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Spanish Probate- Dealing with Onerous Spanish Assets

Sale of Spanish Assets Posted on Tue, November 27, 2018 16:51:40

Usually, the recipient of an
inheritance receives an asset of positive value; this being almost universally
the intention of testators, in making Wills.

However, even in the post- financial
crisis period in Spain- where property values are gradually increasing in most
areas now- many inheritance situations arise in which a very careful analysis
has to be carried out. This is required, to ensure that there is, in fact,
positive net value to the beneficiaries. Surprisingly frequently, the net value
to the beneficiaries in Spanish inheritance cases can in fact, prove to be
negative.

Some examples of potentially
problematic cases are:

1. Negative Equity Cases. In the years leading up to the financial crisis (in
particular 2001-2007), Spanish banks became very relaxed about the loan to
value ratio on new mortgages. In many cases, loans were made which exceeded
100% of the property’s value/ purchase price- funds being made available to borrowers
also to cover purchase costs and taxes; and property improvement works/ furnishing,
for example.

The drop in the Spanish
property market during the period 2007-2013 in many areas of Spain was so
severe, that in many cases, values of mortgaged properties fell to 50% of the
loan amount secured against the property. Even after a few years of recovery,
many Spanish property owners remain in negative equity, even though they
maintain mortgage payments, so as not to lose their home- and in the hope that
values will eventually increase to the level at which there is positive equity.

In any Spanish inheritance
case where there is a mortgage (especially what appears to be a high mortgage
amount relative to the property’s estimated value), it is essential to obtain a
professional independent valuation of the property as early as possible in the probate
process. Apart from anything else this valuation will be used to carefully
assess the taxes and costs which will be payable in the Spanish inheritance process.
In addition, there are taxes and costs which would be payable in the Spanish
property sale process (if the property were to be sold on the open market).

Total Spanish property sale
taxes and costs can amount to approximately 12% of gross sale price; and total
Spanish probate taxes and costs can often be between 5-10% of Estate value. So,
the combination of all these taxes and costs can significantly erode the net
value of an inherited Spanish property, which is then intended to be sold on
the open market.

It is incumbent upon the
Spanish probate professional representative to carry out this assessment; and
to advise beneficiaries accordingly. Failure to advise beneficiaries that the
net value to be inherited is negative (if that is the case); and as to the
options which are therefore available to the beneficiaries, would be a serious
dereliction of the professional’s responsibility to the client.

2. Equity Release Cases. This is a specific type of situation within the
negative equity genre of case. There was particular growth in sales of equity
release packages in the pre- financial crisis period in Spain; and the percentage
of negative equity situations arising from equity release cases is still
particularly high. In any Spanish probate case where there is an equity release
loan, it is essential at the outset, to obtain a completely up to date
statement from the lending company/ bank; and to get comprehensive details as
to the calling in/ redemption of the loan, to be able to make early calculations;
and advise beneficiaries as to the viability of inheriting.

3. Low Asset Value Cases. In many Spanish probate cases- particularly where
there is no real estate interest in the Spanish Estate, there remain other
minor assets, such as a vehicle or a bank account in the name of the deceased.
In some circumstances, a simplified Spanish probate process is possible;
avoiding the complexity and cost of a Notarial Deed- but not a fiscal
declaration, which is always required. But in many other Spanish probate
cases (and every case where there is a real estate interest in the Spanish
Estate), the ‘full blown’ Spanish probate process is legally necessary- including
the execution of a Notarial Deed. As such, the basic costs of the Spanish
probate process are such that, in many cases, they exceed the value of the
assets in question.

Solutions

The role of the Spanish
probate legal representative in cases where asset values fall short of
inheritance taxes and costs, is to advise the beneficiaries as to the options they
have available to them.

In some cases, although it
may appear wasteful or irresponsible, it is advisable and safe to take no
action; so neither to inherit nor to renounce.

In other cases, renunciation
is advisable. But even formally to renounce a Spanish inheritance entitlement,
the Spanish legal representative may need a Power of Attorney signed by the beneficiaries-
and possibly also the execution of a Spanish Notarial Deed. Both of these
processes involve costs on the part of the beneficiaries- (aside from the professional
charges of the legal representative). So, costs still need to be carefully
evaluated, even in the event of a renunciation of a Spanish inheritance
entitlement.

Finally, and very much a
last resort (and ensuring, of course, that the very strict Spanish law
professional conduct rules and fiscal compliance details are fully adhered to);
some Spanish legal representatives are willing in certain cases (by specific
written agreement with the beneficiaries), to step in; claiming the inheritance
in the name of the beneficiaries, but then to retain for themselves an asset.

This can be a feasible
solution where the cost to the beneficiaries to inherit would otherwise exceed
the net value of the inheritance. If the legal representative does not have to incur
third party professional charges, then it is possible that there could still be
a net benefit to the legal representative of receiving the asset in place of
the beneficiaries- at least then leaving a ‘clean’ situation. And assuming the
financial situation allows that, with at least some financial compensation then
being paid to the beneficiaries by the legal representative.

The above is non-exhaustive,
general advice. The Legal 4 Spain team is always
available to provide preliminary advice on a no- obligation basis in relation
to Spanish inheritance cases.



Selling a Spanish Property Out of Probate

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:36:02

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.



Avoiding Legal Problems with Spanish Property Transactions

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:34:25

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.



Preparing for Selling a Spanish Property

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:30:36

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.



Costs of Selling a Spanish Property

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:28:29

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.



Costs of Owning a Spanish Property

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:25:39

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.



Costs of Buying a Spanish Property

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:24:53

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.



Always Use independent lawyers in Spanish Property Transactions

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:22:36

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.



Tax Shock for Poorly Advised Buyers of ‘Bargain’ Spanish Properties

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:15:12

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.



Avoiding the pitfalls with Estate Agents in Spain

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:01:06

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.