Article written by Terra Meridiana

After looking long and hard, you’ve just found the home of your dreams in Spain. Congratulations!

If you’re a cash buyer who has fully researched and is comfortable with the property’s paperwork and tax situation, you and the seller can proceed directly to a notary to sign the escritura (the equivalent of deeds in the UK) and you’ll be the new owner.

Most people, however, find there are various steps that need to be taken before a place becomes yours, most of which are simpler with the help of a Spanish lawyer:

a) Taking a property off the market.– You may decide to pay a deposit to remove the property from the market and give your lawyer time to do due diligence before signing a private contract. Before handing over a deposit, your lawyer should check the property is registered under the seller’s name, there are no liens, encumbrances, or impediments, and the description in the Land Registry (Registro de la Propiedad) is correct. The contract should also let you to get your deposit back, should any unforeseeable situations, like hidden costs or structural concerns, make you change your mind.
Should the sale proceed, any deposit taken will count as part payment of the sale price.

b)  Private contracts and completion.-  You may prefer to skip the previous stage and simply sign a private contract with the seller, which is usually accompanied by an advance of 10% of the sale price. Such a contract should include: the buyer’s and seller’s identification details; a full description of the property; the terms, price, means of payment, and signature date of the escritura (equivalent to deeds in the UK); and clarify who pays all the costs and taxes. This is binding on both parties upon signature.
Before signing, however, your lawyer should check the deeds to make sure the seller is the registered owner and there are no legal impediments to a sale; confirm the information in the Land Registry and the property tax database (Catastro) are the same and there are no pending charges or taxes; and make sure the local town hall has no planning issues or other charges regarding the property.
You should also undertake a survey to confirm there are no structural problems, the property complies with Spanish law, and water and power connections are installed to utility company standards.
When you’re satisfied about the legal issues and the seller’s right to sell, you can sign the contract.

Before moving to the completion stage, you or your lawyer should also check all of the following charges and taxes are paid in full:

• Annual property rates (IBI, or Impuesto de Bienes Inmuebles) and rubbish collection (basura), for the current and four previous years (you can also ask for a certificate to confirm the property is free from debt from your local town hall)
• Withholding tax (Retención), if the seller purchased the property from a non-resident former owner.
• Capital gains tax (Impuesto de Plusvalía), if the seller is a non-resident individual, as, if this is not paid by the seller, Spain’s central tax authority (Hacienda) can demand this from the buyer.
• Special lien (gravamen especial), for the current and four previous years, if the seller is a non-resident company.

When a property is part of a community, make sure the seller is not in arrears with community fees by asking the community president for a certificate to confirm no payments are pending. If not, you could have to pay not just the current year’s costs, but any outstanding charges for up to three previous years.

In order to complete the sale and be registered as the new owner, you’ll need a NIE number (Número de Identificación de Extranjero). This is the Spanish foreign resident identification number for all tax payments and paperwork required by the central tax authority.

You and the seller then need to sign the deeds in front of a notary, who will testify to the identity of both parties and the terms of sale, including the property’s description, sale price, and payment conditions. As soon as you have signed the deeds and paid the asking price, you will be handed the keys to your new home, but you still need to register the transfer of ownership with the Land Registry to be protected from claims by third parties.

As well as the obvious need to have sufficient funds, or a sufficiently large mortgage, to pay the asking price, you should budget an extra 15% on top to pay for the expenses that arise when buying a property in Spain. There are essentially three types of costs involved: fees owed to professionals; fees for registration in the Land Registry; and your municipal and central tax authority obligations.

A lawyer will charge around 1%, plus VAT, of the asking price, for their services, including all the tasks listed above: confirming property ownership and description details are correct in the Land Registry and Spain’s property tax database (Catastro); checking there are no outstanding liens, taxes, or other encumbrances to the sale; ensuring your local town hall has no planning problems or charges; drawing up the deposit and private contracts; and generally making sure your interests are protected.

For certifying the deeds have been signed and payment made, a notary charges about 0.2% of the sale price. Thereafter, registering the transfer of ownership to the buyer’s name in the Land Registry should cost around two-thirds of the amount paid to the notary.

Within 30 days of the date you signed the deeds, you will have to pay all the taxes pertaining to the purchase.
If you do not, you can be levied a surcharge of up to 20% of any tax outstanding. And before paying tax in Spain, overseas buyers need a NIE number, which is obligatory for all dealings with the central tax authority.

If you buy a resale property, you’ll have to pay Transfer Tax (Impuesto de Transmisiones Patrimoniales), charged in accordance with a sliding scale and calculated as a percentage of the sale price: 8% for amounts up to 400,000€; 9% between 400-700,000€; and 10% for amounts more than 700,000€. A different scale is used for parking spaces: 8% up to 30,000€; 9% from 30-50,000€; 10% from 50,000€ upwards.

For brand-new properties, you need to pay: (i) a additional 10% on top of the sale price in IVA, or Impuesto de Valor Añadido (value-added tax), and, (ii) another 1.5% in stamp duty (Actos Jurídicos Documentados).

If you’re applying for a mortgage to buy either a resale or a new property, you will also be liable for an additional 1.5% in stamp duty on the loan, as well as interest and other charges in case of non-payment.

When buying a property from a non-resident seller, you must retain 3% of the sale price and pay this to the central tax authority within one calendar year after the date of completion. And, depending on the terms of the contract agreed with the seller, you may also be responsible for any capital gains tax (Impuesto de Plusvalía).