Owning a holiday home in the sun is a dream for many people and more and more are achieving that dream. It is very important that expert advice is taken before buying or selling a property abroad. This information leaflet, correct as at December 2012 will provide some basic information that we hope will enable you to ask the right questions of your professional property expert abroad. However, the information given is only a guide and you will need to check the information before proceeding.
One of the big problems in buying a property in Spain is that the rules differ between the different autonomous regions. Each region is able to make its own rules. Therefore it is important to get advice from somebody in that region.
Estate Agents often ask you to sign a reservation contract and pay a fee. However please be aware that this may be a binding contract. Therefore take local advice before you sign anything at all.
A deposit of between 5% and 15% will be taken by the Estate Agent and passed to the Seller before completion. Where you are buying a property off plan, a deposit is likely to be 20% to 30% of the purchase price. You will then make 3 to 5 stage payments before the property is habitable and a final payment, usually 10%, when the property is finished.
The contract is prepared by an Avogado, a Spanish Lawyer. Whilst proceeding with the purchase you should request a foreigners ID number (NIE/NIN). Again the exact procedure depends on the region.
The contract will contain all the terms of the sale but you are advised to get this checked by an independent Notario. Because you may not be in the country when documents need to be signed, it is usual for a Power of Attorney to be prepared.
When completion has taken place and the Tax paid your ownership will be registered at the Land Registry.
SPANISH SUCCESSION LAW
The Spanish have a “forced heirship” regime. However this does not normally apply to British Nationals. This is because under Spanish Law it is the Law of the persons Last Habitual Residence that applies to their property even if it is a house located in Spain. This is very different to the English rules which state that your immovable property abroad (that is a house) must be dealt with under the Law of the country where the house is located and only moveable property (that is Bank accounts, furniture etc) will be dealt with under the Law of a persons domicile.
MATRIMONIAL PROPERTY REGIME
The British are not allowed to adopt a Spanish Matrimonial Property Regime. If a property is bought jointly it is deemed to be owned 50% each. Most assets are treated like our joint tenancy so that the surviving spouse will receive the remaining share on the death of the first person (separacion de bienes). Where a property is owned jointly by two people who are not married they have to specify their ownership and one share will not pass automatically to the other.
BRUSSEL’S IV REGULATION
For people who die after 2017 and own a property in Spain it will be possible for them to make a Will under English Law which will deal with their property in Spain. It is recommended that there be two Wills. One Will for the property in Spain that will not include any reference to Executors or Trustees or Trusts. The second Will, will be a standard one under English Law to deal with any other assets.
TAXATION
There are taxes that apply in Spain and also in England.
Purchase
These apply in Spain only:
(a) Property Transfer Tax – the rates vary according to the region where the property is located but the amount is usually between 7% and 10%. If it is a brand new house you may also have to pay VAT.
(b) Local Capital Gains Tax – this is accessed on the value of the land (separate from the building). Sometimes it is paid by the Seller and sometimes by the Buyer and is one point you need to negotiate. The amount paid depends on the region and also the surface area of the land and the cadastral value. This is a bit like a rateable value.
(c) Other fees – legal fees, Land Registry fees will be at least 1000 euros. Substantial additional fees will apply if a mortgage is required.
During Ownership
In Spain
(a) Local Taxes – these are like Council Tax but are more modest and the rates vary.
(b) Income Tax – charged at a flat rate of 24% on the rental income. Many people ignore this Tax but it is essential that it is paid. When buying a property you must ensure that the previous owner has paid this Tax.
(c) A Wealth Tax – there is a 700,000 euros exempt amount but if your total wealth is above this figure there is a progressive rate of Tax but around 2.5% is likely to be paid.
In United Kingdom
Income Tax only payable on any actual rental income. This must be declared on the United Kingdom Tax Return. Any Income Tax you have paid in Spain is off set against the United Kingdom liability.
Sale
Spain
Capital Gains Tax is payable. The Tax rate has recently risen to 21%. If the Seller is resident outside Spain he will only receive 97% of the proceeds of sale and the remaining 3% will be sent to the Spanish Tax Authorities. If the Seller is not liable to pay the Tax he has to claim a refund.
United Kingdom
Capital Gains Tax is payable. This must be declared on the United Kingdom Tax Return. Any Tax you pay in Spain can be off set against the United Kingdom charge.
On Death
Spain
The Tax is paid by the Beneficiary of the asset. This applies to all assets that are located in Spain. The rate depends on the region. There is no exemption for assets that pass to a spouse. The amount of Tax also depends on the relationship between the beneficiary and the deceased and also the existing wealth of the beneficiary. In some regions there is a 99% exemption for gifts and inheritances between ancestors descendants and spouses.
United Kingdom
The asset must be declared and any Spanish Inheritance Tax that has been paid will be off set.
Spanish Gift Tax
If someone gives away their asset in Spain whilst they are alive there will be a Spanish Gift Tax which is similar to Inheritance Tax. Again there is no exemption for a gift made to a spouse. It is therefore inadvisable to give away property. Also any money paid by way of Spanish Gift Tax cannot be off set against any United Kingdom Inheritance Tax that is payable because the deceased died within 7 years.
THE PROBATE PROCESS
If a Will in English is used to deal with the Spanish property the Spanish Authorities will require a translation, a copy of the English Probate, and an explanation of the Law in England and Wales and how it operates in your case.
Even though it can be difficult using a Will in English it is still preferable to dying without making a Will at all. This is because under Spanish Law they look at the Law of the country of nationality but under English Law they look at the Spanish Law. This can therefore be quite complicated and making a Will prevents this.
For additional information, please contact Jean Newton on 01905 726789 or email: jn@parkinsonwright.co.uk