In general, there are two possible scenarios when you are buying a property in Spain . Either you will be buying a property that is not yet finished (off-plan) from a developer or you will be buying a property from a private individual or company (resale). The process is slightly different for each, in terms of the searches that are undertaken, but the basic structure is similar.
Reservation Deposit and Contract
The first step in the purchasing process in Spain is to secure your chosen property by depositing a sum of money, the reservation deposit, with your agent or lawyer. This fixes the prices and removes the property from the market for a certain period of time, usually one month. It is essential that you have funds available to pay the reservation deposit on the property you have selected. This can be by bank transfer, credit card or bank guaranteed cheque drawn on a Spanish Bank. If you are unable to pay the reservation deposit, it is most unlikely that the seller will reserve the property for you or take it off the market. This delay could, of course, cost you your property. Typically, the amount required by way of the reservation deposit is between €3.000 and €12.000.
At the time of handing over the reservation deposit, a reservation contract should be signed by you and the seller, or your representative, into which the basic terms of agreement are incorporated. These terms should include, for example; the property address, whether property is furnished or unfurnished, payment terms, estimated date for exchange of contracts and estimated completion date.
It is important to realise the reservation deposit is usually non-refundable, unless it is specifically agreed to be conditional upon certain factors happening e.g. raising finance, property documentation not being correct, or even actually viewing the property, if reserved unseen.
Private Purchase Contract (Exchange of Contracts)
Once the reservation contract has been signed, and the reservation deposit paid, there will be an agreed period of time during which your lawyer will undertake all the necessary searches on your behalf to ensure the vendor is the legal owner of the property and it is free from any debts, charges or encumbrances. The deposit will be passed to the vendor only after this has occurred.
As in the UK, Spain operates a Land Registry system enabling us to conduct thorough searches of title, giving you added security and peace of mind.
During this period, the detailed terms of agreement will also be negotiated by your lawyer and incorporated into a Private Purchase Contract, ready for exchange of contracts. On exchange of contracts you should expect to pay between 20% and 50% of the purchase price when buying off-plan and, 10% when purchasing a resale property.
Your lawyer will also ensure (if buying off-plan) that the developer is providing a bank guarantee or insurance bond for all payments, as well as a 10-year structural guarantee on completion. A bank guarantee, or insurance bond, protects your payments and provides for your money to be returned in the unlikely event that the developer does not finish the property, goes into liquidation, or even where they fail to complete on time and you do not wish to wait.
The private purchase contract fully commits both buyer and seller to the purchase at an agreed price (subject only to fluctuations in taxes). Neither party is able to pull out of a purchase after exchange of contracts without penalty.
Spanish Property Sellers Guide
If you are selling a property, the basic procedure is, of course, the same as for buying. A priority for you is to make sure that you choose an estate agent with whom you feel confident, and to ensure that the commission structure is clearly understood.
Once a sale has been agreed, your lawyer will need the following documents to progress the sale as quickly as possible:
- Original Escritura Pública (Title Deeds)
- Copies of your last IBI/BASURA receipts
- Copies of your last utility bills (water,electricitiy etc)
- Copy of your Community Rules with the name and address of the community administrator
- Copy of your last receipted community bill
- An inventory of any furniture and fittings included in the sale
- If you are a Spanish Resident and therefore not subject to the 3% retention (see below) a copy of your most recent income tax declaration
- Energy Certificate
If you are a non-resident in Spain, the buyer must retain and pay 3% of the declared sale price to the tax authorities at the time of completion, on account of any taxes you may owe, in particular any Capital Gains Tax liability you may have (see below). Your lawyer will be able to advise you on this in greater detail.
This is a one-off tax levied by the Local Authorities and is calculated by reference to the increase in value of the land since the last sale of the property/land. For most purchases this tax will amount to only a few hundred euros and is normally, but not always, payable by the vendor on completion.
Capital Gains Tax on Spanish Property
You are liable to pay Capital Gains Tax on your net profit. Your net profit is calculated by taking the figure you are selling for and deducting (i) the costs of selling, (ii) the initial price for which you purchased the property, (iii) all costs & fees incurred in the purchase and sale of the property and (iv) the statutory inflationary allowance.
Residents & non-residents of Spain are taxed at a flat rate of 18%.
As a resident of Spain you are exempt from paying Capital Gains Tax on your net profit if you are able to satisfy the following conditions:
- The property being sold is your main or only place of residence and you have owned and used the property as your main or only residences for a period of three years preceding the sale.
- The full sales price of the property is invested in another property, again being your main or only residence, either two years before or after the sale.
- The property must be kept as your main or only place of residence for three years following the sale.
- Spanish residents 65 years or older and own a property as their main or only residence for three years are also exempt from paying C.G.T. on the sale of the property.