If you are not familiar with the process of selling or buying a house in Spain, it may seem a daunting and complex procedure. However, as with all legal transactions, being as informed as possible from the outset can greatly demystify the process.
1. Legal documentation The most important legal document you will need as a foreigner buying a house in Spain is the NIE (Número de Identificación del extranjero). This number, which is unique to each individual, is essential to carry out all legal transactions. The NIE will need to be on each legal document you sign, therefore it is advisable to get this in place before you even start the process of looking for a property, just in case you find one you like and need to move quickly to reserve it. The NIE is not complicated to obtain, but can be time-consuming; ask your legal representative for help obtaining the NIE in order to speed up the process as much as possible.
2. Bank account In addition, although it is not compulsory, having a bank account in Spain will make all the formalities easier, as it will make payments faster and will probably save on commissions.
3. Non-resident tax representative Finally, remember that once you are the owner of a property in Spain, you must appoint a tax representative if you are not resident in Spain.
We can offer help with trusted advisors on both legal representation and banking advice if you require.
Although each buying process may differ, in general, the steps found in any real estate operation would consist of the following:
Tax and budget planning The costs of acquiring a house are mainly paid by the buyer and vary from region to region. Taxes and other fees paid by the buyer include:
– Property transfer tax 7%(existing properties) / VAT (or IVA) at 10% (new properties); – Notary costs, title deed tax and land registration fee 1–2.5%; – Legal fees 1–2% (including VAT).
Once you have decided on the type of property you are looking for, which area you’d like to buy in and, of course, that you can afford both the home and associated fees, the process is much the same for most purchases.
1. Engage a real estate agent Most real estate agents will advise that you find one real estate agent you like and feel you can trust, as well as the most knowledgeable in the area you are researching. This is because on the Costa del Sol, most agents can carry out viewings on most properties and you don’t want to waste time seeing the same property twice. However, the more respected and well-established agents will have their own listings that they don’t share with other agents. Of course, we hope that you choose us!
2. Engage a lawyer We have trusted legal representatives with whom we have worked for many years that we will happily recommend.
3. Ensure there is adequate planning approval Your legal representative will carry out searches and ensure that there are no anomalies according to the land registration (Registro de la Propriedad).
4. There are no outstanding obligations on the property Your lawyer will check that there is no remaining debt, or ‘charge’ on your property.
5. Check that the structure of the property is sound Ask for a survey to be carried out, either a surveyor or an architect can do this.
You may come across mention of the Registro Catastral in the process of buying a house. This is the Spanish Land Registry and is a government database that keeps track of who owns what in Spain. It should be updated every time a property is sold and transferred, in order to safeguard ownership rights and prevent a property from being sold again. Again, your lawyer will ensure that everything is regularised with the Registro Catastral.
What’s next?
Reservation agreement and letter of intent When a buyer pays a fee and reserves the right to acquire a property in Spain for a set length of time (the reservation term), it is known as a reservation agreement. During the reservation period, the builder or developer states that the property will not be sold to another party. In addition, a letter of intent may be presented by one party to another party and subsequently negotiated before execution (or signature). In this document the buyer and seller establish the terms and timings for payments.
Arras contract The arras contract, known as Contrato de Arras, is a widely used legal instrument in real estate transactions. Although it isn’t compulsory, it solidifies the buyer’s commitment to purchasing the property and the seller’s commitment to selling it. Typically, the buyer pays a deposit, usually a percentage of the total purchase price, as a sign of good faith and to secure the property. If the buyer fails to fulfil their obligations, they may lose the deposit, while if the seller backs out, they may be required to return double the deposit to the buyer. The arras contract thus provides assurance and legal protection for both parties, ensuring a smoother and more secure transaction process.
Escritura The escritura is a vital step in the Spanish real estate process, involving the signing of a public deed that formalises the transfer of ownership. During this process, the buyer and seller, or their representatives, appear before a notary to sign the legally binding document. The escritura includes essential details such as property description, purchase price and any additional agreements. Once signed, the notary records the deed in the official property registry, ensuring a secure and documented transfer of ownership. This is the final stage of buying your new home – once signed before the notary, the property is now yours, congratulations!
FAQs
ARE FOREIGNERS ALLOWED TO BUY PROPERTY IN SPAIN? Of course! There are no restrictions on buying property in Spain, whether it’s commercial, residential or a plot of land. In fact, Spain encourages investment by foreigners, both resident and non-resident. Remember also that if you buy a house worth more than €500,000 you can apply for a Golden Visa that can eventually lead to resident status. WHAT ARE THE TAXES I NEED TO PAY WHEN BUYING A HOUSE? All property owners in Spain are required to pay income tax, including capital gains tax, and the IBI, or real estate tax. If you are a resident, you are subject to Income Tax (including Capital Gains Tax) and Real Estate Tax (IBI).
Non-resident Tax on Property Purchases – Income Tax (including Capital Gains Tax) Income Tax for non-residents only takes into account income from property, since income from wages must be declared in your country of residence. If the property is for your own use, you must pay a certain percentage of your property; if you rent the property, you must declare the amount you receive as rent.
– Annual Spanish real estate tax This property tax is based on the cadastral value and for the same type of property can vary greatly from one city to another, as it is a municipal tax. This real estate tax is called the IBI, ‘Impuesto sobre Bienes Inmuebles. The tax increases every year depending on inflation.
HOW DO I PAY? For a non-resident, the best solution is to pay tax by direct debit. The bank will provide you with a form authorising the bank to pay tax on your behalf and a copy of the form will be deposited with the local council. This will ensure that taxes are paid at the right time, just like other utility bills owned by you.
In addition to the appraised value of your property (cadastral value), the IBI also takes into account your reference cadastral number, which identifies your property at the cadastral office. This can be important in the purchase and sale of properties, because sometimes the physical description does not agree with the description on the title deed.
These taxes cannot be avoided, as the Spanish Tax Agency (Hacienda) will audit the accounts at the time of the sale of the property. A deposit of 3% will be made on the total price of the sale, this being a guarantee against Income Tax and Wealth Tax in the previous four years, as well as a guarantee against your tax debt on Capital Gains. At the time of signing the sales contract, you will also be asked to present the current real estate tax receipt, the IBI.
SPANISH INCOME TAX Spanish Income Tax does not apply to the principal residence of a resident owner. However, it does apply to a second residence. In the case of a non-resident, as this property is not considered a principal residence, the tax must be paid on an annual basis. The tax payable is 2% of the cadastral value of the property as fictitious rental income.
It can be reduced to 1.1% if the cadastral value has been raised since 1994 – and in many cases it has been. For residents, this tax is paid as if it were a profit. For low income, the percentage to pay is 15% and for high income, the percentage is 30% or even 40%. A non-resident is always taxed at a fixed rate of 24% on any income arising in Spain. This 24% income tax should not be confused with the 21% capital gains tax on profits from the sale of assets, such as a house or shares in a company.
As you may realise, while most house sales are straightforward, it is always prudent to err on the side of caution and ensure you are receiving current, well-informed advice from your real estate agent as well as a trusted lawyer.
At Marbella Hills Homes, we have years of experience accompanying our clients on their buying and selling journeys, as well as a professional network of legal specialists who can be relied upon for up-to-date advice. If you are thinking of buying a home on the Costa del Sol, please don’t hesitate to call to speak to one of our property experts for more information.
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