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Buying a property in Spain
Buying a property in Spain

- written by Mr. Alejandro Espada Gerlach
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The Lawyers & Economists Firm "Espada Gerlach & Pintor y Asociados", domiciled in Barcelona, Spain, was founded in 1980 through the merger of two Firms, namely the one of Mr. Espada Gerlach (Lawyers specializing in Civil, Commercial, Criminal and International Law) and the one of Mr. Joaquim Pintor (Economists expertized in Tax Law). A group of 10 Lawyers and 5 Economists was thus gathered and became a multithematic and specializing Firm, with permanent collaborations in the whole Spain and with a perfect command, apart from the own languages, of German, English and French. Our clients are composed of 60 percent of non Spanish and 40 percent of Spanish clients, both individuals and legal persons (medium and big multinational Companies).
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There are different rules which apply depending on whether you are considering acquiring a property for personal or business use, or whether the property is old or new or is a listed building, or whether you are buying on your own or in joint ownership or even as a time share.

This article deals with the purchase of a residential property.

1. How to find a property?

You should contact an estate agent (an “Agente de la Propiedad Immobiliaria” or “API”) who will deal with you either on an exclusive or non-exclusive basis to search for a property on your behalf. The Estate Agent may already have been instructed by the seller.

2. The agent’s fee

This will be between 5% and 10% of the value of the property. The amount can be negotiated particularly if the seller has already placed the sale in the hands of the agent.

It is also possible for you to carry out your own search through property adverts in newspapers or through personal contacts.

3. Before signing the contract

Under Spanish law, once you have agreed on the object of the contract (i.e. the property) and on the price, the sale is deemed to have been concluded.

You should make a search from the Property Registry to make sure that you are dealing with the owner or a representative and that the property is free of charges.

You should also get an architect’s report on the condition of the property.

If you are buying a plot on which to build your own house, make a search at the town hall in respect of any conditions which may apply.

If you are buying a flat, ask the management agent to provide you with confirmation that all maintenance charges have been paid to date.

If you are buying a house, the same confirmation should be obtained from the housing association which runs the estate.

4. What contract do you need to sign?

According to Spanish law, the registration of your purchase does not "make" you the owner of the property, but simply serves as an official declaration.

This means that any form of contract is valid and can be accepted if ratified by the Court. To avoid difficulties, we recommend that you should seek the advice of a lawyer and that the contract be signed in front of a Spanish Notary. This form of contract (called "escritura") will be immediately acceptable to the Property Registry (provided all legal requirements have been fulfilled). It is because many "escrituras" cannot be registered as the correct information is not included that we recommend you seek advice from a lawyer.

In any event, because arranging the finance to buy can take several weeks, it is common practice to sign 2 contracts.

4.1 Stage 1

A private contract is signed and at that time you will be required to pay between 5% and 10% of the price as a deposit. The deposit will be refunded if certain pre-conditions are not realised and will be lost if the buyer decides not to go ahead.

In general, if the seller withdraws from the sale, twice the amount of the deposit will be repaid to the buyer.

4.2 Stage 2

When you have agreed with the seller (generally 2 or 3 months later) you will sign the "escritura" at the office of a Notary.

The Notary will not allow the contract to be signed unless all the conditions have been fulfilled so your lawyer should attend the meeting with you.

You will need to bring an identity card or passport and a certificate from your bank if you have transferred funds from your own country. The seller must bring all the title deeds and also the last receipts for the annual tax on the property (the Impuesto de Bienes Inmuebles - or "IBI") which is useful to calculate tax and expenses.

You will be asked to pay the Notary’s fees and the tax on the transfer (6 or 7% of the purchase price depending on where the property is situated). There is a further tax, payable to the local council which is called "Plusvalia" and which the seller pays unless you have agreed otherwise.

Generally speaking the costs will come to about 10% of the purchase price plus the fees for your own lawyer (approximately 2% of the purchase price, but depending on the total time spent).

5. The loan

If you need finance to fund your purchase, you can obtain it either from your own bank or from a Spanish bank.

Spanish banks usually lend up to 80% of the value of the property and take a mortgage as security.

6. Who can purchase property?

A property can be purchased by one individual or by several or through a property based limited company.

An individual who is married must always specify what type of contract regulates the marriage so that it is clear whether the property will belong to the individual or to the couple and so that there are no problems on a resale.

Buying through a company has some advantages (lower taxes on reselling, the shares are movable assets and easier to transfer) and drawbacks (running the company, accounting rules, formal meetings .....).

7. Reselling

Capital gains tax on an increase in value is payable in Spain at a rate of up to 35% (in 2001). The increase in value is calculated as the purchase price (plus expenses and taxes) less the price of sale reduced in accordance to a set rate depending on the year of purchase.

Generally the reduction is 11.11% for each year of ownership.

In addition, to ensure payment of the tax, the buyer must retain 5% of the purchase price which is paid to the tax office. The seller can then request a refund if the tax payable is lower. However, if on 31.12.1996 you had owned the property for 10 years (without making improvements) that retention is not required.

8. Inheritance

The law of your country applies in respect of the rules on inheritance, but Spanish tax law applies in respect of property located in Spain.

The rate of inheritance tax is from 7.65% and increases in accordance with a set scale. There are reductions which apply depending on how close the family connection is with the deceased owner.

9. Taxes and expenses

The running costs of owning a property in Spain include the following:

Insurance for the property and its contents

Property tax payable annually to the local council (IBI)

Tax on wealth in all cases.

If you have bought a flat in a building which is co-owned, you will bear [a share] of all common charges including the management company’s fees, works, lifts, maintenance ......

10. Living in Spain and tax issues

If you live in Spain, you may be taxed on all your income (in accordance with the provisions of tax treaties with other countries) if you are considered to be domiciled in Spain, or your main assets are located in Spain or if you remain in Spain for more than 183 days in a year.

The top rate for income tax is 48% for 2001.

In addition, wealth tax will apply if your assets exceed 18,000,000,-Pts., excluding the value of your main residence up to 25,000,000,-Pts.

If you have any queries, please do not hesitate to contact us.

Our contact data are the following:
c/ Diputación 256, 2º1ª
08007 Barcelona
Spain
Tel.- 34/933012741
Fax.- 34/933012808
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The contact person is Mr. Alejandro Espada Gerlach