Discover More About The Buying Process
This guide aims to provide you with the general steps involved in buying your home on the Costa del Sol. The total costs of the property purchase depend on if you are buying a New & Off-Plan Property or a Resale (used) Property.
The Buying Process
Reservation Of The Property
The first step is to formalise your offer on the property and remove it from the market, thus protecting your interest to purchase. Once the terms of the purchase have been discussed and the seller accepts the offer, a binding agreement is born, which is sealed by signing a reservation contract. This includes payment of a deposit of between 6,000€ and 10,000€ to reserve the property prior to the exchange of a private purchase contract.
This reservation fee is fully refundable in case that the checks carried out by your lawyer unveils any legal obstacles which affect the buying process.
Whilst the property is ‘reserved’ in your name, your legal representative will carry out all the necessary searches and investigations on the property with the relevant authorities to ensure that the property you are purchasing is legal and free from any charges, debts or encumbrances. Your legal representative will also ensure that the property has the necessary Title Deeds and that the vendors are the rightful owners.
The Private Contract
Once the searches are complete a Private Contract is drafted and signed by both parties. This private contract sets out all the details of the agreement, payment terms and completion date. During this stage the buyer puts down a non-returnable deposit, which is normally 10% of the purchase price less the holding deposit paid at the reservation.
Completion (Signing the title deed)
The property sale process is finalised before a Notary, with the buyer and seller signing the Deed of Sale (Title Deed). The Notary is a public official whose role it is to identify the buyer and the seller, and to ensure that all legal requirements have been met, and that the amount due to be paid has been settled.
If you are unable to be present at the signing of the deed, your lawyer can carry out all the necessary procedures in your name by means of Power of Attorney. In fact, it is common practice for legal representatives to have a valid power of attorney from the beginning of all buying and/or selling operations.
- a) Taking possession of the property
Immediately after the deeds have been signed, the buyer will receive the keys to the property, and can take possession of the property.
- b) Title deed and property registration
The property registration procedure entails the payment of all the taxes applicable to the property and the obtaining of the final register stamp for the Title Deed, which guarantees the transfer of the property. This procedure is an important step, and takes place once the Title Deed have been signed and you have taken possession of your property. The title deed usually takes around two to three months to be returned by the Land Registry office. The Notary will give us notice that the deed is available for collection.
- c) Utilities
Once the sale has been finalised, your legal representative will ensure that all the utility contracts for the property (electricity, water, rubbish collection, etc.) are in the name of the buyer. We will also arrange all bills to be paid by direct debit from your Spanish account if you wish.
The Basic Formalities
The Basic Formalities
There are various basic formalities you must take into account when completing your property buying process in Spain:
Power Of Attorney
To be your legal representative in Spain, it is essential that you grant Power of Attorney in your legal representative’s favour so he/she can act on your behalf. With this Power, they are able to sign contracts, deeds and all documentation related to your purchase process. Your legal representative will draft the Power of Attorney which can be signed, at your convenience, either in Spain or in the country of your preference. Whenever applicable, they will provide instructions for the Power to be stamped with the Apostille of The Hague or Consular legalization, making the Power valid in Spain.
N.I.E. (Spanish ID Number for Foreigners)
The N.I.E. is the ID number that foreigners use in Spain, and is issued by police authorities. Without this ID number it is impossible to buy properties in Spain or obtain service contracts for utilities. Applications to obtain a N.I.E. number tend to take certain time to process, so it is very important to present your application for a number at the beginning of the buying process.
Spanish Bank Account
It is essential to have an account in a Spanish bank in order to contract utility services and to pay them by direct debit. We are able to assist you with opening a bank account in Spain.
Spanish Last Will & Testament
Although it is not compulsory to have a Last Will & Testament in Spain, it is strongly recommended that you have one. A Spanish Will usually makes procedures easier and quicker in Spain. Without a Spanish Will, finalising an inheritance procedure can take up to one and a half or two years. Spanish authorities apply tax penalisations if these matters are not dealt with promptly.
According to Spanish law, when a property is jointly owned by two people and one of them dies, their part is not automatically transferred to the other title holder. It will be transferred in accordance with the Will of the deceased, or, if there is no will, in accordance with laws on intestate succession
Costs And Taxes
Costs And Taxes
The purchase of a property in Spain involves, both for residents and non-residents, a series of fiscal obligations which must be met:
Taxes on Conveyance of assets
- a) New Properties:
The IVA tax (VAT) is applicable to the purchase of new properties and urban plots (which have never been transferred before). It amounts to 10% of the purchase price, and 21% for the purchase of urban plots. This tax must be paid on each instalment.
In addition, the obtaining of the title deed is also subject to Stamp Duty (AJD Tax, tax on Conveyance of Assets and Documented Legal Procedures) at 1,2%.
- b) Resales:
When properties have been already transferred before, the applicable rate is not IVA but ITP tax (transfer tax).
The rate of ITP is 7% of the property purchase price.
Tax on real estate (IBI)
The IBI tax must be paid to the corresponding Town Hall every year, in one payment to be made between September 15 and November 15 (this is the usual period, but it might change in accordance with each Town Hall).
You can arrange this payment to be made by direct debit from your Spanish bank account.
Property Income Tax
Anyone who owns properties in Spain must file a tax return with the Spanish tax authorities. The Tax Office calculates an annual Imputed Income as a percentage (1.1% to 2% depending on the Town Hall) of the Cadastral Value of the real estates. Note that the Cadastral Value is normally significantly lower than the market value. On the Imputed Income, Income Tax is 24% for non-EU citizens, and 19% for tax residents in the ECC (Economic European Community).
If you decide to rent out your property, the above Income Tax would not apply for the periods in which the property is occupied, and a separate tax declaration must be filed accordingly. In that case you pay Tax on Rental Income.
As a general guideline, the percentage of tax you pay on profit is 24% for non-EU citizens, and
19% for tax residents in the ECC (Economic European Community).
It is advisable that any person who owns a property in Spain, but is not resident there the entire year, should designate a ‘fiscal representative’ who will carry out all the procedures necessary before the tax authorities. Your legal representative can also offer this service.
Capital Gains Tax
This tax applies to the seller only and is levied at 19% in the case of non-residents. Capital gains tax is payable based upon the increase between the original purchase price of a property and the selling price.
Anyone purchasing a property from a non-resident must withhold 3% of the purchase price, which is then paid to the tax authorities on account of any liability by the vendors. The vendor then has a 3-month period to pay the rest of this tax to the tax authorities.
Wealth Tax
If you are non-resident in Spain, you may be liable to pay Wealth Tax (Impuesto sobre el Patrimonio), which is applicable to all the assets you have in Spain. Among these assets are real estate, bank accounts and other assets.
The obligation of filing this tax arises either when your net wealth (assets minus obligations) is more than 700,000 Euros per individual, or when your gross wealth is more than 2 million Euros (even if there is no tax to pay).
Rates are from 0.20% to 2.5% for residents in Andalusia or for those non-resident owners whose properties are located in this region.
Reservation Of The Property
The first step is to formalise your offer on the property and remove it from the market, thus protecting your interest to purchase. Once the terms of the purchase have been discussed and the seller accepts the offer, a binding agreement is born, which is sealed by signing a reservation contract. This includes payment of a deposit of between 6,000€ and 10,000€ to reserve the property prior to the exchange of a private purchase contract.
This reservation fee is fully refundable in case that the checks carried out by your lawyer unveils any legal obstacles which affect the buying process.
Whilst the property is ‘reserved’ in your name, your legal representative will carry out all the necessary searches and investigations on the property with the relevant authorities to ensure that the property you are purchasing is legal and free from any charges, debts or encumbrances. Your legal representative will also ensure that the property has the necessary Title Deeds and that the vendors are the rightful owners.
The Private Contract
Once the searches are complete a Private Contract is drafted and signed by both parties. This private contract sets out all the details of the agreement, payment terms and completion date. During this stage the buyer puts down a non-returnable deposit, which is normally 10% of the purchase price less the holding deposit paid at the reservation.
Completion (Signing the title deed)
The property sale process is finalised before a Notary, with the buyer and seller signing the Deed of Sale (Title Deed). The Notary is a public official whose role it is to identify the buyer and the seller, and to ensure that all legal requirements have been met, and that the amount due to be paid has been settled.
If you are unable to be present at the signing of the deed, your lawyer can carry out all the necessary procedures in your name by means of Power of Attorney. In fact, it is common practice for legal representatives to have a valid power of attorney from the beginning of all buying and/or selling operations.
- a) Taking possession of the property
Immediately after the deeds have been signed, the buyer will receive the keys to the property, and can take possession of the property. - b) Title deed and property registration
The property registration procedure entails the payment of all the taxes applicable to the property and the obtaining of the final register stamp for the Title Deed, which guarantees the transfer of the property. This procedure is an important step, and takes place once the Title Deed have been signed and you have taken possession of your property. The title deed usually takes around two to three months to be returned by the Land Registry office. The Notary will give us notice that the deed is available for collection. - c) Utilities
Once the sale has been finalised, your legal representative will ensure that all the utility contracts for the property (electricity, water, rubbish collection, etc.) are in the name of the buyer. We will also arrange all bills to be paid by direct debit from your Spanish account if you wish.
The Basic Formalities
There are various basic formalities you must take into account when completing your property buying process in Spain:
Power Of Attorney
To be your legal representative in Spain, it is essential that you grant Power of Attorney in your legal representative’s favour so he/she can act on your behalf. With this Power, they are able to sign contracts, deeds and all documentation related to your purchase process. Your legal representative will draft the Power of Attorney which can be signed, at your convenience, either in Spain or in the country of your preference. Whenever applicable, they will provide instructions for the Power to be stamped with the Apostille of The Hague or Consular legalization, making the Power valid in Spain.
N.I.E. (Spanish ID Number for Foreigners)
The N.I.E. is the ID number that foreigners use in Spain, and is issued by police authorities. Without this ID number it is impossible to buy properties in Spain or obtain service contracts for utilities. Applications to obtain a N.I.E. number tend to take certain time to process, so it is very important to present your application for a number at the beginning of the buying process.
Spanish Bank Account
It is essential to have an account in a Spanish bank in order to contract utility services and to pay them by direct debit. We are able to assist you with opening a bank account in Spain.
Spanish Last Will & Testament
Although it is not compulsory to have a Last Will & Testament in Spain, it is strongly recommended that you have one. A Spanish Will usually makes procedures easier and quicker in Spain. Without a Spanish Will, finalising an inheritance procedure can take up to one and a half or two years. Spanish authorities apply tax penalisations if these matters are not dealt with promptly.
According to Spanish law, when a property is jointly owned by two people and one of them dies, their part is not automatically transferred to the other title holder. It will be transferred in accordance with the Will of the deceased, or, if there is no will, in accordance with laws on intestate succession
Costs And Taxes
The purchase of a property in Spain involves, both for residents and non-residents, a series of fiscal obligations which must be met:
Taxes on Conveyance of assets
- a) New Properties:
The IVA tax (VAT) is applicable to the purchase of new properties and urban plots (which have never been transferred before). It amounts to 10% of the purchase price, and 21% for the purchase of urban plots. This tax must be paid on each instalment.
In addition, the obtaining of the title deed is also subject to Stamp Duty (AJD Tax, tax on Conveyance of Assets and Documented Legal Procedures) at 1,2%.
- b) Resales:
When properties have been already transferred before, the applicable rate is not IVA but ITP tax (transfer tax).
The rate of ITP is 7% of the property purchase price.
Tax on real estate (IBI)
The IBI tax must be paid to the corresponding Town Hall every year, in one payment to be made between September 15 and November 15 (this is the usual period, but it might change in accordance with each Town Hall).
You can arrange this payment to be made by direct debit from your Spanish bank account.
Property Income Tax
Anyone who owns properties in Spain must file a tax return with the Spanish tax authorities. The Tax Office calculates an annual Imputed Income as a percentage (1.1% to 2% depending on the Town Hall) of the Cadastral Value of the real estates. Note that the Cadastral Value is normally significantly lower than the market value. On the Imputed Income, Income Tax is 24% for non-EU citizens, and 19% for tax residents in the ECC (Economic European Community).
If you decide to rent out your property, the above Income Tax would not apply for the periods in which the property is occupied, and a separate tax declaration must be filed accordingly. In that case you pay Tax on Rental Income.
As a general guideline, the percentage of tax you pay on profit is 24% for non-EU citizens, and
19% for tax residents in the ECC (Economic European Community).
It is advisable that any person who owns a property in Spain, but is not resident there the entire year, should designate a ‘fiscal representative’ who will carry out all the procedures necessary before the tax authorities. Your legal representative can also offer this service.
Capital Gains Tax
This tax applies to the seller only and is levied at 19% in the case of non-residents. Capital gains tax is payable based upon the increase between the original purchase price of a property and the selling price.
Anyone purchasing a property from a non-resident must withhold 3% of the purchase price, which is then paid to the tax authorities on account of any liability by the vendors. The vendor then has a 3-month period to pay the rest of this tax to the tax authorities.
Wealth Tax
If you are non-resident in Spain, you may be liable to pay Wealth Tax (Impuesto sobre el Patrimonio), which is applicable to all the assets you have in Spain. Among these assets are real estate, bank accounts and other assets.
The obligation of filing this tax arises either when your net wealth (assets minus obligations) is more than 700,000 Euros per individual, or when your gross wealth is more than 2 million Euros (even if there is no tax to pay).
Rates are from 0.20% to 2.5% for residents in Andalusia or for those non-resident owners whose properties are located in this region.
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Ian is still in contact with us and always available to help out or translate certain documents if we need it. We are very happy with our home in Marbella and the service we received from Ian has made it all the more enjoyable.
Thanks again Ian, Regards Chris and Becky Murphy.