LEGAL4SPAIN.COM - Updates

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.

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.

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.

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.

May 16th, 2013

From 1 June 2013, a new legal
obligation arises for sellers and landlords of Spanish properties to obtain an
Energy Performance Certificate. Failure to do so can expose the Spanish
property owner to the risk of very high fines (3,000€- 600,000€); and also the
risk of legal action from buyers/ tenants.

There are undoubtedly multiple
benefits from improvements in energy efficiency. However, just at a time when,
more than ever, Spanish property owners need reductions in costs and complexity
in dealing with Spanish properties, this change has been met with dismay by
many property professionals and economic commentators alike. The definitive
step of immediately imposing a ‘sellers’ obligation’, rather than making a
‘buyers’ recommendation’ as a first step at least; at this difficult juncture
for the Spanish property market generally, is quite baffling.

Cost estimates for obtaining the
certificate are varying significantly at the moment, as the market for this
relatively new service settles. For example, estimates we have seen for a small
flat have ranged (for an identical service) from 150€- 500€ plus IVA. Obviously
the type of property; size; age; and location will have a bearing on the cost.

Nevertheless, the Spanish legal
position is as it is. So, owners of Spanish properties who have a view to the
sale or rental of their property need to bear this requirement in mind; and
always to raise the issue with the estate agent/ representative prior to any
marketing campaign for sale or letting.

The other consequence of this new
law is that the issue of energy efficiency is going to be higher on the agenda
of buyers and tenants. So, Spanish property owners will need to consider more
carefully the cost/ benefit of energy saving property improvements during
ownership and in anticipation of sale/ letting. Energy inefficiency will
clearly place yet another potential bargaining chip in the hands of buyers and
tenants.