Buying a property in Spain

Be aware of what is involved in the purchase process. When you begin the purchase process, you will need to obtain a fiscal number (numero de identificacion de extranjeros). You should also retain the services of a lawyer who speaks Spanish and your native language as they will start this process.

In the case of an off-plan purchase, you will be asked to sign a reservation contract and pay a small fee, at which point the property will be taken off the market for a limited period (usually 30 days). This allows time for legal checks to be carried out and a contract of sale (escritura de compraventa) to be drawn up, and for you to make the first of a series of payments (known as stage payments). This first payment is normally 10 per cent or more of the purchase price and is non-refundable.

In the case of a resale, once your offer has been accepted, you pay a small deposit. Your lawyer then carries out the necessary legal investigations. When these are complete, you sign a contract of sale, which states the price and what it covers the deposit (generally 10 per cent) and when you will pay it, and the date of completion. Should you breach the contract, you forfeit your deposit. Should the seller breach it, they must pay you twice the amount of the deposit.

Once completion has taken place, various fees and taxes are payable, and the property is then registered at the Land Registry. Some sellers of resale property in Spain will encourage you to under-declare the value of the property to the authorities, and pay a proportion of the price in cash in order to secure a slightly cheaper price. This is illegal, and is done purely so that the seller can avoid paying part of the capital gains tax that they will owe on the property. Not only is it possible to be prosecuted in the new climate of clamping down on illegal real estate practices, but you will be liable to pay the capital gains tax on the full amount of the difference between the declared values at the time of purchase and when you sell the property. If sellers insist on taking cash ‘under the table’ walk away from the deal.

Understand the costs involved. As a yardstick, anyone buying property in Spain should allow between 10 and 14 per cent on top of the agreed purchase price for the various fees that must be paid. The buyer pays:

Legal fees (usually between 1 and 2 per cent)

IVA (Spain’s equivalent of VAT) at around 7 per cent, plus stamp duty of 0.5–1 per cent, on a new property,

Stamp duty at 6–7 per cent (depending on the property’s location) on a resale

Notary and property registration fees of about 1 per cent

If the property is located within a complex, there will be maintenance charges. These will usually cover such costs as swimming pool and garden upkeep.

Learn the ins and outs of Spanish property mortgages. There are two main options for using a mortgage to fund your property purchase. These are remortgaging your existing home or arranging a mortgage on your Spanish property through a Spanish lender (Bank).

Bear in mind that an overseas mortgage may incur higher set-up costs (sometimes 3 to 4 per cent of the amount borrowed) and that Spanish lenders will not be interested in doing business if existing loans exceed 35 per cent of the borrower’s income, as is the case in much of Western Europe.

Remortgaging offers the easiest solution. Releasing equity from your existing property means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible for those who own their first home outright.

Several mortgage providers will lend funds of up to 80 per cent of the purchase price for second home purchase over, typically, a 15-year term. Euro mortgages, which are tied to the rate set by the European Central Bank (ECB).

The self-employed are seldom eligible for a euro mortgage, as comparatively few European lenders will consider self-certification of income. The fact that the ECB’s base rate is at present lower than some European banks does not guarantee savings on repayments for those taking out a euro mortgage. As the mortgage market is competitive, there are many good deals available on sterling loans, so it is wise to shop around.

As exchange control is a complex subject, it is advisable to obtain appropriate professional advice before deciding to take out a mortgage in a foreign currency.

Be thoroughly aware of the taxation on property in Spain. In Spain, taxes are levied by three tiers of government: central government, autonomous regional governments and local municipalities. The Spanish tax system is particularly complex, and you are strongly advised to seek professional advice tailored to your individual circumstances.

Personal taxation: non-residents - Non-residents are taxed at a flat rate of 24 per cent on their Spanish-sourced income – for example, rental income from property in Spain, income from a business in Spain and interest on funds deposited with a Spanish bank. Those who own a Spanish property exclusively for their own personal use and have no other source of taxable income in Spain pay a version of income tax called imputed income tax, which is calculated on the property’s valor catastral, or rateable value. Although they do not earn an income from the property, the Spanish authorities take the view that they nevertheless derive a benefit from owning it, and should be taxed accordingly.

In addition, non-residents are liable for patrimonio (wealth tax) on their Spanish assets, including property, and for capital gains tax should they dispose of an asset at a profit.

Local taxes - The impuesto sobre bienes inmuebles (IBI) is an annual property tax levied by the local municipality and used to fund local services. Like imputed income tax, it is calculated on the valor catastral, so it varies widely from one property to another.

Owners might pay as little as 100 Euros per year for a small country property, but a luxury home in an expensive exclusive development on the waterfront for example will cost much more per year.