Richard Rooke’s view of the legal aspects of Spanish property purchase, tax obligations and inheritance tax

All too often one hears, or reads in the press, that some unfortunate individual has lost his life savings whilst endeavouring to purchase a property in Spain, and his dreams of retiring to sunny Mediterranean shores have been shattered by some unscrupulous rogue.

These rogues are not necessarily Spanish, they are mostly foreign immigrants that are in Spain to make a quick fortune and then disappear.

The majority of these cases could have been avoided if the appropriate legal advice had been taken beforehand, but there are a few legal loopholes that may still exist in certain areas. Hence the need for expert legal advice.

Purchasing procedure, or conveyancing, is not that different from other European countries, and generally, can be a lot quicker and easier. Nevertheless, it is always advisable to use the services of a qualified Spanish solicitor or lawyer (abogado).

He will be able to search the land registry, where the property is registered, and obtain a certificate (nota simple) with all the details of the property, ownership, mortgages, liens, etc. Any charges on the property will be noted in the land registry, and it is here we discover if any problems are likely to arise.

The actual deed of purchase (escritura) is prepared at the notary’s office (notaria), A notary (notario) is a government appointed official, similar to a commissioner of oaths, who is responsible for checking the identities of the property, the seller and the purchaser, for explaining the legal implications and tax obligations to the parties involved, ensuring that they understand completely what they are signing, and for witnessing the signatures on the deed.
The legal costs and taxes involved on the purchase of real estate, at the present time, are the following:
1.       Value added tax (IVA) at 7% on new construction of properties for residence, including attached garages and annexes, and 16% on new commercial units and other buildings not for residence. This tax is paid directly to the builder.

2.       Property transmission tax (ITP) at 7% of the declared value, on any type of resale property not subject to IVA, and is payable within 30 working days.

3.       Tax on legally documented acts (IAJD) at 1% of the declared value on those properties where the IVA has been paid by the seller, and on those properties that have other legal rights such as mortgage deeds. This tax is also payable within 30 working days.

4.       Notary fees and registration costs, which vary according to the property.
According to current laws, anyone purchasing a property in Spain has an income-tax liability, and should make a tax declaration every year. Thus, before signing the escritura, a foreigner’s identification number (N.I.E.) must be applied for, which number also becomes his tax number.

Without this number, it is impossible to buy anything (including cars) in Spain. Applications can be made through a Spanish Embassy or Consulate in your own country, or certain police stations in Spain.

It is advisable to appoint a fiscal adviser in Spain who will automatically make your annual tax declarations when required.

Income tax liability in relation to property is calculated on the amount which is the highest of the following:
1.       Purchase price.
2.       Rateable value.
3.       Transmission tax value.
Spain is divided into different Regions (Comunidades Autonomas), which can legislate and adapt the reductions and benefits in their tax-systems to suit their needs. Therefore, it is very complex, and difficult to generalise on Spanish taxes.

As far as this article is concerned, we are taking the Valencia Region, which includes Alicante, as an example.

For residents in the Valencia Region, some fiscal benefits have been established which consist of a minimum exemption of 108,182.17 Euros, and in the case of the handicapped, the sum of 200.000 Euros.

For non-residents, there are no benefits. The tax is on a sliding scale, and the first 2 steps are:
1.       From 0 to 167,129.45 Euros at 0.2%.
2.       From 167,129.45 Euros to 334,252.88 Euros at 0.3%.
Residents in Spain are taxed on rental income of any property which is rented out, and likewise, on properties for their own use that are distinct from their habitual home.

The income is added to their annual income from other sources, except that which is gained from property sales, and taxed at the corresponding scale for the total income.

The tax on the sale of property, regardless of type, is a fixed 18%. Tax declarations are made between the 1st May and 30th June of the following year.
Non residents (in the Valencia Region), as far as property is concerned, have a tax liability in the following situations:
1.       On total rental income obtained, calculated at 24%.
2.       On own use of property, regardless of type, calculated on 2% (1.1% on revised values) of the rateable value, at 24%.
3.       On the sale of property, regardless of type, calculated at a fixed 18%. Separate declarations for every sale should be made within four months.

Moreover, the person acquiring the property is obligated to retain and pay to the tax authorities, in the name of the seller, the equivalent of 3% of the declared value.
Inheritance tax on one’s estate is calculated on a scale which starts at 7.65% on values less than 7,993.46 Euros and rises to 34% on values over 797,555.08 Euros.

It is calculated individually for each beneficiary, in accordance with the relationship of the beneficiary with the deceased, and the pre-existing heritage of the heir.

This tax has to be paid within six months of the death. In the Valencia Region, some fiscal benefits during 2007 have been established for residents, with a reduction in the taxable amount of 96.000 Euros for descendants under 21 years, 40.000 Euros for descendants, parents, and husband or wife, and a reduction by 1% of the rate for the rest of the beneficiaries.

There are also other reductions and benefits for the handicapped, and in cases of company or family business inheritance.
For non-residents, the reductions on the taxable amounts are limited to the sum of 15,956.87 Euros for each parent, descendant, husband or wife.

If the heirs are brothers, sisters, or cousins, the reduction is 7,993.46 Euros.
Acquisitions by donations are also taxable, and are calculated on the same scale used for inheritance tax, with the same parental requirements for each beneficiary.

This tax should be paid within 30 working days of the act or contract. For residents, the inheritance tax benefits and reductions are applicable, but for non-residents of the Valencia Region, these benefits do not apply.

Villa Value Company Profile

Richard A Rooke is the Director of Villa value an independent property consultancy, and member of FIABCI, The International Real Estate Federation, since 1986.

He has been running this well established real estate business on the Costa Blanca, and with more than 30 years experience in the real estate industry, and Spanish real estate qualifications, Richard’s expertise is second to none.
He has twice been awarded the title of Spanish and European Property Consultant of the Year, for 2004/2005 and 2005/2006, by Business Britain Magazine, European Property Consultant of the Year 2005 by Total Business Magazine and the BA Award for International Property Consultant of the Year 2006.

This recognition and acclaim, has firmly established his company as one of the market leaders in overseas property
Established on the Costa Blanca for over 23 years, Richard can offer an extremely wide choice of meticulously selected properties of all types and locations, at competitive prices, for holiday, retirement, or investment purposes.

His clients will receive assistance during the whole purchasing process – avoiding any pitfalls that might otherwise be encountered on the way. Prices vary in accordance with the property, location, etc., and finance can be arranged, on the spot in Spain, at advantageous interest rates, if and when required.

There is a bespoke service for clients buying for investment only, and a property management and letting service to provide maximum returns on income.

The recent boom in house-purchase still continues, and once small rural villages are turning into major residential and holiday centres. The British, the Scandinavians, and the rest of an expanding Europe, together with the Spanish themselves, are all buying, creating completely cosmopolitan communities, and vibrant multi-lingual societies.

Availability on the re-sale market is always interesting, however, more house-hunters are now buying new properties, built to improved standards, with far better quality materials, which, sometimes, offer better value for money.

Richard’s office and exhibition centre is in Mil Palmeras, Pilar de la Horadada, about 17 km south of Torrevieja, which is one of the fastest growing communities in Spain, and this area alone offers excellent opportunities in all price-ranges, and an enormous variety of homes to choose from.

Nevertheless, he is always on the lookout for other opportunities, and has several especially selected properties and developments to offer you, chosen from, amongst others, existing golf-courses, and all the new golfing developments currently appearing on the scene.

He has links with leading developers and builders, throughout the Costa Blanca, and all along the coast. If you are looking for value for money, then Richard’s "Best Buys" are what you should be considering.

Tel. 0034 965 320 024
E-mail: richarda@eresmas.net
Website: www.villavalue.com

The Property Exhibition and Information Centre, Edif. Playa 9, Mil Palmeras, 03190 Pilar de la Horadada (Alicante) SPAIN

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