LEGAL4SPAIN.COM - Updates

September 21st, 2015

In many cases, whether spouse-to-spouse inheritance or passing down the family line, beneficiaries wish quickly to sell inherited Spanish properties. In order to complete a Spanish property sale following the death of an owner (or co-owner), the succession process must be completed first. The seller or sellers must be alive; have legal capacity demonstrated in the personal attendance at the Notary’s on completion of the sale, or be validly represented under Power of Attorney.

In many areas of Spain (even in an active market), the process of selling a property can be fairly
lengthy. There is no problem therefore (in order to get ‘the ball rolling’), in marketing a Spanish property
for sale before completion of an inheritance case. But obviously, the legal position must be made clear to any interested parties. Furthermore, any contractual commitment entered into must be of a conditional nature- completion of the sale being subject to prior completion of the inheritance.

The following is a brief summary of the principal ‘paperwork’ and logistical items to attend to,
before putting a property on the market for sale.

1. Property Title
The original Title Deed (‘escritura’) will be needed- or if it cannot be located, then an official copy should be obtained from the Notary’s. The Registered Title details can be extracted from the Title Deed; and an up to date copy of the Registered Title should be obtained from the Property Registry. In many cases, there are
discrepancies between the official Spanish property title and the position ‘on the ground’. So, it is often necessary to get the title updated prior to a sale. Banks (for buyers’ mortgages) and well advised buyers generally will wish
to see correct property description in the title. Discrepancies can otherwise seriously impact on achievable value. The title rectification process can be fairly lengthy- usually with architects’ certificates and retrospective Town
Hall approval required. So, it is always best as early as possible to be aware of any such issues; and to ensure that they are correctly addressed.

2. Energy Performance Certificate
In order to market a Spanish property for sale, owners are legally required to obtain an up to date Energy Performance Certificate. Competition in the market now for this service means that it is generally a fairly quick and economical exercise.

3. Local Rates Information
The rates details for the property will be needed, together with proof that there are no rates arrears. Reference numbers can usually be found on the receipts for rates (IBI/ SUMA) sent out by the local Town Hall (‘Ayuntamiento’) or the paying bank. Missing information can be obtained from the ‘Catastro’- rates department of the Town Hall.

4. Planning Permission
Such evidence as is available from the time of acquisition of the property will be required, to prove compliance with planning legislation; and permission for the legal occupation of the property. For any missing documentation, official copies- or confirmation of legal compliance- can be obtained from the planning (‘urbanismo’) department of the Town Hall.

5. Community Details
Full details of the Community Administrator should be available, together with a copy of the Community statutes and (if possible) copies of the minutes of recent Community meetings. A summary of Community charges over recent years will be needed; and also details of any forthcoming charges, which have already been notified. The most recent statement/ receipt of Community charges will be needed; and before signing the sale and purchase deed (‘escritura de compraventa’) before the Notary, a Certificate by the Community Administrator confirming that there are no arrears of Community charges will be required.

6. Tax Issues
Capital Gains Tax liability will need to be considered; and also for non-Spanish resident sellers, a tax retention of 3% of the sale price is made on completion; and fairly stringent conditions apply to reclaims, even in the event of a sale at nil gain.

7. Services Contracts
Receipts for the most recent payments of property outgoings (principally electricity/ water; and if applicable, gas) will be required, together with the latest contractual terms of supply- in the absence of copies, these can be obtained from the local offices of the services supply companies. Apportionment between seller and buyer needs to be addressed following completion of the sale.

8. Power of Attorney
If the sellers do not anticipate being personally present in Spain for the legal sale process, then it will be necessary for a Power of Attorney (containing the necessary legal powers to sell and carry out associated administrative tasks) to be signed in favour of the appointed representative/ legal adviser. A well prepared Power of Attorney for the inheritance case should include the relevant provisions, to save duplication.

9. NIE Certificates
NIE (Spanish fiscal) numbers will be required for any registered owner; and up to date NIE certificates will need to be provided to the Notary on completion. These are also required for beneficiaries anyway, so will be available from the inheritance documentation.

10. Mortgage
If there is an outstanding mortgage on the property, details will be required as to the arrangements/requirements of the lender as to redemption; and also any charges which will apply. A mortgagee representative also needs to be available at the Notary’s on completion. So, often this dictates the timing and location of completion.

11. Bank Account
Any Spanish property seller will require a current bank account in Spain into which the completion monies can be paid. Usually a lawyer’s client account will have been opened for the inheritance case and can be used for this. It is advisable to be certain in advance, as to the charges which will be applied in crediting the completion monies to the account; and for the onward transmission of the completion monies. Spanish bank charges can be surprisingly high; and the manner of payment of the purchase price; and onward transmission/ form of Foreign Exchange service used, can significantly affect the costs.

12. Legal Representative
In order to be fully protected in any Spanish property transaction, it is essential to appoint in writing a legal representative, who is independent- both from the other party to the transaction; and also from the estate agent negotiating the transaction. The appointed legal representative must be duly qualified, registered with the applicable Colegio de Abogados (Law Society equivalent); and up to date with their professional practice requirements. They must also carry adequate professional indemnity insurance cover. It is also essential that all communication is in a language which both the property owner and the legal representative speak perfectly. There should be no risk of any misunderstanding. Usually a specialist lawyer will have been engaged for the inheritance case; so they are generally the logical choice for handling the legal aspects of the sale.

13. Estate Agent Appointment
The issue of estate agent appointment in Spain can be something of a potential minefield; and is worthy of an entire separate article! Suffice to say for now that it is an area which needs to be extremely carefully handled and documented.

The above is a non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team is always available to provide preliminary advice on a no-obligation basis in relation to probate and/or a sale or purchase of a Spanish property.

April 28th, 2015

Advance preparation
for the purchase of a Spanish property can simplify and speed up the purchase
process; and minimise transaction costs.

The following is a
reminder of some of the principal ‘paperwork’ items to consider, when dealing
with a Spanish property purchase.

1. Appointment of
Legal Representative. In order to be
fully protected in any Spanish property transaction, it is essential to appoint
in writing, a legal representative, who is independent- both from the other
party to the transaction and also from the estate agent negotiating the
transaction. The appointed legal representative must be duly qualified,
registered with the applicable Colegio de Abogados (Law Society equivalent) and
up to date with their professional practice requirements. They must also carry
adequate professional indemnity insurance cover. It is also essential that all
communication is in a language which both the buyer and the legal
representative speak perfectly. There should be no risk of any misunderstanding
or ambiguity. Advice should be obtained also before signing a legally binding
contract, as to the structuring of the purchase, for estate planning purposes.

2. Survey. Even if not required for mortgage
purposes, a survey by an independent expert is recommended before any Spanish
property purchase- both to verify the condition of the property; but also to
ensure that the description of the property (in the Property Registry and Town
Hall/ rates department) is consistent with the position ‘on the ground’. This
avoids later problems. In many cases, there are inconsistencies, which require
correction.

3. Power of Attorney. If the buyer does not anticipate being
personally present in Spain for the legal / transactional process, then it will
be necessary for a Power of Attorney (containing the necessary legal powers) to
be signed in favour of the appointed representative/ legal adviser.

4. NIE Certificates. NIE (fiscal) numbers will be required
for any Spanish property buyer; and up to date NIE certificates will need to be
provided to the Notary on completion.

5. Bank Account. Any Spanish property buyer will require
a current bank account in Spain usually- to deal with the purchase funds; and
in any event, for payment of the property outgoings following completion. It is
advisable to be certain in advance, as to the charges which will be applied in
crediting monies to the account; and for making transfers from the account.
Spanish bank charges can be surprisingly high; and the manner of funding the
purchase price; and transfer/ Foreign Exchange issues, can significantly affect
the costs.

6. Mortgage. If mortgage funding is required, the
process should be started as early as possible, as significant delays can
otherwise occur- as all aspects of the title to the property and its value as
security will be scrutinized by the bank’s advisers; and this can be a lengthy
process. Also in undertaking any loan in Spain, full clarity on costs must be
obtained- not only in servicing the loan, but also the initial/ set-up costs;
and any amounts payable to redeem the loan also.

7. Capital Gains Tax/
Accounting. From the very
outset of a purchase, attention should be paid to the collation of all financial
information and receipts- e.g. construction/ works invoices and other
accounting paperwork- principally to build up a solid record of possible future
deductions/ allowances for capital gains tax purposes, for the occasion of a
subsequent sale of the property.

8. Title Deeds. Following completion, the buyer should
receive an official copy of the Purchase Deed (‘escritura’). The Registered
Title details can usually be extracted from the Title Deed; as an up to date
copy of the Registered Title is usually appended to the rear of the escritura,
once the registered title is updated to reflect the sale and purchase of the
property.

9. Planning
Permission. Proof of
compliance with planning legislation; and permission for the legal occupation
of the property will be required. Usually for any missing documentation,
official copies- or confirmation of legal compliance- can be obtained from the
planning (‘urbanismo’) department of the Town Hall.

10. Rates Information. The full rates details for the property
will be required, together with proof that there are no rates arrears.
Reference numbers can usually be found on the receipts for rates (IBI/ SUMA)
sent out by the local Town Hall (‘Ayuntamiento’) or the sellers’ paying bank.
Missing information can usually be obtained fairly easily from the rates
(‘Catastro’) department of the Town Hall. An apportionment of rates will need
to be made between the seller and the buyer on completion.

11. Community Details. Full details of the Community
Administrator will be required, together with a copy of the Community statutes
and (if possible) copies of the minutes of recent Community meetings. A summary
of Community charges over recent years will be needed; and also details of any
forthcoming charges, which have already been notified. The most recent
statement/ receipt of Community charges will be needed; and before signing the
sale and purchase deed (‘escritura de compraventa’) before the Notary, a
Certificate by the Community Administrator, confirming that there are no arrears
of Community charges will be required. An apportionment of Community charges
will need to be made between the seller and the buyer on completion.

12. Services
Contracts. Receipts for the
most recent payments of property outgoings (principally electricity/ water; and
if applicable, gas) will be required on completion, together with the latest
contractual terms of supply- in the absence of copies, these can be obtained
from the local offices of the services supply companies. Following completion,
the services contracts will need to be transferred to the buyer- services
apparatus updating works may be required, so the advice of an independent
expert is recommended before a contractual commitment is made. An apportionment
of costs will need to be made between the seller and the buyer on completion.

13. Energy Performance
Certificate. The seller is
required to provide an energy performance certificate in relation to the
property on completion.

14. Wills. Every purchaser of a Spanish property
should ensure that they have an up to date validly executed and registered
Spanish Will, which accurately reflects their wishes for the succession of
their Spanish property interest in the event of their death.

15. Non-Spanish
Resident Tax Returns. Non-Spanish
resident owners of Spanish properties have to make an annual tax declaration in
Spain. Usually a fiscal adviser is appointed to deal with this, following
completion of the purchase.

The above is a
non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.

April 6th, 2015

As the Spanish
property market news headlines switch to recovery mode- with sales on the
increase, profits to be made; so the prominence recedes of the Press focus
during the recessionary period, of the supposedly ‘high risk’ nature of Spanish
property ownership- from demolition orders for planning defects; through
properties falling down with no right to compensation for distressed owners; to
unscrupulous intermediaries disappearing with client funds.

But the common theme
throughout the previously reported disaster cases must not be forgotten. In the
vast majority of problem cases of Spanish property ownership, there was no
independent professional legal representation at the time of purchase or sale;
or perhaps worse still, reliance upon unqualified/ incompetent legal
representation.

Obviously non-Spanish
owners of Spanish properties wouldnever dream of property dealings in their own
country without proper legal representation. So it is quite astonishing that in
Spain, often with no knowledge of the legal system or even the language,
private investors decide to ‘take a flyer’ in terms of the detail of the
Spanish legal process!

It is precisely
because of the well-documented risks in Spanish property ownership and the
frequent lack of clarity as to transactional costs and taxes, that independent
professional legal representation is essential for Spanish property purchases
and sales.

With proper
professional advice, instead of taking a high-risk gamble, owners of Spanish
property can invest intelligently and securely in real estate in Spain.

Some key points for
buyers and sellers of Spanish properties:

1. Ensure that your lawyer speaks your
language fluently. For a significant investment such as real estate, everything
must be completely clear.

2. Ensure that your lawyer is qualified and
registered in Spain with the Colegio de Abogados, to be certain of professional
regulation. (And check that there is adequate professional indemnity insurance
in place to cover the risk of anyproblem with their work).

3. Ensure that your lawyer is dual
qualified and professionally regulated both in Spain and in your own country,
to have a full grasp of all the tax implications of your Spanish property
investment. This enables dealings in Spanish real estate to be conducted in the
most tax efficient way, having regard to your tax liabilities both in Spain and
crucially, also in your own country.

4. Ensure that your lawyer acts
independently from the estate agent, developer or other parties to the
transaction. If there is any connection, ensure impartiality and the usual professional
clearance of anyrisk of conflict of interests.

5. Ensure that your lawyer provides you at
the outset with a clear written budget of all costs and taxes; and undertakes
to follow up at the end of the case with a final, clearly detailed cost and tax
summary.

6. Ensure that your lawyer operates an
individually designated client accounting system for your full financial
security.

7. Ensure that your lawyer provides a
written report on title, well in advance of a contractual commitment,
confirming all title and planning information in relation to the property. All
parties to a transaction must be completely clear on all aspects before a
contractual commitment is made.

8. Ensure that an initial private contract
is entered into, with a deposit paid on exchange of contracts. This provides
security for both parties; and protection against wasted/ abortive costs and
unscrupulous behaviour in terms of last minute negotiations.

9. Ensure that your lawyer (usually in
conjunction with the estate agent) attends to the transfer of services to the
property following completion.

10. Specifically ask your lawyer to confirm
the above points, to ensure that nothing is overlooked; and that you are fully
protected by your legal representation.

The above is a
non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.

March 5th, 2015

Overview

Every non- Spanish
resident owner of a property in Spain has to file during each calendar year (in
respect of the immediately previous calendar year), a tax return in Spain
(Form- Modelo 210). It is a simple matter, involves a relatively modest cost;
and (generally) a fairly modest amount of tax to pay, based on the property’s
rateable (Catastral) value.

Background

Although it is
obligatory for these tax returns to be made, the follow-up by the Spanish Tax
Authority against those who have failed to declare in the past has been fairly
limited in practice; and the consequences not disturbingly significant.

But this is changing.

Purchasing or
Inheriting a Spanish Property Puts The New Owner ‘On The Radar’

Very simply (and quite
unsurprisingly) technological advances in the manner of operation of the
Spanish Authorities- and therefore improvements in communication between them-
are occurring at a rapid pace.

It is therefore naïve
in the extreme to assume that dealing with a Spanish asset through one Spanish
Authority does not trigger awareness in others.

Shortly following
completion of Spanish property purchases and inheritances now, those acquiring
the property are immediately notified of the awareness of the change of
ownership by the corresponding tax authorities. (A helpful ‘pointer’!)

Consequences of
Failure to File Non-Spanish Residents’ Returns

1. A significant issue
(which we are now seeing occurring automatically) is that if a filing date is
missed, a recalibrated demand is sent out including penalties/ interest. The
powers of enforcement for failure to pay can be extreme- legal action,
embargoed accounts/ assets; ultimately the facility for the Spanish Tax
Authority to seize and auction assets to cover tax debts due. (Extreme cases
obviously, but the point being that the Spanish Tax Authority does have- and
does exercise on a case by case basis- extensive rights and facilities to
recover tax debts).

2. A further
potentially alarming consequence is something which is coming as a nasty
surprise for many sellers of Spanish properties who have failed to file their
annual tax returns.

When a non-Spanish
resident sells a Spanish property interest, 3% of the declared sale price is
retained for the Spanish Tax Authority. This is, in effect, on account of
Spanish capital gains tax liability. But if the retention is greater than the
actual tax liability, the seller can reclaim the tax.

But the Spanish Tax
Authority is now scrutinising the tax return history in dealing with reclaims-
and if found to be inadequate or incomplete, the tax retention on sale may not
be refunded.

So, 3% of the property
sale price can be ‘lost’ (even if there is no gain on the sale) for a simple
failure to make this tax return. To put that in context, on recent property
sale we saw for 900,000 Euros (at a loss) the seller waved goodbye to 27,000
Euros, for this administrative oversight.

Particular attention
therefore needs to be paid to this issue in the context of (and indeed following)
a Spanish property sale.

Conclusion

The Spanish Tax
Authority ‘means business’ over this. Compliance is, in reality, neither
complicated nor expensive. We will be happy to refer enquiries to associates
who provide this service extremely efficiently and cost-effectively; and their
service being provided in English, for non-Spanish speakers.

This general
commentary is not intended to be exhaustive; and case-specific legal advice
should always be sought.

Please speak to us at
Legal 4 Spain when considering a sale or purchase of a Spanish property, to
ensure you have the best quality legal representation to protect your interests
fully; but always at a competitive cost.

December 2nd, 2014

Advance preparation
for the sale of a Spanish property can simplify and speed up the sale process;
and minimise transaction costs.

The following is a
reminder of the principal ‘paperwork’ items to attend to, before putting a
property on the market for sale.

1. Title Deeds. The original Title Deed (‘escritura’)
will be required- or if it cannot be located, then an official copy should be
obtained from the Notary’s. The Registered Title details can be extracted from
the Title Deed; and an up to date copy of the Registered Title should be
obtained from the Property Registry. Sometimes there are matters which may
require attending to before the property can be sold- for example, references
to previous mortgages may need clearing off the Registered Title; or there may
be inheritance issues which require completion; or title/ property description
corrections.

2. Energy Performance
Certificate. In order to
market a property for sale, Spanish property owners are legally required to
obtain an up to date Energy Performance Certificate. Usually, estate agents are
able to recommend local authorized certificate providers.

3. Rates Information. The full rates details for the property
will be required, together with proof that there are no rates arrears.
Reference numbers can usually be found on the receipts for rates (IBI/ SUMA)
sent out by the local Town Hall (‘Ayuntamiento’) or the paying bank. Missing
information can be obtained from the ‘Catastro’- rates department of the Town
Hall.

4. Planning
Permission. Such evidence as
is available from the time of acquisition of the property will be required, to
prove compliance with planning legislation; and permission for the legal
occupation of the property. For any missing documentation, official copies- or
confirmation of legal compliance- can be obtained from the planning
(‘urbanismo’) department of the Town Hall.

5. Community Details. Full details of the Community
Administrator should be available, together with a copy of the Community
statutes and (if possible) copies of the minutes of recent Community meetings.
A summary of Community charges over recent years will be needed; and also
details of any forthcoming charges, which have already been notified. The most
recent statement/ receipt of Community charges will be needed; and before
signing the sale and purchase deed (‘escritura de compraventa’) before the
Notary, a Certificate by the Community Administrator confirming that there are
no arrears of Community charges will be required.

6. Capital Gains Tax/
Accounting. If applicable,
(check with fiscal adviser) all construction/ works invoices and other
accounting paperwork should be collated to be ready to provide along with
fiscal submissions relating to Capital Gains Tax liability- principally to
ensure readiness for claiming any applicable deductions/ allowances.

7. Services Contracts. Receipts for the most recent payments of
property outgoings (principally electricity/ water; and if applicable, gas)
will be required, together with the latest contractual terms of supply- in the
absence of copies, these can be obtained from the local offices of the services
supply companies.

8. Power of Attorney. If the sellers do not anticipate being
personally present in Spain for the legal sale process, then it will be
necessary for a Power of Attorney (containing the necessary legal powers) to be
signed in favour of the appointed representative/ legal adviser.

9. NIE Certificates. NIE numbers will be required for any
registered owner; and up to date NIE certificates will need to be provided to
the Notary on completion.

10. Mortgage. If there is an outstanding mortgage on
the property, details will be required as to the arrangements / requirements of
the lender as to redemption; and also any charges which will apply.

11. Bank Account. Any Spanish property seller will
generally require a current bank account in Spain into which the completion
monies will be paid. It is advisable to be certain in advance, as to the
charges which will be applied in crediting the completion monies to the
account; and for the onward transmission of the completion monies. Spanish bank
charges can be surprisingly high; and the manner of payment of the purchase
price; and onward transmission/ form of Foreign Exchange service used, can
significantly affect the costs.

12. Legal
Representative. In order to be
fully protected in any Spanish property transaction, it is essential to appoint
in writing a legal representative, who is independent- both from the other
party to the transaction and also from the estate agent negotiating the
transaction. The appointed legal representative must be duly qualified,
registered with the applicable Colegio de Abogados (Law Society equivalent) and
up to date with their professional practice requirements. They must also carry
adequate professional indemnity insurance cover. It is also essential that all
communication is in a language which both the property owner and the legal
representative speak perfectly. There should be no risk of any
misunderstanding.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.

November 12th, 2014

In preparation for dealing with the
administration of estates which include Spanish assets, it can be useful to
have an overview of the Spanish probate process- to be prepared; and to avoid
surprises.

Ten key procedural stages in the
Spanish probate process are:

1. Collating Documentation and
Information. As with any estate succession,
thorough preparation at the outset is essential. Principal items to locate/
cover for Spain typically include: Death Certificate; Will; title deeds for
Spanish properties (‘escrituras’); most recent property rates receipt; Spanish
registered vehicle documentation; asset valuations; bank account details (and
official extract covering the date of death); full details/ date of death
statements for any Spanish loans, mortgages, investments; and Spanish fiscal
number certificates (N.I.E’s) for deceased and beneficiaries. If the deceased
left no Spanish Will, then an official sealed copy of the UK Grant (with UK
Will annexed, if applicable) may be required; and possibly further proof of
legal status and relationship with the deceased (e.g. Birth and Marriage
Certificates).

2. Signature of Power of Attorney. A professional Spanish representative is generally
appointed under Power of Attorney, in order to minimise inconvenience for
beneficiaries, as the Spanish inheritance process involves a significant amount
of personal attendance. UK estate administrators may also need to be
represented in Spain (under Power of Attorney), in addition to beneficiaries.
Usually, experienced Spanish practitioners will have arrangements in place with
UK Notaries’ Society members and The Foreign and the Commonwealth Office, to
enable the Power of Attorney to be signed just as easily in the UK as in Spain-
for signatories’ convenience. Generally, the entire Spanish legal process can
be conducted without the need for UK executors/ beneficiaries having to go to
Spain.

3. Obtaining N.I.E’s. As indicated, a Spanish fiscal number is required by
each estate representative/ beneficiary. Often seen as a significant hurdle,
but experienced Spanish practitioners will have a system in place for these to
be simply and rapidly obtained- including within the UK.

4. Spanish Central Wills Registry
Search. An obligatory early step in
the process is that a search must be carried out to confirm the existence or
absence of a Spanish Will. If it is revealed that there is a Spanish Will, but
no official copy can be found; then usually a copy can be obtained via the
Spanish Notary.

5. Certification of Law and Official
Translations. Any non-Spanish legal
documents which are required to prove beneficial entitlement (Death
Certificates; Grants of Probate, etc) may need to be Apostilled by the Foreign
and Commonwealth Office, in order to be legally admissible in Spain. In some cases,
they must also be translated and certified by an official translator. An
advantage of the existence of a valid separate Spanish Will (if there is one),
is that it reduces the complexity and extent of the documentation, which has to
be produced to the Spanish Authorities. In many cases, the Authorising Spanish
Notary will require a Certificate of English law, confirming the legal
entitlement of the beneficiaries and/or to provide any case-specific comfort as
may be required on cross-border legal issues.

6. Opening of Client Bank Account. It is fundamentally important before provision of
client funds, to ensure that the Spanish probate representative operates a
client accounting policy/ facility which fully protects the estate and the
beneficiaries. The standard obligatory requirements in Spain can be less
extensive than in the UK.

7. Execution of the Inheritance Deed
before the Authorising Spanish Notary. Generally,
the procedural urgency in achieving the signature of the official Inheritance
Deed and concluding the Notarial process, is that this then enables the Spanish
Succession Tax to be paid. Payment of the tax must be made within 6 months of
the date of death, in order to avoid interest/ penalties accruing on the tax
debt. As the tax can generally only be paid once the Spanish Notarial process
is completed, it is critically important that the Spanish process is commenced
at the very earliest stage possible; and proactively pushed forward, to settle
matters with the Notary as quickly as possible. Otherwise, there is a danger
that an unnecessarily inflated Spanish tax liability will arise.

8. Payment of Tax. It is important to have obtained from the Spanish
practitioner at the outset of the case, a detailed estimate of all applicable
costs and taxes. This ensures adequate preparation time for provision of funds,
to enable the tax payment to be made immediately following the signature of the
official Inheritance Deed. In addition to Spanish Succession Tax, Plus Valia
Tax may also be payable. This is a local Spanish Town Hall tax, payable upon
the transmission of a property interest. Most Spanish Town Halls charge this on
inheritance, as well as property sales. It is calculated by reference to the
Spanish property’s rateable value; and the period of ownership. Traditionally,
this was a nominal amount. But with revisions to rateable values in particular,
in some areas of Spain it can be a very substantial amount.

9. Banks. Dealing with bank accounts in Spanish probate cases
can often be the longest and most frustrating part of the process, but this can
only be fully addressed once the Inheritance Deed has been signed and any
Spanish Succession Tax paid. Succession of bank accounts is not addressed at
local bank branch level in Spain. The bank’s central legal department instead
usually deals with succession matters. Direct contact with the bank’s central
legal department is generally fairly difficult. For the Spanish banks,
succession work is decidedly low priority.

10. Property and Vehicle Registries. Following the signature of the Inheritance Deed; and
payment of any Spanish Succession Tax; applications can be made to the Property
and/or Vehicle Registries, in order for the Spanish estate assets to be
registered in beneficiaries’ names. The Property Registration process in
particular, involves a further level of legal scrutiny. So, in some cases,
additional requisitions can be raised at this stage, beyond matters covered
with the Authorising Spanish Notary earlier in the process.

Conclusion.

The Legal 4 Spain team offers a full
Spanish probate service; and is always available to provide preliminary advice
on a no-obligation basis in relation to probate cases, which include Spanish
assets.

October 14th, 2014

Before setting a sale price, Spanish
property owners who are considering selling should be aware of all the
associated costs and taxes, in order to be able accurately to calculate the net
amount they will receive from the sale.

The costs and taxes on selling a
Spanish property can typically be in the range of 10-15% of the sale price, in
total. The following is a reminder of the principal areas to consider.

1. Estate Agency Fee. The seller usually covers the estate agency fee. The
applicable percentage of the fee needs to be individually negotiated in each
case. It will be determined by the nature and location of the property; its
price; and the detail of the service which will be provided by the estate
agent. The typical range of estate agency fees for ‘ordinary’ Spanish property
sales is 3-5% plus IVA. (A higher % applies if it is a low value transaction).

2. Energy Performance Certificate. In order to market a property for sale, Spanish
property owners are legally required to have an up to date Energy Performance
Certificate. Usually, the estate agent will be able to recommend a local
authorized certificate provider. In terms of pricing, it is a fairly
competitive market now; and there are a number of certificate providers
covering wide areas, so it is easy to determine a fair price for this service.

3. Tax Retention on a Spanish
property transfer. When a non-Spanish resident
owner of a Spanish property sells, the buyer has to retain 3% of the declared
sale price and pay this to the Spanish Tax Authority. So, this is a 3% deduction
from the amount the seller receives. In some cases, the retention can be
reclaimed subsequently, but the reclaim process can be quite convoluted and
expensive to pursue.

4. Plus Valia Tax. When there is a transmission of a Spanish property
interest, the local Town Hall is entitled to charge Plus Valia Tax, which is
calculated by reference to the rateable value of the property and the period of
ownership. In a sense, it is a hybrid between a stamp duty and a local level
capital gains tax. The amounts in question vary widely from area to area; and
in some areas the charge is surprisingly high. So, it is always essential to
have a clear idea in advance of the Plus Valia which will be payable on a sale.

5. Community Administrator
Certification. It will ordinarily be a term
of the sale that the seller pays all outstanding community charges up to the
date of completion. This is confirmed by the provision of a Community
Administrator’s Certificate, which the seller procures (and pays for). The
charge for the provision of this certificate typically ranges from 50-100
Euros.

6. Capital Gains Tax. A seller of a Spanish property might potentially face
an obligation to account for any profit in Spain and/ or in their home country
(if a non-Spanish resident). But this is a case-specific issue, so advice
should always be sought in both jurisdictions before proceeding with a sale, to
ensure full fiscal compliance.

6. Legal Fees. Expert independent legal representation is essential
when selling a Spanish property (please see our previous Blogs for details).
The cost depends on the value of the transaction and its complexity. But
typically, 0.75- 1% plus IVA (usually subject to a minimum fee level) should be
budgeted for.

7. Bank Charges. Bank charges in Spanish property transactions can be
surprisingly high. Some Spanish banks even charge to receive funds; and always
to transfer funds following completion. Often the charge is a significant %.
So, this should be confirmed in advance. If net sale proceeds are to be
repatriated to the seller’s country of origin, then (if outside the Eurozone),
a specialist Foreign Exchange broker should be used. This will improve on the
direct bank to bank FX rate; and there is then greater control over the timing
of the transfer; and agreement of the applicable FX rate. This specialist
service can also be useful, in case Tax Authority source of funds certification
is required.

8. Mortgage Redemption Charges. If the property is owned subject to a mortgage, then
before agreeing a sale, the terms of redemption of the mortgage (or its
transfer to another property) must be confirmed with the bank. Sometimes a
substantial redemption fee can be payable.

9. Notary Costs. Although technically this should be a shared cost, it
is often the case that the buyer pays the Notary fee. But sellers need to be
aware that this is an area of possible negotiation. The amount of the Notary
fee will depend on the value and complexity of the transaction. But we
recommend that the budgeted figure is around 0.75-1% plus IVA. So it is
important to agree before exchanging contracts, how this cost will be borne.

10. Property Registry. The buyer almost always bears the Property
Registration cost, so this should not be an issue of concern to the seller. But
as an aside, the Property Registration cost also depends on the size/
complexity of the transaction; and also the type of property and its location.
The Property Registration cost is typically around 0.5-0.75%.

In conclusion therefore, most well
advised Spanish property owners will assume a typical range of 25-30% to cover
the ‘in and out’ costs and taxes when assessing the total cost of buying and
then later selling a Spanish property.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be
sought.

The Legal 4 Spain team provides a
full property conveyancing service (buying and/or selling) throughout Spain. We
are always happy to provide a competitive cost estimate at the outset of a
transaction on a no-obligation basis.

September 15th, 2014

A new European law will come into
full effect on August 17th 2015, with the intention of simplifying inheritance
cases across Europe.

This new law will apply to owners of
Spanish properties.

The problem the new law addresses

There has been legal uncertainty
previously in the estates of many non-Spanish owners of Spanish properties, as
to whether Spanish succession law applies or the owner’s own national
succession law.

The distinction is particularly
important for English owners of Spanish properties, where their own (i.e.
English) succession law effectively enables them freely to choose their heirs
(including as to Spanish assets), without limitation in the majority of cases.

Conversely, if an English owner of a
Spanish property were to choose (or be legally forced) to follow Spanish
succession law, then a strict division of the Spanish estate would be imposed
under Spanish law- with a minimum of two thirds passing to descendents; and
very limited discretion generally as to who receives the Spanish estate.

The solution provided by the new law

The new law gives people affected by
the problem, choice as to which succession law applies to their estate.

Well advised English owners of
Spanish properties will in any event, have already made separate Spanish Wills
in anticipation of the new law, clearly electing for their own national
succession law to apply. So they can be certain that their Spanish estate will
pass as they wish; and not pursuant to the strict Spanish legal requirements
(which in the vast majority of cases, are incompatible with English testators’
actual wishes).

In any event, English (and indeed
other nationality) owners of Spanish properties are advised to take this
opportunity in anticipation of the new law, to review their Spanish Wills with
their legal advisers, to ensure that they have clearly and unambiguously chosen
for their own national succession law to apply to their Spanish assets (if that
is what they wish). Also, to ensure that their Spanish Wills are in all other
respects, fully up to date; legally compliant in Spain; and tax efficient.

In the event of a failure of by an
English owner of a Spanish property to leave a valid Spanish Will electing for
English succession law to apply to their Spanish estate, the position under the
new law will be determined by a new statutory ‘habitual residence’ test, such
that:

• If the English owner of the
Spanish property is habitually resident in Spain at the time of death, then
Spanish succession law will apply to the Spanish estate.
• If the English owner of the Spanish property is habitually resident in
England at the time of death, then English succession law will apply to the
Spanish estate.
• If the English owner of the Spanish property is neither habitually resident
in Spain at the time of death nor in England, then it could be either English
law or the law of the actual country of habitual residence. This scenario would
need to be legally determined on the circumstances of the case.

Conclusion

In order to avoid uncertainty-
bearing in mind also that many people change residential status in the final
period of their lives, particularly due to healthcare considerations- it is
always best not to rely on the ‘default’ position under the new law. Instead,
it is always best practice for a Spanish property owner to sign a professionally
prepared, up to date Spanish Will with a clear statement of their wishes as to
the succession of their Spanish estate. This can also ensure that any up to
date tax saving opportunities are used to their full advantage.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be
sought.

The Legal 4 Spain team provides a
full estate planning and Will writing service for properties and other assets
anywhere in Spain. We are always happy to provide a competitive cost estimate
in the first instance, on a no-obligation basis.

September 1st, 2014

Before committing to
the purchase of a Spanish property, it is important to have a full
understanding of the on-going costs and taxes associated with Spanish Property
ownership.

1. Rates (IBI/ SUMA). Town Hall rates are payable by almost
all Spanish property owners (whether resident in Spain or not). The amount is
calculated by reference to the rateable (Catastral) value of the property- an
important figure, also for other taxation purposes. Some Town Halls charge
rates in installments; others in a single annual charge. Following a property
transfer, it can take the Town Hall up to a year to update their records with
the new owner’s name.

2. Rubbish Collection
(Regogida de Basura). Some Town Halls
include rubbish collection services in the rates charge (above). But, some Town
Halls chare separately for this aspect of local services – either in
installments or annually. In applicable areas, all property owners have to pay
this, irrespective of whether or not they are Spanish resident; and irrespective
of the number of days they occupy the property, actually generating rubbish!

3. Non-Spanish Residents Tax (Renta de no residentes
imputada de Bienes Inmuebles). This tax is payable annually in arrears by Spanish property
owners who do not live in Spain, but who own property in Spain for their
personal use. For example, the tax is payable by 31 December 2014 in respect of
the calendar year 2013. The tax is calculated by reference to the Catastral
value (see above). The Spanish Tax Authority in effect, charges a tax for the
lost opportunity of renting the property out- (which would otherwise generate a
taxable Spanish income). It is a difficult head of taxation to explain/
justify. Perhaps an assumption at one time was made that non-Spanish resident
property owners would rent out their Spanish property, but would not declare
the rental income to the Spanish Tax Authority. For legally/ fiscally compliant
Spanish property owners, it is generally regarded as an unfair tax; and
therefore an (unavoidable) irritation.

4. Tax on Rental
Income. This head of
taxation is for owners of Spanish properties (whether resident in Spain or
not), who do actually rent out their property. The applicable rate of taxation
is 24.75%. Specific fiscal/ accountancy advice is needed in each case, not just
to meet fiscal filing requirements; but also to ensure that deductions and
allowances are properly applied, to minimize the taxation burden as much as
legally possible. If a non-Spanish resident rents out their property for only
part of the year, then an apportionment has to be made between the period of
imputed rental income (see 3 above) and actual rental income.

5. Wealth Tax. Both Spanish residents and non-residents
need to consider whether they are liable to pay Spanish wealth tax each year.
The Spanish Tax Authority regularly changes the requirements. Generally, the
exemptions are substantial. In the vast majority of cases of non- Spanish
resident owners of Spanish properties, as it is only their assets in Spain
which are taxable, the allowances are more than sufficient to provide a full
exemption.

6. Community Charge. The vast majority of Spanish properties
form part of a Community of owners. Each individual owner must pay their
proportionate part of the Community (or block) costs. The amount and regularity
of payments depends entirely on the nature of the Community; its facilities;
and timing of the expenditure cycle (i.e. whether in a period of routine
maintenance/ expenditure, or if exceptional work is to be carried out). In the
purchase of a Spanish property, a buyer must: obtain Community charge payment
history; review recent Community meeting minutes and resolutions; and make
enquires of the Community Administrator, in order to be clear as to the
anticipated liability.

7. Parking/ Street
Access. Some Town Halls
enforce an obligation for Spanish property owners to pay an annual charge/ tax
for a ‘Vado Permanente’, being a right of access from the property on to the
adjoining road (where applicable). Again, this is a difficult tax to explain/
justify, as it presupposes that the property owner has paid the rates on the
property; and local car tax. But then an additional annual tax is levied in
applicable cases, in order to be entitled to move your car from your property
on to the public road! At the time of purchase of a Spanish property, an
enquiry should be made of the local Town Hall to see if this charge applies.
Also in some areas, there are street parking/ local residents’ street parking
charges.

8. Utilities/
Services. Spanish property
services costs are very much case-specific; and a full understanding is
necessary before buying a Spanish property. The nature of the services
available varies according to the location of the property and the type of
property. For example, some areas have mains gas supply, others don’t. Rural
properties may have Community arrangements for the (non-mains) supply of water;
some Communities include mains supply water charges in Community charges,
others do not. Most properties have postal delivery services, but some do not.
Also, following the purchase of a Spanish property, in order to have services
contracts put into new owners’ names; independent certification of the
installations (and updating works) may be necessary. So in all cases, this must
be carefully investigated and budgeted for.

9. Insurance. In all cases of Spanish property
ownership (as it differs from property to property), a full understanding is
needed of the extent of the insurance cover which applies through the Community
services/ charges; and the ‘gap’ which the individual property owner needs to
cover- either with their own insurance policy or accepting the risk personally.
In many cases, a good starting point is to ask the insurance agent who deals
with the Community cover. It can be beneficial to have the Community insurance
and individual homeowners’ insurance through the same agency/ insurance
company, in order to avoid the risk of gaps in insurance protection.

10. Bank Account. All Spanish property owners need to have
a Spanish bank account, for the payment of property outgoings/ local taxes,
etc. Spanish banks distinguish between Spanish residents’ bank accounts and
non-residents’ accounts. The account charges also vary according to the type of
account. In selecting a Spanish bank, branch location and facilities are
obviously important factors. However, a full understanding is also necessary of
the applicable charges. Unlike many other countries, banks in Spain charge
separately for everything imaginable- account holder certification; account
‘maintenance’; issue of debit card; obligatory postage of statements (despite
internet access); receipt of funds into the account; funds withdrawal; issue of
cheques; etc. Banking in Spain can be a surprisingly expensive business; and
there are significant differences in charges from bank to bank. So, claims of
‘standard practice’ should be disregarded; and as with other services,
‘shopping around’ is recommended in selecting a Spanish bank.

This general
commentary is not intended to be exhaustive, but a handy guide to some of the
regular costs/ taxes Spanish property owners face.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.

August 12th, 2014

In budgeting for the
purchase of a Spanish property, buyers should be prepared for all the
associated costs and taxes, to ensure that the total cost of purchase can be
properly assessed.

The associated costs
and taxes can easily add up to an additional 12-15% on top of the purchase
price; and the following is a reminder of the principal areas to consider.

1. Survey/ independent
valuation. The buyer must
be satisfied as to the property’s true open market value and its physical
condition, before entering into a contractual obligation to purchase.
Independent professional advice is recommended; and the cost will depend on the
nature and complexity of the property and advice needed. But typically (if not
included in a mortgage budget), 0.5-1% plus IVA should be budgeted for as a
minimum, for obtaining reliable independent professional advice of this nature.

2. Purchase taxes. The rate of purchase tax the buyer faces
depends on where the property is situated. Also, whether the seller is a
developer selling a newly built property; or it is a private/ resale of a
property. But this tax alone can be as high as 10% of the purchase price, so it
is essential for buyers to be clear at the outset as to the applicable tax rate
for an intended purchase.

3. Tax retention on a
Spanish property transfer. When
a buyer purchases from a non-Spanish resident seller, the buyer has to retain
3% of the declared purchase price and pay this to the Spanish Tax Authority.
But although the buyer takes responsibility for this retention and accounting
to the Spanish Tax Authority, it is actually an amount paid by a non-resident
seller on account of the seller’s own tax liability. So, although confusion
over this issue does arise, this ‘cost’ is actually a deduction from the amount
the seller receives; and it is therefore a seller’s cost, not a buyer’s cost.

4. Estate Agency Fees. The buyer should only be responsible for
agency costs if a property finding service has been contracted. Otherwise, the
estate agency fee should ordinarily be a cost covered by the seller.

5. Mortgage costs. A buyer who is taking out a mortgage to
fund a Spanish property purchase typically needs to budget on an additional
cost exposure of 2% plus IVA, taking into account: survey/ independent
valuation (to be recommended even if there is no mortgage- see above);
additional Notary/ registration fees; and lender charges.

6. Legal Fees. Expert independent legal representation
is essential when buying a Spanish property (please see our previous Blogs for
details). The cost depends on the value of the transaction and the complexity.
But typically, 1-1.25% plus IVA (usually subject to a minimum fee level) should
be budgeted for.

7. Bank Charges. If the purchase monies are coming from
outside Spain and from non-Euro currency, then a specialist Foreign Exchange
service should be used. Otherwise, up to 3- 5% can be ‘lost’ in a direct bank
to bank FX/ transfer.

Additionally, some
Spanish banks even charge to receive Euro transfers above a certain value. So,
sometimes it can be cheaper to make multiple smaller transfers. This should be
checked in advance.

Spanish banks will
also charge for issuing the bankers’ draft on completion, and that alone can
cost between 0.25-1% of the amount being paid. The type of cheque required and
applicable charges should be specifically discussed with the bank in advance.

8. Notary Costs. Although technically this should be a
shared cost, it has become normal practice in most Spanish property sales for
the buyer to pay the Notary fee, but this is an area for possible negotiation.
The amount of the Notary fee will depend on the value and complexity of the
transaction, but we recommend that the budgeted figure is around 0.75-1% plus
IVA.

9. Property Registry. The buyer almost always bears the
Property Registration charges. Again, the amount will depend on the size/
complexity of the transaction and also the type of property and location. But
we recommend that the budgeted figure is around 0.5-0.75%.

10. Sellers’ Costs. Thinking ahead to the future sale of a Spanish
property should also be part of the buyer’s assessment at the time of purchase.
In the following weeks, we will post a summary of sellers’ costs in a separate
Blog. But, all matters considered, the total cost of selling a Spanish property
is generally not dissimilar to the total cost of buying (so a typical guideline
range being 12-15% of sale price). Additionally, a seller might also face a
capital gains tax liability following the sale.

In conclusion
therefore, most well advised Spanish property buyers will typically assume a
range of 25-30% to cover the ‘in and out’ costs and taxes when assessing the
total transactional cost of Spanish property ownership.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling) throughout
Spain. We are always happy to provide a competitive cost estimate at the outset
of a transaction on a no-obligation basis.

July 8th, 2014

Discovering that there
are Spanish assets in a non-Spanish estate gives rise to a number of issues in
preparing for the estate administration.

Some key points are:

Location of Death. If the death occurred outside Spain,
then the death has to be proved to the Spanish Authorities as the first stage
of the legal/ procedural work. This enables the compulsory search of the
Spanish Central Wills Registry to be carried out, to establish with certainty,
the presence or absence of a Spanish Will.

Will. A major factor in assessing the
complexity of a Spanish probate case (and of course, actual beneficial
entitlement) is determining whether: there is a valid Spanish Will; no Spanish
Will but a foreign Will covering the Spanish assets; or no Will at all. The
search of the Spanish Central Wills Registry confirms whether or not there is a
valid Spanish Will; and also (if there is), the date and Notarial location of
the last such Will. However, it should be noted that the Spanish Authorities
will admit evidence of later revocation of such a registered Spanish Will by a
subsequent non-Spanish Will. (Hence, drafting of English Wills where there is a
pre-existing Spanish Will has to be undertaken with considerable care).

Location of Assets. Generally, it is unnecessary that the
legal practitioner appointed to deal with the Spanish assets is in the actual
locality of the Spanish assets. Administration of Spanish estates for
non-Spanish individuals is a specialised area of legal practice. So, the key
factor in appointing a legal practitioner is not their actual location, but
that they have the necessary dual-jurisdictional qualification and experience
in dealing with the succession of Spanish estates for non- Spanish individuals.

Asset Type. The exact legal procedures and necessary
documentation in a Spanish probate case will be determined principally by the
type of Spanish assets. In some cases, a simple monetary legacy left in a
Spanish Will can involve the same amount of procedural documentation and legal/
Notarial work as the succession of a Spanish property.

Property ownership. The regime of property ownership in
Spain for multiple owners is the equivalent of tenants in common in the UK.
Spain also has a forced heirship law which may-or may not- apply in dealing
with the Spanish assets of non- Spanish individuals, depending on the
circumstances.

Power of Attorney. A Spanish representative is generally
appointed under Power of Attorney, in order to minimise inconvenience for
beneficiaries, as the Spanish inheritance process involves a significant amount
of personal attendance. Estate administrators may also need to be represented
in Spain (under Power of Attorney), in addition to beneficiaries. The form and
wording of the estate legal documentation will determine this.

NIE Number. Having a Spanish fiscal number is
obligatory for beneficiaries and sometimes for estate administrators also.
Generally the NIE number can be obtained under Power of Attorney, without the
need for the applicant to be personally present in Spain.

Apostille. Non-Spanish legal documents which are
required to prove entitlement (Death Certificates; Grants of Probate, etc) may
need to be Apostilled by the Foreign and Commonwealth Office, in order to be
legally admissible in Spain. In some cases, they must also be translated and
certified by an official translator. An advantage of the existence of a valid
separate Spanish Will is that it reduces the complexity and extent of the
documentation, which has to be produced to the Spanish Authorities in a Spanish
probate case.

Taxation. The Spanish Succession Tax liability in
a Spanish probate case must be very carefully assessed at the outset. The more
remote the relationship between the deceased and the beneficiary, and the
higher the value of the estate, the higher the tax rate. There are other major
differences of approach between Spain and other countries- for example in
Spain, there is no automatic inter-spouse exemption. Also for real estate
interests, in addition to Spanish Succession Tax, there is also usually a local
Town Hall (Plus Valia) tax liability payable on succession. Although post-death
Will variations are not allowed in Spain, depending on the family circumstances
and the estate documentation, it may be possible to achieve alternative
succession routes in the succession process; thus potentially reducing the tax
exposure. Any such strategy in the case handling must be determined right at
the outset, agreed upon with the beneficiaries; and implemented during the
course of the case handling. It cannot be addressed retrospectively.

Banks. Dealing with bank accounts in Spanish
probate cases can often be the longest part of the process. Succession of bank
accounts is not addressed at local bank branch level in Spain. The bank’s
central legal department instead deals with succession matters. Direct contact
with the bank’s central legal department is generally fairly difficult. For the
Spanish banks, succession work is decidedly low priority. So, considerable
patience is required on the part of the practitioner and beneficiaries!

Sale of Inherited
Assets. In order for
beneficiaries to be able to sell registered Spanish assets, the Spanish probate
process must be completed first. For relatively minor estate assets such as
vehicles, this can be inconvenient, as there can be a significant delay, before
a sale can be completed.

Conclusion. As the exact procedures and
documentation are always case-specific, an initial full analysis of a Spanish
probate case is always essential. This ensures certainty from the outset as to
the procedural steps which will be required; and the information and
documentation which will need to be produced. Unless a Spanish probate case is
carefully planned and programmed from the outset; and meticulously managed as
matters proceed, there is a very significant risk of delays. Any such delays
can be frustrating and time consuming for the practitioner; and costly for the
beneficiaries- as Spanish tax liabilities can increase over time, with the
imposition of interest and penalties.

The Legal 4 Spain team
is always available to provide preliminary advice on a no-obligation basis in
relation to probate cases, which include Spanish assets.

June 26th, 2014

It is now a clearly
established general principle for Spanish property transactions, that neither
the seller nor the buyer can or should leave it to the estate agent to deal
with the legal work in the sale or purchase. Otherwise this puts the estate
agent in an impossible position professionally; and the seller/ buyer does not
necessarily get the benefit of the full professional service which they need,
in order safely to deal with Spanish properties.

Quite aside from the
very obvious conflict of interest issues, the skill set and professional
regulation and accountability between the legal and estate agency professions
differ to a significant extent. So, it is very rare that a well informed buyer
or seller of Spanish property will confidently conclude that their interests
are properly protected if represented by the same person for both the estate agency
role and the legal function.

The more experienced
and professional Spanish estate agents recognise and accept this; and due to
the highly damaging publicity of scandals and scams in Spanish property
dealings in the recent property boom, professional operators in the Spanish
property market are more concerned than ever to ensure that clients should not
be exposed to this type of
pitfall in Spanish property transactions.

However, there is a
separate ‘variation on the theme’, which Spanish property buyers and sellers
also need to be wise to; and that is: ‘legal advisers’ who are either connected
to or (perhaps of even greater concern) employed by the estate agent dealing
with the sale or purchase.

As an example, an
associate was recently consulted on a Spanish property sale, with a sale/
purchase contract, which oddly contained extensive skillfully crafted legal
drafting to deal with the protection of the estate agent’s commission. But
then, just brief and sloppy wording as to the sale/ purchase, which left the
seller legally at risk; and unable easily to withdraw from the sale- even in
the event of a buyer’s breach of contract.

This was completely at
odds with the reality of the transaction. What should have happened was that
the property sale/ purchase should have been addressed as the main issue; with
the estate agent’s commission very much as a secondary concern.

It transpired that
this contract had been (perhaps unsurprisingly) prepared by the estate agent’s
‘in house lawyer’. This explained the focus on the estate agent’s commission
rather than the sale and purchase agreement.

Some points Spanish
property buyers/ sellers should bear in mind:

1. The Solicitors’
Regulation Authority in the UK (by way of an example) has expressed concerns
about the high level of risk of a conflict of interests where a lawyer employed
by (and therefore seen to be advising) the estate agent is also dealing with
the legal work for the buyer or seller in the same transaction. There are
specific professional conduct rules; and non-compliance can lead to grave
consequences for the professional in question.

2. As such, it is a
well established principle in the UK (and indeed other countries) that the
estate agency representation on one hand, is one professional relationship; and
on the other hand, the legal representation of buyer/ seller is entirely
separate and independent.

3. Many non-Spanish
buyers of Spanish properties, who are very cautious in their own home
countries, following ‘normal’ conventions in terms of taking independent
professional advice in property transactions, come to Spain, and (for some
curious reason) relax and ‘take their eye off the ball’; and take risks that
they wouldn’t dream of taking at home. The best advice when addressing a
Spanish property transaction is to consider all the steps and precautions you
would take if buying or selling a property in your home country; and as far as
possible, apply the same principles to the transaction in Spain. In fact, in
nearly all respects, there is no reason at all why things should be any
different in Spain. Indeed, if anything, people should proceed even more
cautiously in Spain, given the well publicised cases in recent years
(particularly relating to planning issues) where investors in Spanish property
have lost their property or their investment. This underlines the need for top
quality, independent legal advice in Spain.

4. The reality in
Spain is therefore the same as in the UK/ other countries- that the functions
of the estate agent and the legal adviser are entirely distinct; and should
therefore be carried out by separate and unconnected professionals, to ensure
that the three parties with a substantial interest in a property transaction
(namely the buyer, the seller and the estate agent) are each independently advised.
Each needs their interest fairly protected, to ensure an appropriate balance of
the respective interests.

5. In some cases,
estate agents who disregard these conventions (against the interests of their
clients, it has to be said), convince the client that the client is saving
money; as the estate agency fee of 3, 4 or even 5% (plus IVA) includes legal
representation. But as this is not independent legal representation, properly
safeguarding client interests, it is therefore impossible for this to be seen
as ‘good value’. Better that the corresponding proportion of the estate agent’s
fee in such cases be applied instead to the engagement of entirely independent
legal advice. Economically, this should make no difference to the buyer/
seller, as the same total fee is payable. And it should make no difference to
the estate agent, as one assumes that there is a cost to ‘their’ provision of
legal services in this regard, so unless they are profiting from that also, the
release of this function and the corresponding cost to an independent
professional should be economically neutral for them.

6. If the estate agent
indicates there is no cost to the provision of ‘in house legal representation’;
then that also raises alarm bells, as it is impossible to provide a high
quality professional service such as legal property sale/ purchase
representation without any cost base- unless the skill/ quality/ qualification/
regulatory compliance of the person/ people behind the legal service simply
isn’t what it should be.

7. This article should
not in any way be viewed as a criticism of estate agents in Spain generally. On
the contrary, the reality is that the vast majority with whom we work are truly
skilled and knowledgeable property professionals- expert negotiators and transaction
facilitators. It is unfortunately the very few who potentially spoil it for the
many. And this is a matter of deep frustration for all who are committed to
building confidence in the Spanish property market as a secure destination for
inward investment. You are referred to our Blog of 1st October 2013, with
advice on appointing estate agents in Spain (prepared with the helpful input of
professional Spanish estate agent contacts, as indeed has been this article).

8. Equally, a Spanish
property buyer/ seller has to be extremely careful in selecting a legal adviser
on a Spanish property transaction. You are referred to our Blog of 27th
November 2013, with some general advice/ pointers in this regard. The title
‘abogado/ lawyer’ does not automatically imply all the necessary knowledge and
experience to be able to advise a non-Spanish national dealing with Spanish
property.

In relation to any
proposed Spanish property sale/ purchase, please contact the Legal 4 Spain
team, to ensure you have the best quality, completely independent legal
representation to protect your interests fully; but always at a competitive
cost.

April 28th, 2014

The Padrón is the
register kept by each Town Hall in Spain, of the people who live in the town-
either as property owners or tenants. The closest UK equivalent is the
electoral roll.

It is compulsory for
residents of more than 6 months in an area to ‘empadronarse’- to be registered
on the Padrón (as a separate administrative process from residency applications)
but many fail to do so.

Some of the advantages
of ‘empadronamiento’ (being registered on the Padrón) are:

1. It can provide
taxation advantages (eg. Spanish Succession Tax).
2. It enables children to be enrolled for local education.
3. In the case of limited school places, it is used as one of the criteria for
awarding places (determining catchment area).
4. It is required in order to be registered for local healthcare services.
5. It provides an entitlement to vote in local and European elections.
6. In some areas, it is required to be able to use municipal facilities at
discounted rates.
7. Town Hall funding is affected by the number of people on the Padrón. So,
registering helps boost your local Town Hall’s resources for local services and
facilities.
8. It is necessary in order to purchase and register a car in Spain.
9. It is necessary in order to marry within the local municipality.
10. It is necessary for benefits/ social services access; and to use the local
employment agency (Job Centre equivalent) facilities.

Registration on the
Padrón is a simple exercise- and is either free or just a nominal charge is
made, depending on the area. Specific requirements in terms of documentation
vary from town to town. So, before applying, it’s always best to make a
preliminary visit to the Town Hall, to get a full up to date list of
requirements.

April 11th, 2014

Spanish tax law can
undoubtedly lead to very unfortunate fiscal consequences in the event of
inheritance by beneficiaries who are unrelated to the deceased- including
unmarried / same sex partners, particularly if the relationship is not
‘recognised’ with civil status.

So, the bad news is
that advisers who warn of the exposure to Spanish Succession Tax rate of 80%
(or even slightly more) are confirming what could theoretically happen.

However, it should be
stressed that such a high rate of taxation would only apply in the very worst
Spanish tax case scenario. For example, with a very high value Spanish estate;
already wealthy beneficiaries; and no family or marriage connection between the
deceased and the beneficiaries.

But in any event, even
with Spanish estates of more modest value, the impact of Spanish Succession Tax
can still be unexpectedly harsh. So, it’s clear that planning is essential in
all family situations involving Spanish property ownership, to prevent the risk
of legally avoidable Spanish tax liability arising.

Advising non-Spanish
owners of Spanish properties is complex and specialised area of Spanish legal
practice, and without the correct advice, major Spanish tax problems can easily
arise.

We are happy to talk
through any potential cases (without obligation). Together we can explore the
solutions that are available to achieve succession wishes, in a tax efficient
manner.

January 27th, 2014

In many cases, the
answer is: yes!

It is often possible
to deal with Spanish estate planning and structuring so as to reduce the impact
of Spanish Succession Tax within the Spanish Will.

If you have a Spanish
Will, this can assist in reducing Spanish Succession Tax in the following ways:

1. It ensures that you
have the flexibility you are legally allowed to select your beneficiaries; so
that the most tax advantageous succession route in the circumstances can be
identified and provided for.

2. It secures the best
legal basis for a fast and economical succession process, following a death.
This helps to ensure that the legal process can be completed within the very
tight timescales allowed under Spanish tax law. Conversely, any failure to
comply with the statutory timetable (for example, delays caused by not leaving
an up to date and valid Spanish Will) can expose beneficiaries to increased tax
liability, through the imposition of interest and penalties on the tax debt.

It is perfectly legal
and acceptable to organise your estate succession in Spain, so as to minimise
the exposure to Spanish Succession Tax- as far as legitimately possible in the
circumstances. In advising our clients, we consider all available routes to
achieve this. As our team is independent and not tied to any single process or
structure; we are able to provide objective and case- specific advice in each
individual client scenario. This ensures the most cost effective estate
planning solution within the constraints of each case.

January 8th, 2014

Expert professional
legal advice is always necessary when purchasing properties in Spain, both to
avoid legal problems; and also to avoid unwelcome tax surprises.

A detailed fiscal
analysis is essential in order to evaluate costs and taxes at the time of the
transaction. But furthermore, to assess the risk of exposure to future tax
liabilities.

Anyone who has bought
or sold property in Spain will be aware that Spanish properties have two
values- the market value; and the official fiscal value.

Prior to the collapse
in Spanish property prices over the last 5 years, in the majority of cases, the
market value exceeded the fiscal value. But now in many cases with reduced
market values, the fiscal value exceeds the market value.

Buyers of Spanish
properties pay a transfer tax of 8-10% of the declared purchase price.

But if the fiscal value
of the property is greater than the declared purchase price, during the 4 year
period following the transaction, the Spanish Tax Authority can demand an
additional amount of transfer tax, by substituting the (higher) fiscal value
for the declared purchase price.

For example, take a
Spanish house previously fiscally valued at 500,000 Euros. Quite commonly, this
may now be sold for 250,000 Euros. The buyer now pays the transfer tax of
25,000 Euros. However, the buyer must budget for a further 25,000 Euro tax
liability, which may be demanded (along with interest/ penalties) any time
within the 4 years following the purchase.

This is nothing new-
but it is convenient for many advisers involved in Spanish property
transactions to ‘play down’ the risks. Also, many advisers are inexperienced;
or lack legal and fiscal expertise; and are therefore simply unaware of the
risks.

At Legal 4 Spain, our
mission is to be clear with our clients as to the risks and liabilities in
Spanish property dealings. This ensures that all relevant legal and financial
details are ‘factored in’ to the negotiation of a price and budgeting.

Armed with the correct
advice and knowledge, property investment in Spain needn’t be viewed as the
risky proposition many commentators would have you believe.

December 17th, 2013

The understanding
since its introduction has been that the 3% tax retention on Spanish property
sales by foreign owners is applied only to non- Spanish resident sellers.
Conversely, Spanish resident sellers should not suffer the same deduction.

However, the recent
tightening of the rules and practice guidelines in this area has meant that in
many cases, sellers who are Spanish residents are falling into the traps for
the unwary; meaning they are also losing 3% of the proceeds of their Spanish
property sales, in tax retention.

The reclaim process in
applicable cases can be very lengthy and convoluted. So, many Spanish property
sellers end up simply ‘writing off’ the 3% even though really, they should be
entitled to have the tax retention refunded, hence the reference to the loss of
the 3% in practice.

It is important to
appreciate that in this context, Spanish residency has two component elements.
The first is legal or factual residency (generally evidenced by a Certificate
of Residency). The second aspect, which is of equal importance, is that the
positive step must also be taken to become fiscally resident in Spain; and
annually to file the corresponding tax declaration in Spain. (In most cases,
this is an obligation of Spanish property owners, in any event).

Provided that these
fiscal obligations have been complied with in all respects and for the
requisite period; when a Spanish property sale is agreed, the Spanish Tax
Authority should issue a Certificate of Fiscal Residency. This, combined with
the evidence of factual residency, should satisfy the Notary and the Spanish
Authorities that no 3% tax retention should be made.

It should be noted
though, that even for non-Spanish residents, a later tax assessment can be made
following the sale, and capital gains tax charged, depending on the facts and
figures of the case in question.

Additionally, all
sellers (Spanish resident and non- Spanish resident alike) still have to pay
‘Plus Valia’, the municipal tax on Spanish property sales. This is calculated
by reference to Catastral (rateable) value and the period of ownership.

In conclusion, it is
essential to have reliable professional guidance on tax issues and
transactional costs, before agreeing terms for a Spanish property sale.
Otherwise, there is no certainty as to the net sale price which will be
received. Please speak to our team at Legal 4 Spain, for clear advice and
competitively priced legal representation on Spanish property sales.

It occurs to many
existing owners of Spanish properties that transferring their properties into
their children’s names could provide future inheritance tax savings.

Unfortunately, once the
Spanish property has been purchased and registered in the parents’ names, it is
often too late in economic terms, to achieve this.

For non- Spanish
nationals, the tax consequences of passing a Spanish property down to the
children need to be extremely carefully considered- both in Spain and also in
their own country.

In Spain, a lifetime
gift is subject to taxation at a level which is, in many cases, even higher
than the tax payable in the event of a parent’s death. As an alternative to a
gift, a sale/purchase between parents and children can result in a lower tax
liability; but the transaction has to be meticulously executed to avoid it
being treated by the Spanish Tax Authority as a gift in any event; and
therefore taxed at the higher rate.

There does exist in
certain circumstances, however, a further alternative option- the property
ownership structure can be collapsed, to reduce the number of co-owners in a
comparatively tax efficient manner. But this only enables transfers to other
co-owners. For example, a transfer can be made from one co-owning spouse to
another; or (if children are already registered co-owners of the property), in
favour of children.

So, for families to
avoid being ‘locked in’ to a Spanish property ownership structure which stores
up unnecessarily onerous tax liabilities in the long term, careful thought
needs to be given at the outset- when the property is first purchased- as to
the most efficient holding structure.

But (as an example of
the complexities which can arise) even for English buyers of Spanish
properties, it is not simply a case of ‘buying in the children’s name’. There
are also UK taxation ‘gift with reservation’ issues which need to be addressed.
If the parents pay for the Spanish property, then register it in the children’s
name but continue to use the property themselves, they then need to pay (and
carefully document) an appropriate rent or contribution towards outgoings.
Failing that, the gift of the money to buy the Spanish property could end up
not leaving the parents’ UK IHT estate.

In summary therefore,
when acting for clients on the acquisition of Spanish properties, it is
essential that the legal adviser provides full advice both under Spanish tax
law and also having regard to the buyer’s own national tax law, as to the most
efficient way to hold the Spanish property. This enables the buyer to secure
the best overall tax position; and to ‘keep their options open’ as regards future
tax and estate planning within the family.

October 1st, 2013

In Spain, many estate agents offer a
high quality, professional service at a fair cost. But (as is also the case in
many other countries), since professional accreditation in Spain is voluntary,
there are many less reputable operators in the real estate sector; and a quick
scan of postings on the internet predictably confirms many ‘horror stories’.

Reasons for problems in estate agent
appointments include:

• A lack of clarity at the outset on
target sale price and charging structure.
• A demand for an excessive commission (bearing in mind that officially
recommended commission levels are generally 3-5% plus IVA).
• An agreement that the estate agent receives money from a buyer/ holds money
for the seller. Funds should always pass under the responsibility of a
professionally regulated lawyer; and should only go to the credit of a
designated client bank account.
• An estate agent offering to secure a fixed price for the seller, but
receiving commission instead, from the buyer. That can mean the estate agent
(and not the seller) keeps any amount secured for the property over and above
the figure stated. Instead, the estate agent should always be appointed as the
agent of the seller; and be paid an agreed percentage (or fixed fee) by the
seller, which accords with official guidelines.
• Where an estate agent says that independent legal advice is unnecessary; or
recommends the use of the estate agents’ own lawyer. This does not guarantee
best impartial professional advice; but instead creates a real risk of conflict
of interests.
• Exclusivity generally; and automatic extension of an exclusivity period.
• Failure to secure confirmation of any of the points listed at the end of this
article.

A client of ours who is an elderly
widow, asked us to address this subject. Unfortunately she had consulted us
only after being persuaded to sign (incredibly) a legally binding automatically
renewable exclusive term contract with a city centre estate agent in Spain,
which effectively guaranteeing a minumum property sale commission of 21% plus
IVA.

By way of a contrast, having
consulted one of the principal (voluntary) professional bodies in Spain (the
Colegio Oficial de Agentes de la Propiedad Inmobiliaria); their recommended fee
scale for a property sale in an equivalent case is usually in the range of 3-5%
plus IVA.

So, whilst clients are best
protected by appointing an estate agent who is officially an ‘Agente de
Propiedad Inmobiliaria’ (or proven current member of equivalent professional
body or association); the points you should check with an estate agent in Spain
before appointing them include:

• Proof of relevant official
professional qualification by a nationally recognised academic/ professional
body.
• Confirmation of professional regulation and complaints procedures.
• Certification of current valid professional indemnity insurance, to provide
cover in the event of negligence.
• Demonstration of experience and knowledge of the market generally, in order
to be able to provide reliable advice, so as best to protect clients’
interests.
• Demonstration of detailed knowledge of the title to the property in question;
and its local and regional planning law status.
• Confirmation of willingness to work alongside and cooperate with other
professionals (e.g. lawyers) involved in the transaction in question.
• A clear explanation of the nature and extent of the service to be provided-
in writing; in a form approved by your lawyer; in your own language; and signed
as agreed. The terms must include full details of all applicable charges.

September 16th, 2013

New European rules will come into
force on 17 August 2015, which affect the inheritance of Spanish assets of
non-Spanish individuals who die after that date.

These changes will benefit the
families of owners of Spanish properties who leave up to date, professionally
prepared and correctly worded Spanish Wills.

However, those who leave no Spanish Will;
or Spanish Wills which are out of date or do not take into account the new
Regulations, could leave significant problems and unintended consequences for
their families or chosen beneficiaries.

There are numerous benefits of the
new Regulations for non-Spanish owners of Spanish properties (provided that
their Last Wishes are validly expressed in the correct form of Spanish Will).
These benefits include:

• Non-Spanish nationals with
properties in Spain are officially entitled to exclude the restrictive Spanish
‘forced heirship’ succession law from applying to their families.
• Through Spanish Wills, significant opportunities are now allowed securely to
mitigate Spanish Succession Tax.
• Flexibility as to succession route is permitted in carefully drafted Spanish
Wills, to enable beneficiaries to elect the applicable succession route
following a death. This means the route which best suits family circumstances
and tax efficiency at the time, can be applied. This principle sits comfortably
with English nationals, who are allowed under English law to make certain
variations to deceased’s Wills, following their death.
• Confusion as to what constitutes ‘habitual residence’ (becoming the main
criteria for choice of law in Spanish inheritance) can be avoided. Certainty
and security in succession now prevails in Spanish estate planning.

Although these developments are
extremely positive for Spanish property owners (and those considering investing
in Spanish property); it must be emphasized that those who fail to obtain up to
date professional Spanish estate planning advice could fail to secure the
benefits of the new Regulations for their families or chosen beneficiaries.