Living the Dream on the Costa del Sol
This area of Spain certainly lives up to its name, boasting the best weather in Europe throughout the winter months. And during the summer months it is wall to wall sunshine every day yet the cooling sea breezes make this area such a wonderful place to live. On average you will find over 300 days of sunshine with temperatures usually in the mid 30’s ideal for relaxation and enjoying lie to the full!
It has been shown that the health benefits of sunshine and warm temperatures increase life expectancy along with the Mediterranean diet of olive oil, salads and fresh fish and seafood enjoyed by the Spanish. Foreign residents of Spain can choose to opt for private health care which is not too expensive although the public health system is excellent.
The Costa del Sol is an extremely popular destination for holidays as well as permanent living, and has been for many years. The tourists are traditionally from the UK, Northern Europe and Scandinavia. Recently there has been an increase in tourist from Eastern Europe, Poland and Russia. Malaga airport recently expanded its flight connections so that many airlines from more airports are now flying into the region. Prices remain relatively cheap, with a huge choice of low-cost airlines.
The Buying Procedure in Spain
Buying a property in Spain is a big financial decision and for many foreigners the new rules and procedures of the purchase can be a little overwhelming. The buying procedure in Spain, although quite simple, is not quite the same as at home
Here is an overview with an explanation of some of the more common terms you may come across.
Once you have found your property in order to take the property “off market” the buyer deposits a sum usually about 5,000 euros. You must also sign a reservation documents with the agreed price and payment details. Both the owner and the buyer must sign this document.
A Foreign Identification Number (Numero de Identification de Extranjero or NIE) is required to buy a property in Spain. This NIE is needed by the Notary when signing the Title Deeds. The NIE is issued by the Policia National. We at PandO apartments assist in this procedure as it can be confusing and time consuming.
The next stage, usually 1-2 weeks later, involves signing a Private Purchase Contract and this requires The Land Registry Certificate ( Nota Simple certificate). This contract is legally binding and specifies the payment schedule. Also at this stage an amount typically 10% has to be paid to the vendor.
Now the process moves to the Notary where the remainder of the purchase price is paid and the Sales Title Deeds (Escritura) are signed. The buyer now takes possession and can move into the property. All the costs including transfer tax and the costs of the Notary must be paid. The cost of buying a property in Spain is generally 10% of the purchase price.
Expenses of Ownership
Community Fees ( Comunidad de Propietarios). This is usually paid twice a year and can vary considerably in different urbanizations. It pays for the maintenance of any communal area and the outdoor space such as the swimming pool. Entrance areas, lifts, parking.
IBI ( Impuesto Sobre Bienes Inmuebles)This is paid annually to the City Hall and all owners of property must pay this tax at 0.5% of the cadastral value.
Basura. This is a tax for rubbish collection and is paid annually.
Agua. Water fees which are paid to the local company.
Impuestos sobre el Patrimonio. Property owners in Spain have to submit a return for the tax on all properties by December 31st.
Buying Process - Costs involved in buying Property in Spain
Buying & Selling Property in Spain, and, Property Taxes in Spain
The buying process in Spain is somewhat different to the UK but it is possible to complete the purchase within weeks instead of months.
The process has three main phases:
1. Reservation Deposit, €6,000 - Prior signing the title deeds before a Notary.
2. Signing of Private Purchase Contract (PPC) with 10% stage payment
3. Completion at Public Notary and payment of the balance
The following 'Step by Step' guide shows the usual process for buying property in Spain
- Appoint an independent Lawyer/Solicitor (Abogado) with Power of Attorney if necessary
- Secure the property with an initial Reservation Deposit, usually €6,000
- Obtain an N.I.E. (Foreigners Tax ID number) your Lawyer can arrange under POA
- Private Purchase Contract is signed and this usually takes place within two weeks
- 10% is paid at PPC (less initial deposit) Note: At PPC the purchase contract becomes binding
- Date for completion is mutually agreed between buyer and vendor.
- Lawyer sets up Spanish Bank Account and essential utilities for the new owner
- Completion takes place at the Notary´s office with the signing of the new title deed (Escritura)
- The new Escritura is registered with the Tax Office and then registered in the Land Registry
The Spanish legal system guarantees the legal security of property owners. Several actions have to be taken to inscribe the purchase of a property in the Land Registry, thus guaranteeing the right over the property.
Obtaining the NIE.
Checking for any charges in the Land Registry.
Checking payment of the local taxes.
Checking payments to the resident's association.
Obtaining mortgages and other credits.
Provide passport in force.
Written proof of payments done before the signing of the title deeds.
Written proof of means of payment when signing the title deeds.
If a non-resident foreigner, a bank certificate showing the origin of the money.
The vendor must provide a resident's association certificate.
The vendor must provide the last receipt of the local tax payment.
Withdrawal of the title deeds from the Notary Office.
Tax settlement is required in a maximum of 30 days from the day the title deeds are signed.
Presentation and register of deeds in the Property Registry Office.
Communicate the property register the change of name of the property.
Communicate the Community of Owners of the change in ownership.
Hiring of supplies.
4.- Expenses - Costs Involved in buying Spanish property:
You should budget for purchase taxes/costs on top of the full purchase price to cover:
- New property purchase – 10% IVA (VAT) on purchase price plus 1.5% Stamp Duty (AJD)
- Resale property purchase: Property Transfer Tax (ITP)
- Purchase Price: Up to €400,000 - 8%, €400,001 - €700,000 - 9%, Over €700,001 - 10%
- Land purchase – 21% ITP plus 1.5% Stamp Duty (AJD)
- Notary & Land Registry Fees: Approx 1%
- Lawyers fees - 1% plus IVA of purchase price (subject to a minimum charge €1,500)
- Power of Attorney (approx Euros 250 pp)
- Número de Identificación de Extranjero (N.I.E.) (approx Euros 200 per person)
- agency fee -2%
Additional costs will be incurred if a mortgage (Finance) is required to purchase
Standard rate of IVA (VAT) in Spain on other goods is 21%
All costs are estimates and given for guidance only.
Power of Attorney: If you do not plan to be in Spain for the completion you will need to appoint your Lawyer in Spain with Power of Attorney to be able to facilitate the transaction in your absence without unnecessary delays. A Power of Attorney can be drafted by your Lawyer for your signature at your nearest Spanish Consulate if you are unable to be in Spain.
1. Procedures before signing the title deeds:
In the case the buyer is a foreigner non resident in Spain, a resident card must be issued, even if their residence is in a European Union (EU) country, and he must be registered in the Spanish Treasury, paying taxes in Spain as a resident. In addition, he must have a passport in force when signing the deeds and the Foreigner Identification Number (NIE), document that has to be applied for at the local Police Station of the area in which the property is situated.
The NIE is an administrative control number issued by the Home Office, essential to pay the taxes inherent to the purchase of the property. The NIE has to be applied for directly by the interested person, or by a representative specially authorized through a power of attorney granted abroad, as the ones granted in Spain are not admitted to apply for the NIE in the name of the interested person. As well as the specific form, the following documents should be presented to apply for the NIE; the original and a copy of the power of attorney if it is applied for through a representative, the original and a copy of the passport (being valid either a consular or a notary copy) and a copy of the document that proofs why the person interested is applying for a NIE, which in this case would be the private purchase contract, however, if the person is from the EU there is no need to provide the copy of the contract.
If the buyer is a foreign company, a CIF (company registration number) should be provided to purchase a property, with no significant differences in respect to a single person buying a property. The most significant one will be the possibility to decide regarding the application of VAT when the company sells the property owned, if both parts agree and it is of interest to both, for which each case should be studied separately.
Before signing any documents that may link us to the property, we have to assure there are no pending charges, for which we should request a certificate from the Land Registry (Nota Simple Informativa) where the property is registered, providing Volume, Book, Sheet and number of the plot. If the property is of new construction and the contract is signed before the individualization of the different apartments, you will only be able to request the information of the plot where the promotion is being built, to know of any existing charges that the apartments or plots could inherit in the future.
It is advisable to check if the property is subjected to the payment of community fees, if there are any due and have been paid (generally this is not the case in properties of new promotion), as well as the corresponding payments to the Town Hall, to assure there are no debts in the Property Tax, Rubbish Collection Rates or any other rate or tax set by the Town Council.
The corresponding procedures should be done to obtain mortgages or other credits, if needed to finance the purchase of a property.
It is necessary to sign, prior to the title deed, a contract of sale and purchase, of call option or of deposit, where the price is established, the property bought is settled and the conditions (deadline for title deeds, distribution of expenses,...), clearly stating if VAT has to be added to the price, as in the case of newly built properties, and the applicable rate according to the type of the property and its characteristics.
2.- Signing of title deed by Notary
This phase consists in signing the title deed before a Notary, allowing us to register the property in our name. The stated document has to include the conditions agreed for the sale and the following documentation must be presented to attach to the title deed:
Proof of the payments made before the signing of the deeds, to certify its real existence, legal obligation set to avoid money laundering.
Written proof of the means used for the payments made when the deeds are signed (cheques, bills of exchange, promissory notes, bank transfers, mortgages, ...).
In the case of being a non-resident foreigner, including an EU citizen, proof of the origin of the total funds used in the purchase should be presented, both in payments prior to the signing and when the deeds are signed. The bank that has received the funds must certify its origin from a non resident account, to whom they have been credited to and the property involved, identifying it (certificate of investment).
The vendor must provide the last receipt of the property tax payment (IBI), with an expired paying date, clearly showing the property reference at the Land Registry.
3. - After signing the title deeds.
Independently from the fiscal obligations of the vendor, who has to pay the Capital Gains Tax (Plusvalía), it is usually the buyer who runs with the legal expenses involved in the property purchase. However, both parties can previously agree a different distribution of the charges generated till the moment the purchase is registered in the Land Registry. Nevertheless, the procedures followed after the signing of the title deeds are:
Withdrawal of the title deed from the Notary office. The notary expenses of the purchase procedure usually represent a 0,25 % of the sale price (mortgage aside), however, they can vary depending on the number of pages of the deed, the number of sellers and buyers and on the number of properties involved.
Tax settlement is required in a maximum of 30 days from the date of the signing of the title deed, made payable in the Settlement Office (Oficina Liquidadora) of the Local Government (Junta de Andalucía) situated next to the Land Registry Office where the property is located, having to pay:
a 1% of the purchase price in properties with added VAT (AJD);
a 7% of the price in properties with no added VAT (ITP);
Presentation and registration of deeds in the Land Registry Office where the property is located. The registry expenses are approximately a 65 % of the notary expenses.
Communication at the Land Registry Office of the change in ownership of the property.
Communication to the Community of Owners of the change in ownership.
Hiring of supplies.
The lawyer's fees, in the case this service is used, usually involve a 1% of the purchase price plus VAT, however, these fees are variable, and so a previous agreement of the total amount for the entire transaction is recommended.