges: The notary discloses any charges on the property, such as mortgages, embargoes, or other encumbrances, to inform the buyer.

  • Requests

Energy Efficiency Certificate: The seller is asked to provide the property’s energy efficiency certificate.

Property Tax Proof: They request proof of property tax (IBI) payment and the property’s cadastral reference number to verify its correspondence with the seller’s deed.

  • Advisories

Hidden Defects: Buyers are cautioned about potential hidden defects in the property that aren’t immediately visible.

Real Owner Identification: In cases involving a corporate entity, the notary identifies the actual owner to comply with Money Laundering Prevention Laws.

  • Explanations

Cost Distribution: The notary outlines how the costs associated with the public deed will be distributed between parties.

While the notary ensures that the transaction is legally sound, they don’t represent the interests of the buyer or seller. This is where having an attorney becomes indispensable:

Why is an attorney essential?

  • Personalized Legal Counsel: An attorney will provide advice tailored to your specific situation, ensuring that your interests are adequately protected.
  • Negotiation: They can help negotiate terms, conditions, and prices, ensuring you get the best deal possible.
  • Clarification: Legal jargon can be confusing. Your attorney can help translate the complexities of the contract, ensuring you fully understand every aspect of the deal.
  • Protection: While a notary is impartial, an attorney is your advocate, ensuring that your rights and interests are at the forefront of the transaction.

In conclusion, while the Spanish notary plays a pivotal role in the authentication and legality of the property transaction, having an attorney by your side is essential for personalized guidance and protection of your interests. Always ensure you have the right legal counsel when navigating property transactions in Spain.

  • The Advantage of a Multilingual Attorney for Foreign Buyers in Spain

For foreign buyers in Spain, navigating the intricacies of property transactions can be even more challenging due to potential language barriers. This is where the value of a multilingual attorney becomes immeasurable. 

Having an attorney who speaks your language ensures clear communication, accurate understanding of documents, and peace of mind. It eliminates potential misunderstandings or misinterpretations that could arise from language differences.

 Especially when making such a significant investment as purchasing property, it’s crucial to fully understand every step of the process. An attorney fluent in both Spanish and your native language can bridge the gap, ensuring that you’re not only legally protected but also fully informed and confident in your decisions.

2.2. Understanding Mortgage Loans within Notarial Deeds and the Role of FIPRE in Spain

For those navigating the Spanish property market, it’s vital to understand the role of Notaria mortgage loan deeds and the significance of the “Ficha de Información Precontractual” (FIPRE) – the mandatory pre-contractual information sheet.

 Given the specialization and complexity of the process, having an attorney skilled in property sales and mortgage loans becomes indispensable. Moreover, the heightened focus on protection against abusive clauses emerges in light of a surge in claims, many of which have reached European courts, highlighting the dominance of banks in mortgage transactions, even in mortgage enforcement procedures

 Together, these elements and professional guidance help ensure transparency, fairness, and a smooth transaction for all parties involved.

A. The Mortgage Loan Process and Notarial Deeds

  • Loan Approval: A potential buyer usually begins by seeking and obtaining loan approval from a bank or lending institution.
  • The FIPRE – Pre-Contractual Information Sheet: Upon loan approval and before moving on to draft the notarial deed, the bank provides the buyer with the FIPRE. This document outlines the essential terms of the mortgage and ensures the buyer understands the forthcoming commitment.
  • Contents of FIPRE: FIPRE offers a comprehensive view of the mortgage details, including the loan amount, interest rate, fees, potential risks, and other key agreement terms. It’s designed to ensure transparency and protect the borrower from unforeseen surprises.
  • Reflection Period: After receiving the FIPRE, there’s a mandatory reflection period, typically a minimum of 10 days in Spain. During this time, the potential borrower reviews the terms and seeks any necessary advice, preferably from an experienced attorney.
  • Inclusion in the Notarial Deed: Once the reflection period is over, and if the buyer agrees to proceed, the loan’s terms, as outlined in the FIPRE, are then included in the notarial deed. This incorporation makes the lending institution a formal party to the deed.
  • Notary Review: The notary, acting as a neutral entity, reviews the loan’s terms, cross-references them with the FIPRE, and ensures that both parties are in agreement. This step offers an added layer of protection and validation for the transaction.

B. Why are the Notarial Deed and FIPRE Important?

  • Documented Record: The notarial deed provides a lasting record of the property transaction, detailing both the property sale and the associated mortgage loan’s terms.
  • Legality and Authenticity: The deed ensures the legality of the property sale and the attached mortgage terms, making it essential for the buyer’s property registration.
  • Transparency: FIPRE’s introduction into the mortgage process underscores Spain’s commitment to clarity in property transactions. It allows potential borrowers to have a clear overview of their mortgage’s terms, empowering them to make informed decisions and compare offers from various banks.
  • Expert Guidance: Given the technicalities and potential pitfalls in such transactions, having an attorney with expertise in the field can be invaluable. They can navigate the complexities, ensure that all legal aspects are addressed, and advocate on behalf of the client throughout the process.

2.3. Tax Implications for Homebuyers in Spain: A Comparison between Residents and Non-Residents

Purchasing a home in Spain, as with many countries, comes with various tax implications. Whether you’re a resident or a non-resident, understanding these taxes is crucial to ensure a smooth transaction and avoid unexpected costs. 

Here, we’ll delve into the primary taxes both residents and non-residents face when buying a home in Spain and highlight any differences between the two groups.

1. Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP)

  • Residents: When buying a second-hand property, residents must pay the ITP, a tax that varies by region in Spain. Rates typically range between 6% to 10% of the property’s purchase price, but it’s essential to check the specific rate for the autonomous community where the property is located.
  • Non-Residents: Non-residents are also subject to ITP at similar rates as residents when purchasing a second-hand property.

2. Value Added Tax (VAT – Impuesto sobre el Valor Añadido – IVA)

  • Residents: For new properties bought directly from a developer or builder, residents pay VAT instead of ITP. The VAT rate for residential properties stands at 10%.
  • Non-Residents: Similarly, non-residents purchasing new properties are subject to the same 10% VAT rate.

3. Stamp Duty (Actos Jurídicos Documentados – AJD)

  • Residents: Whether buying a new or second-hand property, residents also need to pay AJD, a tax that varies regionally. Typically, rates range from 0.5% to 1.5% of the property’s price.
  • Non-Residents: Non-residents are also liable for AJD at similar rates as residents.

4. Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes – IRNR)

  • Residents: Not applicable to residents.
  • Non-Residents: If a non-resident owns property in Spain, they’re subject to the IRNR, which taxes the potential income from the property, even if it’s not rented out. The rate is typically 24% for non-EU/EEA residents and 19% for EU/EEA residents. It’s applied to a specific percentage of the property’s cadastral value.

5. Annual Property Tax (Impuesto sobre Bienes Inmuebles – IBI)

  • Residents and Non-Residents: Both groups must pay this local tax based on the cadastral value of the property. The rate varies by municipality but typically ranges between 0.4% to 1.1%.

2.4 Tax Considerations When Selling Property in Spain: Residents vs. Non-Residents

Selling a property in Spain? Whether you’re a resident or a non-resident, it’s pivotal to understand the tax landscape to ensure compliance and optimize your returns. 

  1. Capital Gains Tax (CGT)

One of the primary taxes you’ll encounter when selling property in Spain is the Capital Gains Tax. This tax is levied on the profit made from selling the property compared to its acquisition cost.

  • For Residents: Spanish residents benefit from some exemptions on CGT. For instance, if you’re over 65 and have lived in the property as your main residence for at least three years, you may be exempt from this tax.

 Additionally, residents under 65 can reinvest the proceeds from the sale into another main residence in Spain to benefit from a tax reduction.

  • For Non-Residents: Non-residents are typically taxed at a fixed rate on the profit from the sale. It’s essential to note that the buyer is legally required to withhold a percentage of the purchase price and pay it to the Spanish tax authorities as an advance payment of the non-resident seller’s CGT.
  1. Plusvalía Municipal

This is a local tax applied by the municipal council based on the increase in the land’s value from the last transfer.

  • For Residents and Non-Residents: Both categories are liable to pay this tax. However, its amount varies based on factors like location and the duration of ownership.

3. Main Differences Highlighted

Capital Gains Tax Exemptions: Spanish residents can access more CGT exemptions and reductions than non-residents, especially if the property sold was their primary residence.

Withholding for Non-Residents: Buyers purchasing from non-residents must withhold a fraction of the sale price, ensuring that non-residents meet their CGT obligations.

4. Tips for Potential Sellers:

  • Seek Expertise: Engaging a tax professional or legal expert familiar with Spanish property laws can be invaluable. They can provide tailored advice, ensuring you benefit from any available tax advantages.
  • Keep Records: Maintain thorough records of property-related expenses. This can prove beneficial when calculating the property’s acquisition cost and potential deductions.

In the realm of Spanish property transactions, whether you’re on the buying or selling side, navigating the intricate legal and fiscal landscape can be daunting. 

Herein lies the invaluable role of a robust legal team, especially one that boasts specialists in tax law. Adept attorneys can unravel complex tax nuances, ensuring compliance while optimizing financial outcomes. 

For foreign investors or those unfamiliar with Spain’s property regulations, this expertise becomes even more paramount. From capital gains considerations to potential tax breaks and exemptions, having a team versed in both property law and fiscal matters can be the difference between a smooth, beneficial transaction and a cumbersome, costly ordeal. In essence, while the property might be the investment’s face, the right legal team is its backbone, underpinning its success.

2.5.Checklist of Essential Documents a Competent Spanish Property Lawyer Should Verify Before Signing the Notarial Purchase Deed

When buying property in Spain, one must ensure that all legal bases are covered. A proficient lawyer specializing in Spanish property transactions will conduct thorough due diligence to safeguard the buyer’s interests. 

Below is a checklist of critical documents that such an attorney should verify before proceeding to sign the notarial purchase deed:

  1. Certificate of Debt-Free Community of Owners (Certificado de Deuda Cero de la Comunidad de Propietarios): This confirms that there are no outstanding communal fees owed by the property in question.
  2. Energy Efficiency Certificate (Certificado de Eficiencia Energética): A mandatory document that provides insights into the energy efficiency of the property, detailing the property’s energy consumption and CO2 emissions.
  3. Property Tax (IBI) Receipts: Ensures that the annual local property tax (Impuesto sobre Bienes Inmuebles) has been settled to date. Obtaining the property’s cadastral reference number is also crucial.
  4. Land Registry Extract (Nota Simple): This essential document from the Land Registry offers details about the property, such as its ownership, boundaries, potential liens, mortgages, and other relevant legal information.
  5. First Occupancy License (Licencia de Primera Ocupación): Especially vital for newer properties, this license from the town hall certifies the property’s fitness for occupation.
  6. Technical Building Inspection (Inspección Técnica de Edificios or ITE): For properties over 50 years old, an ITE report can be crucial. It assesses the building’s overall condition and highlights any mandatory repairs or renovations.
  7. Utility Bills: Reviewing recent utility bills (e.g., water, electricity, gas) ensures no outstanding payments and confirms that all utilities are registered and current.
  8. Property Statutes (Estatutos de la Comunidad): Where applicable, these provide insights into the community of owners’ rules, which could range from pet allowances to restrictions on renovations.
  9. Building Insurance: It’s advisable to verify if the property has any active insurance policies, especially if part of a broader community or building complex.
  10. Existing Rental Agreements: For properties purchased as investments with existing tenants, reviewing any active rental agreements is essential to understand any commitments and terms.

3. AFTER BUYING

3.1. Registration at the Land Registry 

Registering a property at the Land Registry (Registro de la Propiedad) in Spain after a transaction is a nuanced process, and the role of the buyer’s attorney is pivotal.

 This registration ensures that the buyer’s rights as the new property owner are legally protected and recognized. Here’s an in-depth look into the tasks the attorney undertakes during this phase:

  • Review and Preparation: Before submitting the deed to the Land Registry, the attorney double-checks all details to ensure they are accurate. This includes verifying the names of the parties, property description, boundaries, and any other crucial data.
  • Payment of Associated Fees: Registration incurs fees, the amount of which depends on the property’s value and other factors. The attorney calculates these fees, makes the necessary payments, and ensures all receipts are retained for records.
  • Submission of the Deed: The attorney presents the notarized deed (escritura pública) to the Land Registry. This deed is the official document that reflects the details of the property transaction.
  • Monitoring the Registration Process: The Land Registry might take some time to process the registration. During this period, the attorney monitors the progress, addressing any potential queries or issues that the registry might raise.
  • Addressing Potential Discrepancies: If the Land Registry identifies discrepancies between the presented deed and their records, or if there are pre-existing encumbrances or annotations, the attorney addresses and resolves these to ensure smooth registration.
  • Obtaining the Updated Land Registry Extract (Nota Simple): Once the registration process is complete, the attorney obtains an updated Land Registry Extract (or Nota Simple). This document provides a summary of the property’s current registration status, including the new ownership details.
  • Informing the Client: After successful registration, the attorney informs the buyer of the completion, providing them with all relevant documentation, including the updated Nota Simple and receipts for payments made.

In conclusion, while the registration of a property at the Land Registry in Spain might seem like a straightforward task, it involves multiple steps, attention to detail, and often, addressing unexpected issues. The buyer’s attorney plays an indispensable role in ensuring that the registration process goes smoothly, culminating in the legal recognition of the buyer’s ownership of the property.

3.2. Utility Transfers: (water, electricity, gas, etc.) 

After signing the deed of sale for a property, there are essential steps to finalize regarding utilities. Here’s the detailed list of final tasks your attorney should manage to ensure a smooth transition:

  • Notification to Utility Providers: The attorney should notify each utility provider (water, electricity, gas, etc.) about the ownership. This ensures that the utility companies are aware of the new responsible party for the account.
  • Transfer of Account Names: Initiate the process to change the account holder’s name from the seller to the buyer. This might require submitting the new homeowner’s identification and a copy of the signed deed.
  • Settlement of Outstanding Bills: Ensure that any outstanding bills or balances left by the seller are settled. It’s crucial to verify that the property is free from any utility debts before the new owner takes over.
  • Setting Up New Payment Methods: Help the new owner set up their preferred payment methods for utility bills, whether it is direct debit, online payments, or other methods.
  • Verification of Meter Readings: On the date of sale, make sure the meter readings (for electricity, water, and gas) are correctly recorded. This prevents disputes about usage charges between the buyer and seller.
  • Review and Address Service Contracts: If there are ongoing service contracts or subscriptions (like maintenance for solar panels or security systems), ensure they are either transferred to the new owner or terminated, based on the agreement between buyer and seller.
  • Retrieval of Deposits: Some utility providers might have taken deposits from the seller when the utilities were initially set up. The attorney should ensure these deposits are returned to the seller or transferred to the new account holder as appropriate.
  • Confirm Continuity of Service: Ensure that there’s no interruption in utility services during the transition. Sometimes, when accounts are transferred or there are unpaid bills, utility providers might cut off the service. It’s the attorney’s role to prevent or rectify such situations swiftly.
  • Provide Documentation: Finally, the attorney should provide the new homeowner with all relevant documentation related to the utilities, including account numbers, contact details for utility providers, and any other pertinent information.

By managing these final utility-related tasks, your attorney ensures a smooth transition for the new homeowner and helps avoid potential disputes or disruptions in service.

Maria Luisa Castro

Director and Founder
María founded CostaLuz Lawyers in 2006 and is the Firm’s Director. María is registered Lawyer number 2745 of the Cadiz Bar Association and is licensed to practice in all areas of law throughout Spain. Working closely with her team, María has developed the firm into one of the most highly regarded and trusted Spanish Law Firms acting for English-speaking clients with legal problems in Spain. We’re here to help. Contact us today for a free, no-obligation, initial legal orientation.
 

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