The process of buying a property in Spain usually runs as follows. First, the buyer makes an offer, usually through the seller’s estate agent. If this is accepted, then the buyer and seller sign a preliminary contract (contrato privado de compravento) and the buyer pays a deposit, typically 10 percent of the purchase price.
The buyer then arranges any mortgage they require, although they should have already discussed their needs with the mortgage provider. The contract of sale (escritura de compravento) is usually signed in front of a notary, at which point the full sale price, taxes and other costs become due.
The services of a notary are not legally required to complete the sale, but it is advisable and required by many mortgages.
The seller is responsible for hidden defects in the property, even if they are not aware of them. However, in practice gaining restitution for such defects can be difficult and costly.
Paying the costs and taxes associated with buying a home can be completed by the buyer or their agent. It is the buyer’s responsibility, however, to ensure taxes are paid.
The buyer is also responsible for registering the property. The notary may provide this service for a fee, and/or may notify the registry office that the sale has taken place, without completing full registration.
Funding purchase: deposits and mortgages
Following the 2008 crash, Spanish banks have been heavily reformed with significant IMF involvement. This has reduced the number of lenders from around 50 to around 12, and significantly increased the regulation and oversight of the industry. As a result, many banks are lending less and mortgage rates and terms have become less favourable.
Mortgage lenders will not complete on a mortgage agreement until you own a property. For this reason, it’s important to include a clause in the contract allowing you to exit the agreement if you cannot acquire a mortgage.
Fees and charges
Costs are primarily paid by the buyer, and vary from region to region. Many are negotiable – there are no fixed fees for lawyers or estate agents. Costs paid by the buyer are typically around 8–14 percent of the property value and include:
- Property transfer tax 5–10 percent (existing properties);
- VAT (or IVA) at 10 percent (new properties);
- notary costs, title deed tax and land registration fee 1–2.5 percent;
- legal fees 1–2 percent (including VAT).
The estate agent’s fees are usually paid by the seller, and this is typically their only cost. Estate agents usually charge a percentage, typically around 3 percent of the final sale price.
Capital gains tax
Spain has a capital gains tax of 21–27 percent. To avoid this, sellers will sometimes request buyers to list the sale price as being lower than they actually paid. This is inadvisable as it can cause legal problems. Listing a lower sale price than you paid can also increase your own capital gains tax bills at a later date.
Capital gains tax is paid on the profit of selling your home, i.e. the difference between the listed purchase price and the listed sale price. Thus if you pay EUR 200,000 for a property and sell it for EUR 250,000 you will pay capital gains tax on EUR 50,000. However, if you previously accepted to list the purchase price as EUR 150,000, you will then be required to pay a capital gains tax on EUR 100,000.
If you are a resident and Spanish tax payer then the profit from selling your property counts as part of your savings allowance. If you’ve already exceeded the EUR 6,000 threshold or are non-resident, the tax rate is 21 percent. This would mean paying EUR 10,500 on the profit of EUR 50,000 described above, or double that if you’d listed the lower sale price.
You may be able to claim a reduction on the capital gains tax to account for inflation; or if you are purchasing another property in Spain; or if you are over 65 and have lived in the property as your main residence for more than three years.
Otherwise, unlike in other countries, capital gains tax applies no matter how long you’ve lived in the property. Your residential status does not affect the application of capital gains tax either, as capital gains tax should be paid in Spain for property owned in Spain even if you are no longer a resident.
Choosing a reliable lawyer
Any lawyer practising in Spain should be registered with the local bar association (Colegio de Abogados). They will have a registration number that you can ask for and then verify with the bar association. Naturally, registration does not guarantee honesty or competence, but it is a good minimum standard to insist on. You can find a list of all the bar associations at the national website for Spanish lawyers, Abogacía Española.
Finding a translator
Many governments provide lists of lawyers and translators who speak both Spanish and another language. The British Embassy’s list of English speaking lawyers and translators is a useful resource. The Spanish government also provides a list of accredited translators (page in Spanish, follow first link in article text for up-to-date PDF).
Selling a property
The Spanish property market is in a difficult state at the moment, and you should not expect to sell a property both quickly and for a good price. Moreover, experts predict that prices will continue to drop in 2014, which means that you may struggle to recoup your investment.