Q&A: Some tips on the process for purchasing your house in Spain

A house in a foreign country is always a big decision and a step forward in the property ladder.

You can choose to use it as your holiday home, rent it part time, or even move to live permanently and become a resident having the same rights as any other citizen.

In any case, it is useful to familiarize with the system of the county.

We will try to make things easy for you though some comments and tips in the form of Questions & Answers in order to give you understandable advices in order to avoid some of the pitfalls of purchasing a property in Spain. In the following 10 questions you will find advice on some of the issues and problems that the majority of prospective purchasers may find:

1. How do I reserve the property I am interested in?

Usually, the developer will have a reservation contract with a small amount (around 6,000€) to be paid as reservation deposit. Also, normally, this deposit is non-refundable, as it establishes the Civil Code. In some occasions, when reserving through an agency, it is possible that the agent will configure the reservation contract with them (not with the developer) as subject to viewing, meaning that they will not pay the deposit to the developer until you are sure. It depends then on the arrangement with the developer to consider the property reserve in the meantime. In the case of a re-sale property, the owner will usually want a non-refundable deposit as well, and possibly a 10% deposit directly in the private purchase contract.

2. What is the private purchase contract?

The private purchase contract is the legal binding document that the developer (or the vendor) has to give the purchaser for his/her revision, approval and finally, signature, and where all the conditions agreed by both parties will be included. It will mention the price, the description of the property, the payment terms, the completion date and notary where it will take place and the costs and expenses of the transaction. When it refers to an off-plan property, also includes general information about the development, the urban planning situation, the construction license, etc. In most cases, when the contract is drafted by the developer, it is not possible to amend or change any clause, except when the clauses can be considered abusive according to Law, and that is another reason why the role of your lawyer is very important. In the case of a resale, both lawyers representing the vendor and the purchaser will agree I the terms and draft the contract. It is also usual that the lawyer will sign the contract on behalf of the purchaser as a verbal attorney, so the purchaser does not have to travel again just for that purpose.

3. What is the NIE and why do I need it?

NIE stands for “número de identificación de extranjeros”, and is the identification number that you will be allocated by the Ministry of the Interior for all your relations with the Spanish government and different public offices. Mainly, and the principal purpose to apply for it and obtain it before completion is because this number is needed in order to pay the taxes associated to the purchase within a month after the deeds are signed at the notary. Otherwise, the tax cannot be paid, and a fine will be charged to the tax or duty that has to be paid. You will also need this number if you want to buy a car in the future (brand new or second hand), and for your annual income tax return.

4. How do I obtain the NIE?

In order to obtain the NIE there are several ways, although only one procedure. It has to be granted by the Ministry of the interior, and it is usually done through the national police stations. I will outline, form experience, the different ways to apply: -In person, at the nearest national police station of where you are purchasing or staying at the moment of applying. You will need your original passport, a photocopy of it, 2 application forms duly completed and signed, and quite likely, but depending on the police station, documentary evidence of the reason for applying(namely, the reservation or purchaser contract). Also, depending on the police station, queues for applying can take several hours, even before they open at 9 a.m. just to get a number in the queue to be able to apply. There is no fees payable for the application. The number should be ready for collection between 15 to 30 days.

• In the nearest Spanish Embassy or Consulate in your country of residency. The documents that you will need are the same, but the Embassy or Consulate will charge a fee for dealing with the application. There is no security about the time frame for the number to be collected, so it could take longer than a month. Personal experience proves that there is uncertainty in when the numbers are ready, but it varies.
• Through a Power of Attorney (POA) authorising a third party to apply on your behalf. As a Law Firm we also provide that service and avoid you the queue hassle. In this case, also notarised copies of passports of the applicants will be needed.

6. Can I open a bank account in Spain?

Yes, not only that you can, but you must do it. All you need is your passport and they will give you an account number immediately. Signing all the contracts at the bank can take up to 40 minutes, since they will want to know your needs and circumstances, and order cheque books, cards and Internet access. All main banks and savings banks have Internet banking and it will be very useful for you to be able to deal with your account when you are back in your home country. Also, when applying for a mortgage, the bank will open an account directly for you where you will repay the mortgage instalments. It will also be useful to pay by direct debit utility bills like electricity, water, telephone, as well as the annual council tax (IBI) and local garbage tax.

7. What do I have to do for completion?

If you finally decide to come down to Spain for completion, please be patient. We believe it is important that you are prepared to expect a completely different experience to any other property purchase you have ever made before. We will do everything in our power to ensure a smooth transaction, but many things can happen in Spain that sometimes seems beyond belief. The vast majority of completions are concluded without a hitch, but as they say forewarned is forearmed or at least prepared. We always recommend that our clients allow at least one day either side of the proposed completion date before traveling to Spain. Certainly please don’t plan to travel to or from Spain on the completion date itself. Ideally you will allow three days at least between the travel dates. When funds are required for completion, either you transfer the funds to your account (or the account opened by the bank for the mortgage, or you transfer the funds to your lawyer’s professional account, from where he will pay the developer or the vendor at completion.

8. Is it very complicated to obtain a mortgage?

Interest rates are currently more favourable in Spain than other EU countries. We can recommend you very good mortgage brokers and deal directly with it. Mortgages for non-residents buying a holiday home can go up to70% or sometimes even 80% of purchase price. The average mortgage is between 4.25% and a variable interest of Euribor + 2% máximum.

9. Which costs will I have to pay to complete?

We are going to summarise a list of costs (apart from the amounts to be paid as part of the price) for the transaction until completion:

• IVA: This is the VAT on the purchase price, when you are buying off-plan from a developer. Currently it is 7%. You will have to pay as part of the price, but it will appear separately in the contract. Equally, in the deed, the price is reflected without VAT and then the notary expresses that the price is subject to VAT and that this has been already paid to the developer who in return will have to pay it to the Tax Authority. When the transaction is subject to VAT the tax to be paid directly to the Government by the purchaser is the Stamp duty at 1% of purchase price.
• Transfer Tax: When purchasing from a vendor (individual or company) after the first transmission from the original developer, the tax to be paid is called transfer tax, and it is payable directly by the purchaser to the Tax Authority within 30 days of completion. The current Transfer Tax rate is 7%.
• Legal fees: A Law Firm charges in the region of 1% to 1.5% for explaining and dealing with all the process from start to completion. Arrangements for supplies, NIE, and POA could be charged separately. WE CAN OFFER YOU A MORE COMPETITIVE RATE OF 0.75% PLUS A FLAT FEE FOR ARRANGING SUPPLIES. FOR SPECIAL FEE ARRANGEMENTS FOR CLIENTS RECOMMENDED FROM THIS SITE, PLEASE CONTACT US.
• Notary and Registry fees: The Notary and the Land Registry will invoice you for their services in the transaction (signature of deed and registration of property). Their fees will vary depending on the transaction value and the number of pages of the deed. The fees are not known until the process is finished and their invoices are issued, but approximately fees for both services will account for another 1% of the purchase price.
• Mortgage: If you are subscribing a mortgage, there will be additional costs:
  • Opening commission: Usually banks charge 1% of the mortgage advance as opening fee.
  • Stamp duty: It is 1% of the total mortgage responsibility, which is usually 1.8% of the mortgage amount.
  • Mortgage broker: If you use a mortgage broker, they usually charge another 1% of the mortgage advance.
  • Notary and Registry fees: There will also be fees from both the notary and Land Registry for the mortgage deed, and will be also approximately 1% (together) of the mortgage amount.
• This is a summary of the costs that the purchaser will face upon completion. Other taxes like “plusvalia” (a local tax calculated on the increase of the value of the property sold) and CGT (in the income tax return) are paid by the vendor.

10. What will I pay after I own the house?

There are ongoing costs for owning a property in Spain, as in any other country of the world, and are reasonable and associated to the ownership and maintenance of the property. These costs are:

• IBI: The “impuesto sobre bienes inmuebles” is a local tax calculated by the cadastral office on the basis of the value that the municipality decides that the land and the construction are worth (less than the market value). It is issued once a year and payable usually by mid September, although in some Town Halls it could changed if the tax is not dealt by the Provincial tax office.
• Garbage Tax: This tax is also issued by the municipality for the service of rubbish collection in your urbanization (although it does not mean that a local employee will collect it from your doorstep). It will be issued twice a year, per each natural semester.
• Income tax and Wealth Tax: These two taxes are state taxes. They are payable to the central government at the end of every natural year (before the 31st of December). For non-residents with no other income in the country (just the ownership of a real estate property), both taxes can be paid together in the same form. The calculation for the wealth tax is based on the purchase value (minus debts like mortgages) and according to a scale published every year. The income tax is based on the cadastral value. The tax rate is 25% of the 2% of the cadastral value. If there is any rental income, then the tax rate of 25% will be on that rental income.

Disclaimer: All this information has been elaborated based on practice and experience. While all efforts have been made, the list does not intend to be comprehensive or exhaustive, since there are other issues and pitfalls that may occur in the process. These are only informative points and ICL cannot be held responsible for any differences with your case.