We have prepared this information to answer some of the basic questions that arise when first thinking of investing in a property in Spain . At the time of writing this, it is correct, but Spanish and European Law is constantly changing.
SELECTING THE IDEAL PROPERTY FOR YOU
Before investing in any property you should decide what you want your property to provide, holiday or permanent living?
What to consider:
- Set a budget based on capital available and what mortgage you can afford or obtain, take into consideration that you have to put aside an amount for purchase expenses. Further on in the guide we help you calculate these expenses.
- Minimum requirements for your property, type of property, proximity to facilities - If it is only for holidays, how near to the beach do you want to be? What are the needs of your family? Do you want a quiet resort or one with plenty of activities for the family? Do you want to get a rental income from your investment to cover the running costs? Some properties are easier to let than others. If you are coming to live in Menorca permanently, have you ever been in the winter? Also consider the purchase of land and building the villa to match your requirements, we can help you through the whole process. (Ask for our Building Guide)
- Budget your running costs and then, only buy the property you can easily afford to maintain.
- When you've identified the property you wish to purchase you can put forward a purchase proposition. With this proposition you need to consider the price, dates of the payments.
Always note that if you put through an offer lower than the asking price, the property is still on the market and available, until the vendor has accepted this offer in writing.
Once the offer has been accepted in writing you need to be able to pay the 10% deposit as soon as possible as at this stage a private purchase contract will be drawn up, legally binding both parties to the transaction.
These are just a few of the points you have to consider, we at Fiesta Properties can discuss and advise on all matters related to the choice of a property.
Now you know what type of property you want and how much you have to spend, what is the legal process in Spain when buying?
STEP BY STEP GUIDE TO BUYING YOUR PROPERTY
In all property transactions in Spain, it is most important to ensure that not only do you have a clear title to the land (i.e., that you own the land and therefore everything that is put on it), but also that there are no mortgages or debts outstanding on the property that you might inherit when you buy the land or property.
- The sale and purchase of all properties in Spain requires to be registered in the Land Registry They maintain details of the property and record of the financial charges and other matters which may affect the title. We do advise that you seek legal advice from one of the local English speaking lawyers as ownership and outstanding debts on the property need to be checked thoroughly.
- The next step would be to arrange an NIF/NIE number to present to the Notary for the purchase and also needed to pay taxes. For this you would need your passport and a photocopy, and a completed application form that you must take personally to the Policia Nacional for processing. This is also made simple by your lawyer.
- Set-up a Spanish bank account with a local bank to which you can transfer funds for the purchase.
- A Private purchase contract is drawn up stating the terms of the purchase, deposit payable (in most cases a 10% of the purchase price), date of completion, inventory if the sale includes furniture. We advise that you do not sign this until your lawyer has explained the full implications of this contract.
- If you wish to arrange a mortgage take into account that you need to give the bank about 1 month to sort out the approval of the loan, and the valuation on the property, before signing the mortgage. For more information on interest rates and calculation of monthly repayments go to our mortage calculator and complete the form.
- Near the completion date your lawyer should check with all the relevant authorities to make sure that there are no invoices outstanding, this would include electric and water rates, as well as Town Hall rates.
- Now the signing of the Escritura. On completion date (or before if both parties agree) vendor & purchaser or their representatives with power of attorney, will appear before the Notary, who is an independent government official who certifies legal documents. The Notary acts for neither party, and does not replace your lawyer, he merely witnesses the signing of the Escritura. At this moment the balance of the purchase money will be paid to the vendor. If you did decide to take out a mortgage it is also signed in front of the Notary at this time. You will then be the proud owner of a property in Spain , and be handed the keys of your new property.
- Your lawyer should now proceed to put all the services (water, electricity & Town Hall rates) in your name, and fill in all the necessary bank authorisations for direct debits. As well, he will prepare to pay all relevant taxes & expenses to cover the signing of the purchase, these include Notary fees, property registry fees and purchase tax. (which are fully explained later on in this guide) We suggest that following the purchase of the property you should take out an appropriate home insurance (please ask us at Fiesta Properties for a quote) as well as drawing up a Spanish will buy your lawyer, as writing a Will can save a tremendous amount of heartache for your family and it does not take very long. As with an English Will, use a lawyer to prepare this. By discussing with a Spanish lawyer exactly what you wish to happen to your property after your death, he will be able to take careful note of your wishes and advise you on how the Will should be expressed to carry out your true intentions under Spanish law. As with most legal documents in Spain , your Will is signed in front of the Notary.
COSTS OF PURCHASING
Ongoing expenses - once you are a home owner in Spain , you must take into account that there are regular expenses that affect the property, such as:
- Community Charges - If the property is part of a block, or is situated on a complex with shared facilities, you must pay a community charge, this goes towards the up keep of the communal gardens, pool, lifts etc. If you have your own villa with a swimming pool and garden, then you will have maintenance costs to pay for both.
- Refuse collection and council tax (Basuras & IBI) - Will be charged annually by the local Town Hall. Please note: The onus is on you to pay the Basura & IBI each year, even if you do not receive a bill. We would suggest direct debiting this payments.
- Gas, water, electricity, telephone, home insurance etc - To pay these services it would be easier to set up a direct debit to your local bank account. Most of these charges are bimonthly, but could vary depending on the service provider. There will be standing charges on electricity, telephone and water whether you use the services or not.
- Taxes: Wealth Tax (Patrimonio) Patrimonio is a tax payable on your wealth in Spain (property, funds in the bank earning interest)
Non-Residents Income Tax (Renta) this is a tax that must be paid whether or not your property is let out. It is based on the rateable value of the property.
- When you come to sell your home you will be expected to pay:
1. PLUSVALIA - paid to the Town Hall, they basically take into account the increase of the land since you purchased it.
2. CAPITAL GAINS TAX - paid to the State, this is calculated on the profit of the sale of the property. Depending of the year you purchased your property you might benefit from a reduced tax rate.
- If you transfer your home (either by gift or through a Will) you may pay plusvalia (paid to the Town Hall) and INHERITANCE TAX (paid to the State).
This might appear complicated, but in reality it is not. You can either contact a fiscal assessor or your lawyer can also deal with this for you.
MANAGEMENT & MAINTENANCE
If you are only using your property for short periods yourself you will almost certainly need a managing agent to look after your property.
Fiesta Properties can advise you on which company is best suited to manage your property. The agent usually charges a set annual fee plus the costs of maintenance works, cleaning, laundry, gardening, pool cleaning. Most reputable companies will quote in advance for the work.
It is now becoming easier to obtain mortgages for non-residents. Whoever lends you the money will want to know that you can afford to pay it back! The mortgage market in Spain is not as sophisticated as UK, only banks provide mortgages and for non-residents a maximum of 60-70% of the bank valuation, usually over 10 to 15 years, but longer repayment periods may be available. Most banks will request your last 3 salary slips, , and a couple months bank statements, if you are self employed or own your own business the bank?s will request last two years balance sheets, profit/loss accounts as well as full tax statements. Fiesta Properties can help you with the process, and obtain quotes if needed.
- ABOGADO - Lawyer
- AGENCIA INMOBILIARIA - Estate Agent
- AJD - Stamp duty
- COMPRADOR - Person purchasing a property
- CONTRATO PRIVADO - Private contract
- ESCRITURA - Deeds of the property
- GESA - Electricity supplier
- IBI - Council property tax
- NIE - Personal Tax Number for Foreigners
- NOTA REGISTRAL - Property register extract
- PODER - Power of Attorney
- PLUSVALIA - Tax on the increased value of the land
- REGISTRO DE LA PROPIEDAD - Land Registry
- TELEFÓNICA - Land-line telephone supplier
- VENDEDOR - Person selling a property
- Are there any charges against the property?
This can be found out by requesting a search on the actual property
- What taxes do you have to pay on the purchase?
When you purchase you will have to pay Capital transfer tax
- What is the yearly property tax otherwise know as IBI?
It is the Council property tax, also know as Town Hall rates
- Is the seller up-to-date with their service payments?
Your lawyer should request all the last receipts to make sure all payments are up to date.
- Who pays the estate agents fees?
Unless stated otherwise the vendor is the person who will have negotiated the Agents fees. Most Estate Agents work on a no sell no fee basis.
- How can I be sure that the seller is really the owner of the property?
This search is done by both the lawyer and Estate Agents.
- Who is responsible for paying the charges to clear an existing mortgage?
Unless stated otherwise the vendor should pay for the expenses due to an existing mortgage.
- As a non-resident in Spain , can I apply for a Spanish mortgage?
The mortgage process in Spain is very simple, you do have to prove that you can afford the monthly payments, but this is done by presenting you financial documentation, such as P60s, salary slips.
- Do I have to pay tax when I sell the property?
Yes, you do have to pay Plusvalia & Capital Gains Tax, this tax is calculated on the Profit of the sale of the property.
- Do I need a lawyer?
This is highly recommended but not obligatory.
- Who pays the Notary?
The Notary fees on the purchase of the property is paid by the buyer.