Guide to purchasing a property in Spain
Let us assume you have found a property that you really like and wish to proceed with its purchase. At this stage, you should engage either the services of a lawyer, or those of a reputable estate agent in Spain, who are legally able to represent you and make all the following searches and enquiries on your behalf:
- The private contract
- Searches and enquiries
- Bank accounts
- Personal documentation
- Making payment
- Signing of deeds
- Taking possession
- Transfer of services
- Rates and taxes
- Property owners association
1. The private contract
Initially, a suitable COMPLETION DATE will be agreed with both parties. The date will be fixed and inserted in the contract. All details relevant to the property will be included in the contract, i.e. description, price, form of payment, penalty clauses etc. Your Estate agent or Lawyer will establish whether you and/or the vendor/s wish to complete the transaction with Notarised Powers of Attorney. Contracts will be drawn up and given to both parties, or their legal advisors. On signing of contracts, a deposit, normally ten percent of the purchase price, will be required. The validity of this document is normally 30 days from the date of signature, or longer if mutually agreed.
2. Searches and enquiries
During this period (of 30 days) and prior to the signing of the public deed (escritura), it is necessary to have the contract checked out by your legal advisor or agent, who will obtain a ‘NOTA SIMPLE’ to ensure that the vendor is the registered owner of the property, by carrying out a search at the local Deed Registry, and will ensure that all taxes have been paid, establish the existence (if any) of any debts, charges or mortgages, or, that clear title exists. In addition, all current bills for services such as electricity, water, rates and community fees etc. will be checked to ensure that the vendor has paid all due accounts.
3. Bank accounts
For foreign purchasers there are two basic types of bank accounts available:
Non-resident euro account – If you are likely to earn Euros, through letting or some other form of modest activity, you can pay Euros into this account. On-going running expenses can be paid using this type of account.
Foreign currency deposit account – These accounts are for the deposit of foreign currency in its existing state without conversion to Euros. The funds are therefore freely convertible into other foreign currency and are outside the Spanish Exchange Control regulations. Interest rates vary from one currency to another. It is recommended that an account in Spain be opened at the earliest opportunity. Accounts in Spain can effect deposits and withdrawals from abroad without limit.
If you require a mortgage against the property in Spain, your agent must be informed as soon as possible. A mortgage can be applied for in Spain or abroad. If you have not arranged a mortgage, we may be able to help you, through an offshore or Spanish bank. If you are making your own arrangements you will need to advise the agent/vendor of the date by which you expect to have the funds available in order to complete the purchase. A non-resident purchaser may apply and obtain a mortgage of up to approximately 70% of the banks valuation of the property. A resident purchaser may obtain up to 80% (or more) of the valuation. Under such circumstances the property purchased in Spain would act as guarantee for the mortgage. Calculate your mortgage repayments with our mortgage calculator.
5. Personal documentation
When buying a property in Spain, you will need a ‘Numero de Identification de Extranjeros’ (more commonly known as the NIE number). To live and work in Spain, you need to apply for what is commonly called your NIE number (Foreign Identification Number). These identification numbers are used to track an individual’s financial and official activities. This document is necessary when you are buying a home and you will be asked to provide a copy of the paperwork when you are in the process of buying a property or applying for a job in the country. Your NIE will start with the letter ‘X’ followed by seven numbers and a letter, making this sequence of numbers personal to you. It is not transferable and does not expire.
You will need your NIE number to do all of the following:
Apply for a business permit, Apply for a mortgage or loan, Buy or sell a property in Spain, Buy or sell a vehicle, Employment, Inheritance of assets in Spain, Insure Property, Pay Taxes, Sign on to the National Social Security health service.
Obtaining an NIE
Obtaining an NIE is a fairly simple process, but can be complicated if you do not understand the paperwork. The simplest way, if using a lawyer to purchase a property, is to instruct the lawyer to obtain this for you. However, it can be obtained by approaching a local police station in your area. In the case of Nerja and surrounding areas, the police station in question is located in Torre del Mar (Málaga), just 15 minutes drive away.
Within your police station there is a Foreigners Department (will be labeled ‘Departmento de Extranjeros’). When you arrive you will be asked to fill out an NIE application form and submit copies of the following paperwork. Be aware, you will require more than one copy at some police stations, so be prepared before you turn up.
- Your Passport and a photocopy (the police station will keep the photocopy).
- Your full address in Spain (You can use a friend’s address if you have not yet bought a property).
- Some police stations may ask for written justification as to why you are applying for your NIE number. A letter from the bank, a lawyer, or even a prospective employer will suffice.
When you have filled in the application form and supplied the relevant paperwork, you will be given a stamped photocopy of the application and given a date as to when to return to pick up your official documents. The general turnaround time can take between one and six weeks depending on the time of year and the number of applicants.
6. Making payment
Full payment is required before the title deed can be transferred into your name. Ensure that when transferring money to Spain the funds arrive in enough time to enable the transaction to take place on the agreed date. If you are buying a property under construction, follow the payment schedule in the contract, according to the stage reached. When buying a new property in foreign currency you must ensure that all payments are registered through your Spanish bank, in order that the funds can be repatriated upon the eventual resale.
7. Signing of deeds
The next stage is to complete the purchase at the Notary’s office, where the Escritura (title deed) will be signed. A number of purchase costs andtaxes now need to be paid:
Property registry fees Your Escritura de Compraventa must be registered with the Spanish property registry to make it Escritura Publica and fully install your title to the property. The fees are based on the official registered value of the property, which are now much higher than in the past but often below the actual market value. The length and complexity of the deed and other factors are also considered. These fees do not normally exceed 0.2% of the registered value.
Notarial fees These are collected by the Notary for preparing the title deed and presiding over its signing. His/her fee is on a set scale according to the property value. Allow 0.2 – 0.3%.
Property transfer tax (I.V.A. – V.A.T.) – MODIFICATION: 1st SEPTEMBER 2012. You must pay this tax before the escritura can be registered into your name(s). In the case of a new property the Spanish government approved in 2011 a reduction in the current rate of IVA (VAT), down from 8% to 4% of the registered value (however this concession runs out on the 31st December 2012 – increasing to 10% on 1st January 2013). In the case of a commercial property or plot of land the IVA is 21%. When buying a new property there is also an additional tax of 1.5% to cover ‘Actos Jurídicos Documentados’ (A.J.D.).
On second and subsequent transmissions of a property (resale) the buyer has to pay a 7% tax but this is now called ITP: [Impuesto de Transmisiones Patrimoniales] or Transfer tax. These percentages are based upon the value declared in the title deed ‘Escritura’. Note: This ITP tax is NOT VAT and is therefore unaffected by changes in the rate of VAT.
‘Plus valia’ tax This is a tax relating to the increase in the value of the land only, and is calculated and applied by the local town hall according to the increase in value between the present purchase and previous sale, the value or size of the building does not affect this tax. The vendor normally pays this tax, unless otherwise agreed by both parties.
Retention tax This is a tax relating to capital gains on the property and only applies to a ‘non-resident’ vendor (if resident, any capital gains due would be paid in the person’s declared annual tax returns). To ensure that the vendor, upon the sale of a property, pays capital gains tax, it is the purchasers responsibility to retain 3% of the declared value (previously 5%, but reduced in 2007) and pay to ‘La Hacienda’, the Spanish tax authorities. The purchaser’s legal representative would normally handle this matter. The vendor, at a later date, can claim back any tax that may be due. This tax only applies to privately owned properties registered after 1st January 1986. In the case of company owned properties, this tax would apply to those registered after 1st January 1976. Properties registered prior to these dates, respectively, are exempt.
8. Taking possession
Handing over of the property and its keys will normally take place once the FULL PURCHASE PRICE has been paid. However, your contract may state a different arrangement especially if purchasing a new property under construction.
9. Transfer of services
Having completed the purchase it is necessary to engage or transfer services. Both electricity and water meters need to be transferred into your name. Where possible all regular bills should be paid by a direct debit ‘standing order’ through your bank.
- Water: By the local company that manages in your area.
- Electricity: Electric Company that offers the service in your community.
- Telephone: You can choose companies for both fixed and mobile telephones and can easily obtain ADSL via modem, satellite or land line.
- TV: Often there exists a community service within urbanisations or apartment complexes. These can range from satellite systems to cable TV. For individual installations, there are numerous local companies providing this service.
This becomes your responsibility upon POSSESSION OF THE PROPERTY. Normally, Spanish insurance companies offer a split policy, whereby the property and its contents are assessed separately. Note, that in the case of some property owner’s associations, community fees may include cover of the building and/or third party risks.
11. Rates and taxes
These are similar to the taxes in your own country, and become your responsibility upon completion.
Local rates. Known as IBI and is payable to the town hall on an annual basis. Payment can be arranged through a local bank account or your appointed agent.
Tax Registration Number (NIE). All property owners in Spain, whether resident or not, must obtain an NIE number from their local police station. A tax administrator (‘Gestor’, in spanish) or a lawyer can deal with this task along with payment of ‘Patrimonio’ tax. (See Personal Documentation, above).
12. Property owners association
If you purchase a property within an apartment complex or urbanisation you are obliged to join its residents association, which administers general maintenance of zones of common ownership, such as streets, gardens, hallways and swimming pool etc. An annual budget is calculated to cover these costs, which is divided between all owners according to the size of their properties.
So, there you have it… Congratulations on moving into your new home!
Guide prepared by:
LPG (Leading Property Group)
(NOTE. This guide, although accurate, has been kept as brief as possible. Please do not hesitate to enquire further on any point. Please note, also, that the guide is not a substitute for proper legal advice. The contents herein are correct at the time of publication. The LPG cannot be held responsible for any changes in the law, or legislative practices in Spain.)
Updated 31st December 2012.