The first thing you will need to do if you’ve decided to look for property in Spain is obtain an NIE number which is a unique taxation identification number essential to buying property or even opening a bank account in Spain. The simplest way to obtain one is to grant power of attorney to a reputable solicitor who will be able to make all the necessary applications on your behalf. The next stage is signing a reservation agreement with the seller which will also require you to pay between 1 and 2% of the property price. Thereafter, the vendor will take the property off the market and land registry checks can begin. Once it has been established that everything is in order, a contract of sale and purchase must be signed by both parties and a deposit of 10% paid to the vendor.
If you are buying off-plan property in Spain then you must ensure that the constructor provides you with a copy of their bank bond or insurance cover that protects the purchaser if that contractor is unable to complete the property. Should this scenario arise you will be protected as the contractor will have to provide you with a full refund plus interest. Make sure that you are able to see the original bank bond or insurance certificate and that you are provided with a copy. Finally, the buyer, seller, and both parties’ lawyers are required to sign the final contract (Escritura de Compraventa) in the office of a public notary where money and title deeds will be transferred.
There are a number of additional costs involved when buying a property in Spain. If you are buying a new property then this will attract 7% VAT plus a 1% stamp duty, where as older resale properties are only charged the 7% VAT. If you are buying land for property development then it is worth noting that you will pay 16% VAT plus a 1% stamp duty. Additionally, there are notary fees and land registry fees which means that you should allow approximately 10% in addition to the purchase price and 20% if you are buying land.
Property owners in Spain will have to pay an annual local property tax which is worked out according to the official value of the property. The precise rate will vary from region to region but is typically between 0.1% and 0.5%.
New laws relating to Capital Gains Tax were introduced in 2007 and non-residents will now pay a maximum of 18% Capital Gains Tax on property resales whilst the withholding provision drops to from 5% to 3%. If you sell your property within one year in Spain then your profit will be taxed as income rather than a capital gain. Income tax is different for residents and non-residents of Spain. Whereas residents are taxed within income brackets, non-residents are taxed at a standard rate of 35%. A resident is classified as someone spending more than 183 days of the year within Spain.
Unfortunately, non-residents are also subject to a ‘deemed rental income’ tax even if the property is not being let. This is levied against properties not actually being let or not your primary residence (e.g. used as a holiday home). The Spanish authorities assume a 2% level of rental income regardless and charge you 25% of that income which equals 0.5% of the ratable value. The income tax laws are set for a significant overhaul at present, however, so we could be set to see a number of changes.
Unless you plan on becoming a resident you will also be subject to wealth tax (which is dependent on your property and savings). The taxable value of your property here will be the declared value at the time of purchase. The only other payment you may encounter is Plusvalia which is, in essence, a tax on the increase in value of land and will vary considerably. Whilst the vendor is legally obliged to pay this tax it is not uncommon for parties to negotiate liability. If you are negotiating terms where you will have to pay this tax ensure that you find out the exact cost as it will vary considerably from property to property.
Spain is a parliamentary monarchy where the monarch is the head of state and the prime minister (presidente) is head of the government in a multi-party system. Political tensions remaining in Spain today continue to relate broadly to those who still reject the idea of a nation state and seek a separate national identity for themselves. They see the ‘kingdom’ of Spain as being formed by the four separate nationalities: Basque, Catalan, Galician and the rest of Spain (or the Castilian-Spanish nation). The extent of this feeling is still palpable today in the government’s long-standing campaign against Basque Fatherland and Liberty (ETA), a militant secessionist group initially formed in 1959 in opposition to General Franco’s regime.
The introduction of the Euro as a single currency within the EU has brought with it the benefits of macroeconomic stability. The decreased exchange-rate risk encourages lower interest rates whilst the European Central Bank has helped to lower inflation. The Stability and Growth Pact introduced in 1997 also seeks to ensure a stable currency, although this has been heavily criticised with the more influential members of the EU not always respecting its provisions. The UK, Denmark, and Sweden are the only EU members to remain outside the European Monetary Union, having each negotiated ‘opt-out’ clauses under the Maastricht Treaty, and it remains unclear at what point these countries will adopt the Euro.
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