Buying Selling Mortgaging In Spain Simplified


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Velasco Lawyers presentation about Buying and Selling properties in Spain: procedures, tips, advices and things to take care of.
Presented in July 2007 in Hotel Salobreña in cooperation with Caja Rural

Published in: Real Estate, Business
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Buying Selling Mortgaging In Spain Simplified

  1. 1. Buying Selling Mortgaging your property in Spain simplified Explanation of legal issues and taxes without taxing your mind
  2. 2. Presentation program –  Introduction –  Buying and selling process –  Organising finances –  Taxes and legal issues –  Question and answer session
  5. 5. Buying and Selling Process The process for buying and selling is similar but with key differences Buyer Seller •  Choose a lawyer •  Choose a lawyer •  Sign a POA •  Sign a POA •  Obtain a NIE number •  Obtain a NIE number •  Sign a will in Spain •  Are you a fiscal resident •  Think about finances in Spain? (Cash or mortgage?) •  Sell Through real estate or privately?
  6. 6. Buying Process NIE   number   Organise   P.O.A.   finances   New   property?   Choose  a   Lawyer   Builder’s   Sign  a  will   ExisDng   property?   contract   in  Spain   LocaDon   Transfer   Private   Bank   uDliDes  in   contract   guarantees   your  name   InscripDon  in   Title  of   the  land   Taxes   deeds   registry
  7. 7. Choose a Lawyer •  Your lawyer should guide you through the process and protect your interests. •  Your lawyer should be independent and not serving the interests of an estate agent •  You should be able to communicate with your lawyer in your own language (or a language you understand perfectly)
  8. 8. Sign a P.O.A in favour of your lawyer –  What is a Power of Attorney? –  How to sign one in Spain –  How to sign one in your own country –  What are the benefits? –  Can I cancel it later?
  9. 9. Obtain a NIE number •  NIE stands for Número identificativo de Extranjero •  You can get one at the police station in the area where you will buy the property (you will have it in a few days) •  Alternatively you can get one at the Spanish Consulate in your country (it will take around 2 months) •  You need to apply for it in person with the corresponding form, a valid passport plus a photocopy. •  NIE number has permanent validity.
  10. 10. Making a Spanish Will •  Who can make a will in Spain? •  What is the process for making a will? •  Can I change my will? •  Scope and share of heirs •  Acceptance and repudiation of the inheritance
  11. 11. Buying a new property? (1) Contracts •  Seller and buyer information. •  Seller and buyer legal capacity to make a contract. •  Description of the property •  Agreement on jurisdiction or submission to arbitration. •  Payment terms while the apartment is under construction, until completion. •  Penalties to be applied for the buyer or the seller. •  Completion date. •  Plans of the property and specifications •  Copy of the building permit. •  Copy of bank guarantee /insurance policy
  12. 12. Buying a new property? (2) Other considerations when you are buying a property off plan. •  The Partial Plan: It is the plan of building plots, which must be approved by the town planning department. •  Building conforming with the Coastal Law: •  Is your property going to be built near the beach? •  To issue the building license the Town Hall will ask the builder for a report from the Coastal department and the department of the environment of the Junta de Andalucía, (authorities must restrict building within 100 metres of the beach and establish a zone of influence up to one kilometer inland). •  The developer must provide you with the habitation license, which is issued by the Town Hall. •  You should not sign the title of deeds until you have a copy of the habitation license, you will also need this to change the contracts for the utilities.
  13. 13. Resale property? •  Signing a private sales/purchase contract or an option to buy contract. •  Contents of a private contract: –  Details of buyer, vendor, legal representatives. –  Description of the property (from the land registry). –  Architect’s report with actual description (some cases) –  Inventory if any –  Debts or charges on the property –  Place and time for the signing of the deeds –  Price and form of payment. –  Expenses involved and who will pay them.(Notary fees/land registry fees/transfer tax, capital gains). –  Penalty clauses: •  * Articles 1504 of the Civil Code and 59 of the Regulations of the Mortgage Law. •  * Article 1454 of the Civil Code.
  14. 14. Selling Process NIE   Direct  sale?   number   Estate   Sale  of   P.O.A.   You  should   Agent?   Rights  of  a   already  have  it   purchase   Choose  a   contract?   Lawyer   ExisDng   property?   start   CerDficate  and   documents  to   provide  at  the   signing  of  the  deeds   End   Title  of   deeds   Taxes
  15. 15. Sell privately or through a real estate If you use a Real Estate –  Sign an agreement for commissions and the form of payment What documents the seller has to provide •  Copy of the title deeds •  Copy of the latest “nota simple” •  Copy of your passport and NIE •  Copy of the latest IBI •  If you are resident: Fiscal residence certificate from the tax office •  Copy of the last payment of the community fees •  Copy of the POA if your lawyer will sign on your behalf
  16. 16. What documentation the seller needs at the notary •  Residence card or residence certificate from the Police Station. •  Passport. •  P.O.A •  Title deeds •  Lastest I.B.I receipt(council tax) •  Certificate from the residents association showing there are no amounts due for community fees. •  “Certificado de deuda” from the bank (in cases of a preexisting mortgage). •  Fiscal Residence certificate from the Tax office. •  Latest electricity/water/gas receipts to transfer the utility contracts into the buyer´s name.
  17. 17. Process until the inscription of the property at the land registry •  Bank Survey and valuation of the property •  Getting a fiscal residence certificate (seller) •  Signing the sales/purchase deeds and the mortgage deeds at the notary. Payment of the remainder of the property price (no cash allowed!) •  Cancelation of the existing mortgage. •  Getting the keys. •  Signing insurance. •  Payment of the notary fees. •  Payment of the taxes: •  * New property taxation. •  * Resale property taxation. •  Changing the utility contracts to your name and setting up direct debits. •  Payment of the land registry fees.
  19. 19. Organise finances •  Can you afford to pay in cash? •  Do you need a mortgage to purchase the property? –  Ask your lawyer for advice –  You will need: »  A copy of your Passport »  Proof of income. (tax papers, e.g. P60 for UK) »  Statement of income if you are retired »  Tax returns, accounts and balance if you are self employed (certified by a chartered accountant)
  20. 20. Mortgaging your property Advantages: •  Lower interest rates at present than in most of European countries. •  Asset & Liability in Euros •  Rental income and mortgage payments in euros •  Taxation advantages for residents and non residents: Non resident’s tax and resident’s tax Inheritance tax Disadvantages •  Set-up cost •  Repayments have to be made in Euros in Spain
  22. 22. Advantages & disadvantages of buying off plan properties (1) Advantages –  Price: discount between 10% and 30% off the current market price for a comparable property. –  Quality of building and materials. –  Period of guarantee for the construction, (possibilities of claiming against the architect/ technical architect and builder). –  Sell the option to buy contract to a third party if possible, and make a profit on it.
  23. 23. Advantages & disadvantages of buying off plan properties (2) Disadvantages •  Risk of insolvency of the developer. •  No appropriate bank guarantees. •  Differences between the plans and the property, change in materials, poor finishing… •  Time until possession: Around two years. •  Further problems with local administrations: Town Hall and the habitation license/Coastal department/Department of the Environment
  24. 24. Property taxation for buyers on the purchase •  New property: •  * Value added tax (IVA) 7% of the total price. Is paid during the building process and when the final payment to the developer is made. •  * Stamp duty 1% in Andalucia. Within 30 days of the signing of the title of deeds. •  Mortgaging the property? •  * Stamp duty 1% in Andalucia of the mortgage responsability. •  Resale property: •  * Transfer tax 7% : Within 30 days of the signing of the title of deeds.
  25. 25. Property taxation for sellers (1) •  Tax rate: For property transfers from 1 January 2007, 18%. •  Form: 211. •  Deadline: Three months counting from the end of the period that the new owner has to deposit the tax withheld. •  Place: The tax office corresponding to the place where the property is situated. •  Withholding of tax by the buyer •  By law the buyer has to withhold and pay the Public Treasury an amount of 3% of the purchase price agreed on (for acquisitions made from 1 January 2007).
  26. 26. Property taxation for sellers (2) •  Then the buyer has to provide the nonresident vendor with a form 211 •  Deadline: 1 month after the date of transfer of the property. •  Form: 212. •  Refund of excess amount withheld •  In the case of capital losses or when the withheld amount is higher than the tax due, the taxpayer is entitled to a refund of the excess amount. The procedure is initiated by filling in the tax return Form 212. •  The refund is made by bank transfer to the account indicated on the tax return
  27. 27. APPENDIX
  28. 28. Taxing your mind? Vendors only (1) Example: •  Mr and Ms. White, residents in U.K, bought an apartment in Salobreña on 1 January 1991 for an amount equivalent to 100,000 Euro : •  On 1 January 2007, they sold the apartment for 200,000 Euro. •  The buyer Ms. Pedersen retained the amount of 6,000 Euro ( 3% of the purchase price). •  How do you work out the amount of Capital Gains which should be paid?
  29. 29. Taxing your mind? Vendors only (2) Solution: • Transfer value: 200.000 Euro. • Updated acquisition value: 100,000 x 1.2162 = 121,620 Euro. • Capital gain: 78,380 Euro. Number of days between the dates of purchase and 19/01/2006: 5498 days •  Gain to be reduced (3): 73.726,82 euros. •  Nº of years of ownership to 31/12/1996: 6 years. •  Reduction by abatement coefficients (4): 32,764.20 Euro. •  Reduced capital gain (5): 45,615.80 Euro. •  (1) In the solution, expenses and taxes inherent in the acquisition and transfer have not been taken into account, which generally are also included in the acquisition and transfer values.
  30. 30. Taxing your mind? Vendors only (3) •  (2) This updating coefficient of the acquisition value is established in section 60 of the General State Budget Act 42/2006, of 28 December (Official State Bulletin of 29 December), for the year 2007. •  (3) (5,498 / 5,845) x 78,380 = 73,726.82 Euro. •  (4) 73,726.82 x 11.11% x 4 = 32,764.20 Euro. •  (5) 78,380 – 32,764.20 = 45,615.80 Euro. •  Tax rate 18% •  Tax payable 8,210.84 Euro •  Withholding 3% 6,000.00 Euro •  Differential charge (8,210.84 - 6,000.00) 2,210.84 Euro