LEGAL INFORMATION AND TAXES IN SPAIN

Posted Thursday, November 22, 2007

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Our Advice on the Legal Process

Legal advice
It is impossible to overstate the importance of appointing a qualified lawyer to look after your interests when you’re buying a property overseas. When choosing a lawyer, make sure that he or she fluently speaks and writes the language of the country in which you are buying, that you understand him/her and don’t hesitate to ask questions if you are unsure.

Spanish property law is complicated and there are inevitably cases of unwary buyers being misled by unscrupulous sellers. The fact of the matter is that there is only one person who is entitled to sell the property that you are trying to buy and that is the person who is named on the title deed. No matter how tempting the offer might be, never sign anything without the express agreement of a qualified, Spanish-speaking lawyer. We can recommend such lawyers who are independent from the builder or developer selling the property.

What to expect from your Spanish lawyer
As well as giving legal advice at each stage of the process, your lawyer will check the property registry to investigate any encumbrances or debts registered against the property. If anything untoward is discovered he will advise on how best to deal with it and whether you should, in fact, proceed at all.
When completion takes place your lawyer will lodge the title deed with the land registry and then take care of any remaining formalities such as opening accounts with local utility companies in your name and the payment of any transfer taxes.

The Spanish notario
The Spanish notario is very different from a solicitor. He is, above all, a publicly appointed official. He does not carry out the important pre-contract enquiries normally performed by a UK solicitor.

In Spain some estate agents may assure you that you have no need for a lawyer, as the notario will carry out all the necessary work. This is not so, the notario is only there to make sure the transfer has been done legally. You should appoint your own lawyer. You would not purchase a property in the UK without instructing your own legally qualified representative, and you should adopt exactly the same approach in Spain, where if anything, the problems facing the unwary are greater. Your lawyer should have knowledge of both Spanish and British taxation and inheritance law, as well as Spanish property law. We can recommend such lawyers who are independent from the builder or developer selling the property.

Spanish bank account
You will need a Spanish bank account, probably a current account (cuenta corriente). Non-residents can open a non-resident account (cuenta extranjera). You will be provided with a chequebook (talonario), although cheques are not used with the same frequency as in the UK. Please note that post-dating a cheque is ineffective, it can be drawn on immediately. Many Spaniards ask for cheques to be made out to the portador i.e. cash, to avoid declaring it for tax purposes. We can assist you with opening a bank account whilst in Spain inspecting our properties.

Residents have 15% of interest earned deducted direct for tax purposes, although you can recover this if you are not liable for tax. Bank charges in Spain are high, even for routine operations. Commission on transfers out of Spain varies tremendously.

Tax considerations and other costs for property in Spain
In general terms, allow about 10% to 11% extra to cover your tax liabilities and miscellaneous costs. This will cover the Spanish equivalent of VAT, known as IVA, which is calculated at 6% of the value of a pre-owned home or 7% of the value of a new property. It also covers stamp duty, which at present is 0.5%; a small fee that has to be paid to the property registration office; a charge for obtaining copies of the ‘escritura publica’; connections to local utilities and legal fees, which are usually about 1% of the sale value.

You should also be aware that, as the buyer, you may be required to pay the seller’s fees, but this is not general and is something that your lawyer would be able to negotiate for you if necessary.

Additional costs and fees
If you buy from someone who is not an official Spanish resident you will be required to lodge a deposit equal to 5% of the sale price with the Hacienda or local tax office. This system was introduced to offset the risk of the seller leaving the country without settling his bill for capital gains and other taxes and it means that the seller won’t receive the proceeds of the sell until he has discharged his financial liabilities.

Capital gains tax on property
Capital gains tax, or ‘plus valia’ must be paid when the property is sold. It is calculated as 18% of the difference between the present value of the land and it’s value when last sold. Spanish law does not specify who is liable for this tax so it’s very important to include this in your negotiations and to have the agreement documented by a lawyer.

Mortgages
Financial matters and in particular, mortgages, can be very daunting things to deal with, especially if you do not feel that you are fully informed on the subject. The following information we hope will provide sufficient information about Mortgages to help you understand the process inside out, whether you are looking to apply for your first mortgage, looking to transfer your mortgage to a new lender or maybe purchase a second property with a mortgage. We are aiming to provide a straightforward independent guide to mortgages where any technical terms will be explained thoroughly to ensure the information is easy to read and understand.

First of all, lets start with the basics, we would like to explain exactly what a mortgage is: -
A mortgage is a loan secured against your home. ‘Secured’ means that if you do not keep up the repayments, the lender can sell your house to get their money back.

The Financial Services Authority (FSA) is an independent regulator set up by the government to monitor the Financial Services Industry and protect consumers. From 31st October 2004, the Financial Services Authority regulates the majority of mortgages sold meaning that the mortgage lenders now have to meet certain standards set by the Financial Services Authority. These standards include:

1. Ensuring that charges are not excessive.
2. Providing clear information to potential clients in a standard format, which has been overseen by the FSA. This should make it easier for the customer to compare services and mortgage quotes from different lenders and banks.
3. Offering greater protection should a person get into arrears with their mortgage payments.
4. Ensuring price information (including apr) in any marketing material and mortgage advertising is clear and easy to understand.
5. Offering a suitable mortgage to a person based on the information they provide when they approach a lender to seek advice.

These standards should now assist in ensuring that customers have a better understanding of the options open to them when applying for a mortgage.

We are able to assist you with obtaining a mortgage through an Independent Financial Advisor who specialises in property abroad.

We hope the above information is useful but please do not hesitate to contact us if you need any further information on 0870 241 4108 or email info@phoenix-overseas.com