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Spain has a lot to offer many property investors and anyone whishing to relocate to the sandy beaches or rural hamlets have much to choose from. Many people go to Spain each week looking for holiday property or for a change in life style. Property in Spain comes in all price brackets, where a mansion can be purchased, acres of land or a cave in a rural area. Before purchasing a property in Spain it is a good idea to do your homework.
Visit the property at least twice before you make a decision.
Check what amenities the property has such as electricity, water, gas.
Access to the property.
Have a builder or architect examine the structure of the building.
Remember Spanish builders tend not to work set hours.
Talk to your prospective neighbours about the area.
If you are unsure about a property, take photos and draw sketches to take home with you.
Have your legal advisor check ownership of the property before you sign anything.
Have your legal advisor check outstanding debts on the property before you sign anything.
Initial Cost
Did you know?
- In Spain, outstanding debts attached to the property become the responsibility of the new owner, which could be you. An extensive check to see if any attached debt is a good idea!
- Is the off-plan development bank guaranteed/bonded/insured if the project goes bankrupt?
As well as the cost of the property, the buyer is liable for transfer tax (IVA), which at present is 6% on a second-hand property and 7% on a new one, plus 1/2% stamp duty. The property registration office will charge you a fee to change the deeds into your name. There will also be notary charges for copies of the 'escritura publica'. The charge is on a scale depending on the contract price. In total you should allow 10% of the purchase price for costs. It is often the case that the buyer also pays the sellers fees. Check this at the point of enquiry and it is often possible to negotiate. Banks may also charge an opening commission for mortgage loans.
Yearly Costs
The local town hall charge IBI which is an annual property tax. The previous owner must provide copies of previous bills. Community charges apply when you buy a property on a community development, the normal coverage as UK community charge. Wealth tax, payable annually and based on the value of the property and a property owner’s income tax based on your income from the property!
Finance
Developers of new properties are now offering up to 80% over 20 years for non-residents. Spanish banks offer up to 60% for European residents. When seeking a loan, make sure you are aware of the interest rates and if they are fixed or floating. Banks will ask for passports, residence permits, payslips, sale contracts and copies of the title deeds. There are many advantages to taking out a loan to purchase your property, in the form of tax allowances.
When you buy a property in Spain, you will know the price of the property in Euros but you will not know the actual cost until you buy all of the currency to pay for it. This means that the property could either cost you more than you had planned (if the Euro strengthens) or the property could become cheaper (if Sterling strengthens). Recently Sterling has fluctuated more than 10% against the Euro within a matter of months, so this does deserve careful consideration. On the basis that you are buying a property and not speculating on the currency markets, it is worth fixing the exchange rate for all of your future stage payments to the agent/developer.
Banks and other money lending Institutions in the UK, Spain & Europe provide finance, or could!, for residential or business property purchases in Spain. Spanish banks and U.K. lenders arranging mortgages on Spanish property will lend a maximum of 80%, although some banks will only provide between 40 to 70% of the value of the proposed property purchase. Interest rates starting as low as 2.95% and Interest Only Mortgages and Capital and Interest Mortgages are available.
Of course there are advantages and disadvantages to arranging a mortgage in Spain instead of the U.K. Spanish mortgages will incur higher set up charges compared to the U.K, and the process takes longer. Rates of payments are in euros, if taking out a Spanish mortgage. You will also find only a handful of U.K. lenders arranging mortgages directly on Spanish property in comparison to the Spanish Banking industry as a whole, as banks see it more of a risk for overseas property lending, thus the criteria is more strict for a yes.
Mortgages for Spanish Property
The bank you choose can arrange money transfers in Sterling or Euros at a relatively low cost if required. Apply for the mortgage early prior to searching for your property. This can be arranged through a professional Mortgage Broker or bank.
Spanish Property Tax Laws? These vary from U.K. tax laws which should be taken seriously when deciding whose name the property should be registered. Always get legal advice.
Property Tax, Insurance and Law
Many older properties in Spain are in fact NOT registered!
Always check that the present owner is in fact the owner and has the correct papers for the property. The only way someone may find out if how many square meters is legally theirs is by investigating at the Catastral Department and Town Hall.
Families have never informed the Town Hall that a senior family member has deceased and therefore many sales take months to proceed to completion. There are many families with complicated backgrounds, most children believe they actually own what is and sometimes what once were their parents, sometimes resulting in an Expediente Dominio where there can be no proof of title at all.
Beautiful villas advertised are not registered by the builder and therefore the purchaser pays for the first registration, sometimes no licences have been issued and the seller is required to pay fines to the Town Hall. Remember the buying process will take much longer, as there are no papers and a dispute may arise. Properties are then registered with less than the actual square meters of built area, and a great many are not mortgageable. Most of the old village properties have no Title Deeds?
The seller of a second-hand home should/must provide the following documents:
The title deed of the property
Receipt of payment of the real estate tax for the last year
Receipt of payment of the tax on the increased value of Urban Land
Certificate that any community charges (if applicable) have been paid up to date
Latest copies of domestic bills so that you can take over the services such as electricity and water
The seller or developer of a new property should provide you with:
Deed of declaration of new construction
Occupancy permit
Certificate of rateable value of the property
Normally, before the purchase of a property is made official, there is a prior agreement drawn up between the buyer and seller. This document will identify the two parties and set out the terms of purchase. You must seek legal advice before signing this and you must be sure that this is the property you want to buy. You can lose any deposit you have paid if you pull out of the purchase and there is a penalty clause in the contract. In the case of the seller defaulting then he has to pay twice the amount. When it comes to signing the contract, this has to be before a notary, in the form of a public deed. This ensures that the details are entered onto the public records.
Insurances
Fire insurance is compulsory by law when taking out a mortgage. Comprehensive household insurance is available to protect your home and contents. Life insurance can be taken out to guarantee payment of the loan in the case of death.
Tax advantages for property owners
There are however, several tax advantages for residents of Spain that do not apply to non-residents. Inputted income tax is an annual tax on an imaginary income resulting by virtue of ownership of a property and is charged as 0.5% of the catastral value. If you are a resident you will not be charged this on your principal home.
Wealth tax is charged on a assets in Spain 0.2% of the catastral value of any house owned. For residents the first 108,000 is exempt and for a joint ownership this would apply to each partner. These two taxes are paid annually as long as you own the property. Non-residents do not receive any relief so therefore have to pay 0.7% of the catastral value every year.
When you come to sell the property, capital gains tax will be charged on any profit you have made. This is 35% for non-residents but only 20% for residents. A further concession for residents is that if you are over the age of 65 and have lived in your property for at least three years, you are totally exempt from capital gains tax. Finally, if you are 60 years of age or more and have lived in your property for at least three years, you can bequeath your property to your spouse or children and avoid paying inheritance tax on 95% of the valuation. The inheritor must also be a resident of Spain and agree not to sell the property for at least ten years.
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