Buying a Property in Spain - Essential Information

This guide is intended to help you understand some of the things that will happen when you buy a property in Spain - and some of the continuing obligations of a property owner. This Guide is no substitute for professional advice and representation.

The Spanish legal system is very different from the English. Unfortunately, very often people purchasing property in Spain take little or no legal advice and are indeed quite 'casual' about the purchase and about the signing of legal documents. They may then find there is no title to the property, that it was built without planning permission . . . or that it does not even exist!

You will, no doubt, have heard of cases where Buyers have suffered loss. There is no reason why this should happen to you provided that you take independent legal advice.

Please also note that the Spanish Notary Public ('Notario') - in front of whom all land transfers in Spain have to be signed - is not there to give legal advice to either the Buyer or the Seller. His function is to witness the signature of the title deeds and to deal with certain administrative matters.

What is the Escritura?

This is the title deed proving who is the owner of the property and containing a detailed description of the property itself.

Once your legal representative has finished the preliminary investigations and you are satisfied that everything is in order and once any necessary arrangements have been made for the purchase monies to be imported into Spain it is necessary for the Escritura to be signed before a Notary. Your legal representative will arrange this.

Who is the Notary?

The Notary is a public official who is there simply to put on the public record the fact that the title deed recording the sale/purchase has been signed in his presence and understood by the parties concerned.

He is not there to advise or to protect either your interests or the interests of the person selling the house.

When the Escritura is signed in front of the Notary either the purchase price is, in his presence, handed over to the person selling the house or the Seller confirms that the money has already been handed over. Proof of such payment is then incorporated into the title deeds of the property.

In certain cases the price may be paid wherever in the world the parties wish. In others, it must be paid in Spain. It is usually necessary for the importation of the funds used to buy the property to be recorded with the authorities in Madrid. Your legal representative will deal with this for you.

Do I have to be in Spain to complete the transaction?

The person buying the house may attend in person before the Notary, but, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf.

What about paying the taxes due?

Once the purchase formalities with the Notary have been completed your legal representative can arrange, on your behalf, to pay any taxes due in relation to the transaction.

Is there a Land Registry system in Spain?

There is such a system. After the Escritura has been signed in front of the Notary it will be taken to the appropriate Land Registry, for it to be registered and for the payment of the Land Registry fees.

Several months can elapse before the process of registration is concluded, but as soon as notification is given that the deeds are ready, your legal representative will have them collected, checked and then forwarded to you.

In whose name should you purchase the property?

There are a number of ways to purchase the property:

- in your own name

- in the joint names of you and your spouse or co-purchaser(s)

- in your children's names or in the name of somebody who will eventually inherit the property from you

- in the name of a limited company, whether English, Spanish or "off-shore"

Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances. Your legal representative will be pleased to discuss the various ways of buying and to advise as to the most advantageous method for you.

It is worth paying careful attention to this point because of the potential tax and other savings, which can be made at a later stage.

These tax savings arise because of the Spanish system of inheritance tax under which gifts on death can still attract very high rates of taxation. In the past, some gifts attracted rates of over 80% and whilst these tax levels no longer exist it is still possible to pay well over 70% tax on inherited wealth.

The tax savings also arise because of the way that each time a property changes hands, certain taxes and fees become payable. If, therefore, you can prevent the property being inherited and minimise the number of times it changes hands, you can greatly reduce your tax liabilities.

As always, with tax savings schemes there is a danger that the Government can come along and close the loopholes that allow the schemes to operate and, as always, there are disadvantages to them as well as advantages. In each individual case, you have to weigh up the advantages and the disadvantages and decide how you wish to deal with the transaction.

Are there any other things I should do at the same time as I buy a property?

We believe that it saves a great deal of time and effort later on if you now review your English Will and make a separate Spanish Will. For most people the cost of this is fairly small. It is also worth considering giving a member of your family an English "Enduring Power of Attorney". This would enable your legal representative to continue dealing with your affairs even if you should become incapable of doing so yourself.

It is highly advisable for any person who has a property in Spain but does not live there all the time to nominate a "fiscal representative". This is a person to whom the tax authorities can send all correspondence relating to your affairs in Spain, secure in the knowledge that it will arrive. The fiscal representative must be resident in Spain, but it is for you to choose whom to appoint. It can either be a friend, neighbour, lawyer, or your tax adviser.

You will wish to have the electricity, water and rubbish collection charges transferred to your name. You will need to notify the Town Hall that you own the property and register for local rates, open bank accounts and register with the Spanish authorities for tax and other purposes. Your legal representative can arrange these for you or alternatively you can appoint a local 'Gestor'. He is like an official 'form filler' who does this work at quite reasonable charges. You should register as the owner with the Community of Owners if you live in an apartment block or an estate with shared facilities.

What happens if I decide to live and/or work in Spain?

Your legal representative or Gestor can assist you with "residencias", work permits and licences and permits in connection with the opening of new businesses. They will also advise on the importation of cars, furniture and electrical goods, and pets into Spain, obtaining payment of your pension in Spain, national insurance and other related matters.

What does all this cost?

Charges for the basic legal work involved in the purchase of a property, which has already been constructed, are typically 1.0% of the price of the property subject to a minimum charge of £750.00.

For most property purchases, you should allow approximately 10% of the price of the property to cover purchase taxes, legal fees and disbursements and could typically be broken down as follows:

IVA/Transfer Tax (Stamp Duty) 7.00%

Legal Fees (approx) 1.00%

Land Registry Fees 0.75%

Notary Fees 1.00%

Deposits on property

When a property of interest is found, it is necessary to make a deposit with the developer to hold it for the client. A deposit of £2,000 or €3,000 will normally suffice for this purpose. If you carry a Sterling cheque book or credit card, it will ensure that a deposit can be easily signed over to the lawyer/ developer while in Spain and guarantee that your property will still be available to you on your return.

Power of Attorney may be granted to your lawyer to complete further transactions in your absence. There is no 'gazumping' in Spain, the deposit forms a legal contract which holds the price at that agreed upon at the time of the deposit.

Spanish Mortgage Information

When purchasing a property in Spain an obvious consideration is mortgaging your property in Spain. This is very common, in fact more so than mortgaging in the country of domicile.

Mortgages can be facilitated very easily while in Spain but a number of documents must be furnished to the Spanish bank in order to accommodate a smooth transaction. Please note that originals of everything will need to be shown and copies will be taken at the bank.

- Passports - which you will have with you in any case.

- Driving licences.

- If Employed: Last three months payslips, latest P60's.

- If Self-Employed: Last three years audited accounts, tax returns and accountants reference.

Mortgages may be taken out for up to 60% of the property value, in special circumstances this may be extended to 70%. Normal terms for loans are anything up to 20 years.