A 12 point guide to buying a home in Spain
This guide covers important points and procedures to be aware of when buying a home in Spain.
- In this guide, we use £ sterling and Euros to illustrate examples. The Euro : £ exchange rate (which does change) is taken at 1.00 Euro to £1.
[Although the Spanish peseta is now not legal tender in Spain since the end of February 2002, Pesetas along with Euros are often still quoted in Spain itself to help residents with the transition to Euros. If you see this, be aware that the official fixed Peseta : Euro exchange rate was 166.386 Ptas to 1 Euro.]
- Remember in Spain full stops not commas are used between numbers to separate thousands. So where we would write 10,000,000, in Spain it would be written 10.000.000.
1. Am I clear on why I want to buy in Spain? There are many excellent reasons for buying a home in Spain. Make sure you are clear as to why you wish to buy in Spain and that you can afford it.
If it is for a holiday home, consider; how you are you going to use it, for short breaks or for long stays: whether you are going to let it; mortgage costs (if relevant). If it is for retirement or if you intend to work, do your income/cost of living sums. (See 8 later & look at our short guide on living and working in Spain).
There are a many good sources of general information on Living & Working/Buying a Home in Spain available on the Internet, at Libraries and in paperbacks.
2. Choosing your Spanish home
Don’t rush! If possible before your viewing visit to Spain decide on:
- the area where you would like to buy,
- what your living requirements would be (e.g two beds, terrace, pool, etc).
- how much you want to spend – give yourself a range
Once you have decided, browse through our property portfolio on our website at your leisure. Alternatively, contact us at our offices, advise us of your requirements, and we will send you examples of properties to match. You may not see exactly what you want from the portfolio, but that should not worry you. We show a selection of the properties available, our agents have many more. The key point is to see what sort of property you can buy for your budget.
Whilst you will get some idea of the properties from the details and you may be able to shortlist some, there is no substitute for travelling to Spain to view them.
3. What is the buying procedure in Spain?
Agreeing a purchase Once you have chosen the property you wish to buy, you will ‘negotiate’ the price and the terms of purchase with the vendor. Most often you will do this through the estate agent, but you may see the vendor direct. You should make your offer subject to your lawyer's approval. Thus, at this point you should choose a lawyer, if you have not done so already.(See 4. below)
Once your purchase is agreed, the next step is to formalise the offer in writing with a Reserving Deposit lodged with a local bank account or with your lawyer. This will normally be at maximum £3000 (3000 Euros). This is normal practice in Spain indicating a real intention to purchase prior to the exchange of private contracts. This deposit can be forfeited if you do not proceed, however subject to agreed conditions it can be returnable. Your lawyer or agent will advise and can prepare a formal offer agreement for this purpose.
We recommend that you bring with you a Bank or Building Society Draft to a maximum of 3000 Euros, made payable to yourself. A bank account can be opened for you in Spain in your name into which to pay the draft.
NIE Number All property owners in Spain must have, an NIE number (Numero de Identification Extranjeros) if non-resident; this is simply an ID number for fiscal purposes and is required for any financial dealings.
Applying for your NIE number is straightforward and your agent or lawyer will help with this. Application is made at the local police station, having completed a form, provided a passport sized photograph, a copy of your passport and the passport itself. It can take afew weeks to process.Cost around £75(75 Euros).
The Private Sale & Purchase Contract Your lawyer will now undertake all the necessary work to provide the legal guarantees for the purchase of the property ensuring that all Spanish legal requirements are met and that the property is free of any encumbrances, charges or debts and up to date with all payments. Once these pre-contract enquires are made and you and your lawyer are happy with them, you can proceed with the private contract for sale and purchase (contrato privado de compraventa)This contract is legally valid between the buyer and seller, obliging them, in law, to fulfil the terms contained within it .
Also most buyers need some time to arrange the cash for their purchase, so it is normal for a buyer and seller to make this 'private contract' first.
The private contract of sale and purchase will confirm the agreed terms of the offer and acceptance and set a date for completion in the presence of the Notary. The buyer will put down a deposit of normally 10% (Less the amount of the Reserving Deposit). This reserves the property whilst the remainder of the money is arranged - and if necessary any outstanding paperwork completed.
This deposit is normally paid under a specific agreement called an 'arras' agreement; under such agreement the deposit is non-returnable if you fail to complete the sale for other than prescribed reasons. If the seller does not complete - say just withdrawing or selling to a higher offer - then he/she must return double your deposit to you.
Completion of Sale
To complete the sale and purchase, and to register ownership of the property in the name of the buyer in the Public Property Register ( Registro de la Propiedad ), and thus be proof of ownership to third parties, the private contract must be converted into a public deed (escritura publica) This is completed formally in the presence of the Notary.
The Notary confirms that, the transaction conforms to all legal requirements, the necessary transaction taxes have been paid, the balance of the purchase price is handed to the seller, or the seller confirms that the money has already been paid, and witnesses the signing of the deed of conveyance (escritura de compraventa).
The buyer then receives a copy of the Title Deed ( copia simpla). The original Title Deed will stay with the Notary.
Both buyer and seller are expected to attend in person, however if this is inconvenient , Power of Attorney (poder) may be granted enabling a nominated person (normally your lawyer) to attend and sign the contract, on their behalf. (If you are not sure you can make return trips to Spain for these activities, it is best to set up Power of Attorney whilst in Spain on your viewing trip.)
[The Notary is a public official whose duty it is to ensure that the final legal transactions are carried out correctly. He/she is not there to protect either parties’ interests. The Notary puts on the public record that the title deed recording the sale and purchase has been signed in his/her presence and understood by both parties.]
Registration and payment of taxes Once signed, the first copy ( primera copia) must then be registered at the Property Registry Office to become the Title Deed (escritura publica). ( The escritura de compraventa and escritura publica are the same document.) It is best that the Notary faxes the primera copia or your lawyer takes it as soon as possible to the Registry Office, where it will be entered immediately into the daily journal in order to prevent any charges being registered against it. Once the primera copia has been fully registered, it is returned to the notary where it can be collected by the new owner. This usually takes a couple of months.
All relevant transfer taxes due are paid. Your lawyer will also arrange for the setting up of accounts with local utility suppliers.
If you are buying from a non resident then your lawyer will pay 97% of the purchase price to the seller and 3% to the Spanish tax Authority ( Hacienda). This 3% of the declared purchase price serves as a guarantee against the seller's capital gains tax liability of up to 18% of the profit from the sale.
4. Should I use a lawyer? The procedure above is best done by professionals therefore we recommend that you do use the services of a lawyer (abogado).
Our agents will recommend reputable lawyers in Spain, fluent in English. Generally we would recommend you employ a local lawyer in Spain as it is advantageous to you that your legal representative is ‘on the ground’.
The lawyer will undertake vital checks, similar to many of those undertaken in the UK:
- Verifying the property title – that it belongs to the vendor and/or he/she has the legal right to sell it.
- Verifying the boundaries and measurements are accurate as in the deeds.
- Ensuring there are no pre-emption rights over the property/ no plans to construct anything that would adversely affect the value, use, or enjoyment of the property.
- Ensuring all building/planning permits (if appropriate) are in order.
- Ensuring there are no tenants.
- Ensuring there are no mortgages, loans, taxes or charges outstanding against the property.
- Ensuring that proper title is obtained and registered.
5. Can I get a mortgage? If you require a mortgage, it can be arranged through either British or Spanish banks.
Most banks will offer mortgages up to 70% of the selling price of a resale property you may wish to buy and some will offer up to 75%; mortgages of up to 70/80%, are routinely available for new developments. For resale property in rural areas loans of around 50 to 60% are more usual. We can recommend mortgage specialists both in the UK and in Spain to help you find the best mortgage.
If you plan on 70% as a conservative assumption, you must be able to put down up to 30% of the selling price. So if you were buying a £100,000(100.000 Euros) property, you would need to put down £30,000(30.000 Euros).
Finance is easy to arrange in Spain and rates are currently lower than in the UK; mortgages can be repaid over periods up to 20 years, usually with an upper age limit of 75 by which the mortgage must be repaid.
As a current rule of thumb take your mortgage repayments as £10 per month for every £1000 of the mortgage if it were over a 10 year period. So, for example, a £60,000(60.000 Euros) mortgage would cost around £600(600 Euros) per month.
You can raise the mortgage either on the Spanish property you wish to by or by remortgaging your own UK property (given that you have equity in your property).
If you wish to arrange a mortgage with a Spanish bank, you will need the following:
If an employee:
- A copy of your P60 and that of your spouse
- The last three months salary slips
- A photocopy of passport
If self employed:
- your accounts for the last two years.
6. In whose name should I buy the property This is an important point because of the potential tax and other savings that can be made at a later stage. You can buy property:
- In your own name
- In joint names – you and your spouse/partner
- In your childrens’ names
- In the name of another person whom you would wish to inherit the property
- In the name of a limited company
The route you take will depend on your personal circumstances and your future intentions. Your lawyer can advise you on this.
7. What legal costs and taxes should I budget for?
Allow another 10% of the purchase price of the property for these costs.
For a £100,000(100.000 Euros) property you will need another £10000(10.000 Euros).
As a buyer you will normally have to pay the following fees and taxes.
Legal fees: We recommend you use the services of a solicitor or abogado (Spanish lawyer). The charges are normally 1% or a minimum of around £1200(1200 Euros).
Surveyor’s Fee: If you employ a surveyor to inspect a property, the fee will depend on the type of survey and value of the property. A homebuyers survey and valuation for a property valued up to £100,000(100.000 Euros) would be about £450 - £600(450 - 600 Euros), a full structural survey, about £600 - £750(600 - 750 Euros).
Notary fees: Notary fees are fixed by law in Spain on a sliding scale according to the property price, size of land plot and property. Usually this will be about 0.2%. On the £100,000(100.000 Euros)example property, the fee will be £200(200 Euros)
If there is a mortgage on the property there will be a separate deed and this would be billed separately; again at around 0.2% of the property value.
Property Registration fee: This fee is for the Property Registration Office (Land Registry) to put the new deed into your name and is fixed by Law. The fee is between £120(120 Euros) and £300(300 Euros)for most transactions.
Transfer Tax: As from 1.1.2003, this was increased from 6% to 7% of the value of a resale property; on our £100,000(100.000 Euros) example it will be £7000(7000 Euros).
If you buy a new property from an agent or direct from a developer, you pay 7%IVA (VAT) plus 1% Stamp Duty ( increased from 0.5% to 1% from 1.1.2003 ; that is £7000(7000 Euros) and £1000(1000 Euros) respectively.
Plus Valia tax: This tax is normally paid by the seller, but it may be stipulated that the buyer pays. This will be determined when you are negotiating the contract and will be done in consultation with your lawyer.
The Plus Valia tax is a municipal tax that is based on an officially assessed increase in the value of the property since the previous transfer of the property. It is essentially a form of capital gains tax, but is separate from Spanish Capital Gains Tax proper. The local authority will calculate the exact amount on enquiry.
Capital Gains Tax: As from 1st January 2007 Capital Gains Tax has been reduced from 35% to 18% for non residents (and this rate is applied to residents as well (formerly 15%). When you sell, the Notary will send 3% (previously 5%) of the declared selling price to the tax authorities (Hacienda) and pass to you the remaining 97%. This 3% represents a downpayment towards your capital gains liability.
8. Annual Running Costs
Annual running costs in Spain are significantly lower than in the UK. Costs will vary according to the size and nature of the property, its location and the amount of use.
If your property is on any form of complex, a Community Charge is paid annually to the Community of Owners (of which you are a member)- to maintain the community facilities. A reasonable guide would be from £500-£1500(500-1500 Euros) p.a.
Buildings & Contents insurance will range between £300-£750(300-750 Euros)p.a.
Cost of utilities will depend on the amount of usage on the property. These do tend to be significantly lower in Spain.
There are three forms of annual taxation property owning non-residents are subject to:
Income Tax: Owning property in Spain is deemed to earn a notional taxable income of up to 2% of the property value* taxed at 25%. So a £100,000(100.000 Euros) property would generate £500(500 Euros) (£100,000 x 2% x 25%).
Wealth Tax (Patrimonio): This annual tax is based on a sliding scale from 0.2% to 2.5% of property value*; there are some deductions but as a guide our £100,000(100.000 Euros) property would be taxed at £200(200 Euros).
Rates or Council Tax (IBI):This is an annual municipal tax and therefore varies from area to area; typically it is around 0.75% of the property value*. So for the £100,000(100.000 Euros) property it would be £750(750 Euros). (Sometimes this tax is included in community fees)
If you are a resident you are exempt on the Notional Income Tax, exempt on the first £99,000(99,000 Euros)of Wealth Tax, and for IBI, treated as a non-resident.
* The property value is the Valor Catastral; this is official assessed value of the property for tax purposes - it is NOT the price you paid for the property, NOR the value declared in the Escritura. It is determined by the local authority who maintain a register of the values - similar to the old rateable values in the UK.
9. Fiscal Representation
We do advise that once you own a property and you are a non-permanent resident (that is you spend less than 183 days a year in Spain), that you appoint a local Spanish Fiscal Agent, who will look after your financial interests in your absence.
The fiscal agent can be a Spaniard or a foreign resident in Spain, or a company (e.g. a bank). You choose whom you wish to appoint. Your lawyer in Spain can advise and many provide these services for their clients.
There will be a fee for this service of around £200 - £300(200 - 300 Euros).
10. A Spanish Will
It is important that you make out a Spanish will, separate from your English one, which itself should be amended. This is because having a separate Spanish Will speeds up the will’s execution in the event of your death and avoids all the complications that can occur if a person dies intestate.
11. Letting your Property
Letting your property is a way of contributing to mortgage and/or running costs. BUT do not plan to meet all of these costs from rental income. Ideally you should ensure that you can afford your outgoings without the contribution from rental income. Then any rental income is a bonus.
We can provide indicators for rental income. If you do let your property, the rent will vary according to the type of property, location, etc, etc. Our agents will be able to advise you further on this when you have a property in mind and can introduce you to reputable Rental Management companies.
Income Tax: Please note that income from the property is taxable in Spain at 25%. You must declare it. However normal running expenses are deductible when determining the taxable income. You are liable to tax in the UK also but your tax paid in Spain will be offset against this.
12. What if I decide to live or work permanently in Spain?
Please consult our short guides on Living and Working in Spain
 
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