Article written by Terra Meridiana

Before selling anything you first have to prove you own it. Property ownership in Spain is certified by a public document called an escritura (equivalent to deeds in the UK), which must be authorised by a notary and registered with the Land Registry. Not all Spanish property, especially older and rural buildings, has the necessary paperwork to comply with the law, so making sure yours does is key to a successful sale.

The escritura should include, at least, all the following information: the terms and conditions of sale, the buyer’s and seller’s identification details, the real-estate registration number from the Land Registry, a full description of the property, all encumbrances, fees, and liens pending on completion (including mortgages and community costs), as well as the sale price and means of payment.

Your property’s total built area (in square metres) must figure correctly both on the escritura and in the Land Registry. If the buyer is taking out a mortgage, loans will always be made against the value of the registered built area. Securing permission for any extensions is also vital and bills for any improvement work can be used to offset capital gains taxes.

You should also make sure that any community charges which apply to your property have been paid up at the time of sale and that the IBI, or Impuesto de Bienes Inmuebles (annual property rates) is paid up to date to your local town hall.

The notary will require all the following documents on completion:

• The property’s CEE, or Certificado de Eficiencia Energética (energy efficiency certificate), if you occupy it for more than four months a year. If this is not the case, you simply have to sign a declaration to that effect.
• Your NIE, or Número de Identificación de Extranjero (Foreign Resident Identification Number).
• An up-to-date copy of the property’s IBI receipt.
• Proof of any amount paid in advance by the buyer.

The buyer will probably also want to see recent utility bills, to check all your services are installed legally and are working.

Once you’ve got everything and, of course, have found a buyer, you or your lawyer need to draw up a contract of sale, negotiate terms, and, in as little as 15 days, visit a notary, who will authorise the contract before you receive payment. Once you’ve done this, a new escritura, containing all the details of the sale and the change of ownership, will be created.

After selling, vendors are liable for a number of taxes levied by different authorities. The first of these is the Impuesto de Plusvalía (capital gains tax), calculated as a percentage of the change in value of the land on which your property stands. This is owed to your local town hall and varies, dependent on the town.

Even if you sell at a loss, i.e. the eventual sale price is lower than the price you purchased for you can still end up owing this tax, as it is levied on the increase in value during ownership, rather than the price you paid.

As a result, if you have owned a property for a long time, this tax is likely to be higher. I recently heard about someone who had owned a place for over 20 years having to pay a plusvalía of some 50,000 euros when they sold. So make sure you calculate what you will owe prior to putting your property on the market or agreeing to a sale price to avoid an unpleasant surprise.

Next is the Impuesto sobre la Renta (income tax), which is owed to Hacienda (Spain’s central tax authority). The taxable base is calculated as the difference between the original purchase price (plus taxes and costs) and the sale price (minus taxes and costs), and depends on the vendor’s resident and legal status.

For resident sellers, this should be included in their annual income-tax declaration. For non-residents, the rate is set at 21% of the taxable base. To offset this amount, buyers are obliged to retain and pay 3% of the sale price to Hacienda. If no profit is made, a seller can ask Hacienda for a refund, but they will not return your money until any pending taxes (including income tax and wealth tax, if applicable) are paid.

If there is a mortgage against your property and the loan will be paid off at the time of sale, then all costs are normally the seller’s responsibility.

Last, but not least, is one of the biggest costs for sellers: commissions paid to estate agents. Normally, this is around 5% of the agreed sales price, plus VAT. This generally appears high to vendors from the UK, but Spain is an extremely competitive market and every agent that endeavours to charge less either goes out of business or ends up raising their rates.

The rest of the costs arising from the sale and transfer of a property are usually the responsibility of the buyer: fees at the Land Registry; transfer tax; VAT; AJD, or Impuesto sobre Actos Jurídicos Documentados (stamp duty); as well as the fees charged by the notary to create an escritura in the new owner’s name.