Paragraphs include:

Prior to Signing the Escritura
Signing the Escritura
After Signing the Escritura
Change of Services
Property Taxes
Conveyance Taxes

Once you have found the property you want to buy, the first step is for the vendor/s and purchaser/s to sign a Private Purchase Contract. This secures the property for you, and it is at this time that you will be expected to provide a deposit (usually 10% but can be less if both parties are in agreement). You should give some thought to the date you wish to complete the transaction – the Contract stipulates the title should be conveyed on or before a certain date, so this can be brought forward by mutual agreement.

Should you wish to purchase your property with the aid of a Spanish mortgage you will need a NIE number, and the bank will wish to carry out a valuation of the premises. You can usually borrow up to 70% of the purchase price, but do “shop around” as this can vary from bank to bank.

Private property valuations are much less usual here than in the UK, but are recommended if the property is over 25 years old, or a finca (old style townhouse or farmhouse), or you see what could be foundation cracks running through the premises. Cosmetic cracks and fissures are common in Spanish properties and usually indicate natural movement or stress due to subsequent building work.

The next step is to carry out a search on the property to check there are no embargos or debts you could unwittingly inherit. For this you will need, at the minimum, the name of the current owner and property address. The search is forwarded to the appropriate Land Registry Office, where details of all the property transactions for the region are held. The seller should furnish the buyer or their agent with a copy of the existing Escritura – this does not have to be the original as a new Escritura is prepared for each conveyance to a new owner. A copy of the last IBI (Rates) receipt will also be required to carry out the SUMA checks (see below).

Should the current owner have a mortgage on the property, this must be discharged by the relevant bank on or before signing the new Escritura. It is possible to “transfer” a mortgage from the old to the new owner, thus avoiding legal and possible penalty costs in discharging the mortgage; the bank in question will be able to provide more information should this be of interest to the new owner. At the same time, a search should be carried out at SUMA, the official municipal tax collectors for the Tax Office, to ensure there are no outstanding tax debts on the property in respect of Rates (IBI) and/or Rubbish Removal (Exacciones Municipales).

The existing Escritura is checked, and a copy sent to the Notary Office where the new Escritura will be signed. This does not have to be the Notary whose office is in the same geographic location as the property; the new Escritura can be prepared by any Notario. Details of the new owner are provided, together with confirmation of the Declared Value of the premises, and an appointment is requested on a specific time and date for completing the conveyance. Don’t forget that if you are purchasing the property with a Spanish mortgage, the bank manager will also have to attend the Notary Office to sign the Mortgage deed, so he/she will need to be available at that date and time.

It is an accepted practice in Spain for the “Declared Value” that appears on the Escritura to be less than the actual purchase price of the property. Nowadays a Declared Value of not less than 70% of the purchase price is recommended, and some purchasers feel more comfortable declaring a full value. The concept of a Declared Value means that on purchasing a property, less tax will need to be paid if a lower purchase amount has been declared. However, when selling the property, non-residents will have to pay Capital Gains Tax on any profit made, so in reality what the Tax Man does not get from you on one side of the transaction, he usually will on the other!

It is the vendor’s responsibility to provide receipts for the utilities and taxes. This has a dual purpose of ensuring the correct details are changed into the new owner’s name, and also so any outstanding bills may be apportioned between the seller and buyer. If the property is part of a Community or Urbanization, a Certificate must also be obtained from the Administrators to show the Community fees have been paid and are up to date.

If purchase funds are being transferred from the UK, or a Banker’s Draft and/or cash is needed from your Spanish bank, make sure this is ordered in good time, and allow at least an extra day for unforeseen delays. If you are declaring a value different from that of the actual purchase price, it is customary to provide a Banker’s Draft for the Declared Value amount and cash for the balance.

Signing the Escritura

On the day of signing the Escritura all parties selling/buying should attend the Notary Office with their passports, or Residencias if appropriate. If one of the sellers cannot be present, they must arrange a Power of Attorney so the conveyance can be signed on their behalf (I shall discuss Powers of Attorney in more detail at a later date). This is also possible for a buyer who cannot be present. However, if the buyer is able to come out to Spain shortly after signing, it is often cheaper and easier for a designated person to sign on their behalf as Verbal Representative. In this instance the absentee buyer prepares and signs a letter of authority for the Representative to sign on their behalf, visiting the Notary office to ratify the Escritura when they are next in Spain.

Once the Escritura has been signed in the presence of the Notary it is a legally binding document which transfers all title of ownership to the person/s specified in the new Escritura. There are other tax liabilities for seller and purchaser relating to changes of name for utilities and registration of the Escritura and any charges once the property has been signed over to the new owners.

After Signing the Escritura

Once you have signed the escritura for your new property, the notary holds what may be regarded as the true original at the notary office (as is the case with all deeds signed in his/her presence) However, a further “original” is forwarded to the Registro (Registry Office) for registration and stamping, which takes about four months. Whilst the stamped escritura is an important document, and should be kept in a safe place once received, it is not as vital to produce as UK title deeds, as each subsequent purchaser receives a new escritura on buying a property. If the premises are purchased with a mortgage, the bank issuing the mortgage will hold the stamped and registered escritura. You should receive a Copia Simple (simple copy, as the name suggests) at the time of signing the escritura which is for you to keep. It is not actually necessary to produce the registered escritura when you sell the property, but you must provide a copia simple for the searches to be carried out by the prospective purchaser or their agent.

The notary fees and property registry fees for a conveyance transaction are set on a scale fixed by the Government, and usually amount to approximately 1% of the declared value as shown in the escritura. The notary should be paid the day of signing the escritura, and the registry fee on collection of the registered document. Copies of these bills should be kept safely as they may be able to be offset from taxes at a later date should you become resident or subsequently sell the property.

Change of Services

In order to change the details of ownership for the property, various forms must be completed, signed and administered at the relevant electric, telephone, water and gas companies. Copies of your NIE or Residencia, and the Copia Simple Escritura must also be produced in the case of water and gas changes. It is strongly advisable to set up direct debits for the utilities if you are not living at the property all year round, and these can be administered with the relevant companies and your bank at the same time as the name change details are lodged. I recommend that you ask the bank for a list of your direct debits, and keep an eye on your monthly bank statements to check the relevant payments have gone out of your account. Mistakes can and do occur, and in the case of water, electric and telephone services, non-payment of a bill could result in your supply being cut off. If this is the case, you will be charged a reconnection fee and it may take up to 48 hours to reconnect the service. With regard to the telephone line, Telefonica will suspend the service for up to three months (during which time you can receive but not make calls) and then disconnect the line altogether and allocate the telephone number elsewhere. So a quick check of what is happening on your account is definitely worthwhile.

Property Taxes

It is also important to provide your local Ayuntamiento (Town Hall) with your details and the NIE/Residencia and Copia Simple copy documents, in order that municipal taxes can be administered. For most regions in the Alicante area these documents are also handed to an intermediary body called SUMA, who are responsible for administering these municipal taxes. Every region is subject to an annual rubbish removal tax (Basura, or Exaciones Municipales) and an annual Rates tax (IBI, or Impuestos Bienes Inmuebles). The invoices are prepared at the beginning of each year, but are payable during the Spring and Autumn respectively. SUMA advise well in advance the dates on which payments can be made (usually spanning about six weeks), and the press will publish details as the payment periods arise. If payment is not received during the voluntary payment period a 20% fine is levied on the original tax amount, and in respect of some charges, penalty charges can continue to be incurred.

Do bear in mind that SUMA do not change the ownership details if the property has changed hands subsequent to their invoices being prepared, and the tax is still your responsibility even if the bill is in the old owner’s name. It is therefore a good idea to check your tax liabilities at the relevant SUMA office, or appoint an administrator to do this on your behalf – as many exasperated property owners will testify, tax bills are often never received or details updated despite years of ownership by the same person.

Again, the ideal solution is to set up direct debits to pay these taxes. Many owners are already using this method of payment, and SUMA are planning to implement direct debits in all cases wherever possible. However, we shall continue to check on behalf of every one of our clients that an invoice has been presented to their bank, so really the point I am making here is – never assume!

The other tax liability you will encounter, if you are a non-resident, is the Patrimonio (Wealth) and Renta (Own Use Income Tax) taxes. These are payable together once a year in arrears, and relate to your ownership of a property or properties when you do not hold a current Residencia card. The tax is calculated on 0.2% of the declared value for Patrimonio, plus an amount of 1.1% x 25% on the rateable value for Renta.

Some owners do not bother to pay this tax, but it is strongly recommended that you do so as the Hacienda (Tax Office) is planning to tighten up their checking procedures in this regard. In addition, these taxes are nothing to do with renting your property: if this is the case, you are supposed to declare an additional 25% of your gross rental income. Many people feel the Government shoot themselves in the foot with this, because the amount is so high that very few owners ever declare any rental income at all. However, the Tax Office are currently also looking at this area of tax reclamation so the situation could well change in the future.

If you own one property, you may administer your own Patrimonio and Renta payments (if you feel up to it!). In this case, a 214 tax form should be completed and handed to The Hacienda with the relevant amount prior to 31st December. If you own two or more properties, however, you are obliged to hire a fiscal adviser to administer the payments on your behalf.

If you have applied for and received a Residencia card, you are classified as a resident of Spain, and any property purchases/sales should be declared in the following year’s Income Tax Declaration. Depending on certain factors, such as how long you have owned the property, and whether the profit was re-invested, you may have to pay an additional tax amount – I shall cover this area in more detail in my next article, which will cover the conveyance tax obligations for both sellers and purchasers, residents and non-residents.

As you can see, this whole issue is quite complicated, and one area where I really would recommend you seek the assistance of a professional adviser, at least for the first year you own the premises, and in any event if you do not live in the property all year round.

Conveyance Taxes

To conclude the subject of property purchase, once you own your new premises various conveyance taxes have to be paid by both the seller and the purchaser.

Please note that the tax amounts can vary for a newly built property, and I shall be discussing this, and new constructions in general later. In addition, these taxes are nothing to do with the annual municipal taxes for rubbish removal (Basura) and rates (IBI), nor do they have any bearing on the annual non-residents taxes for Patrimonio and Renta.

So, the purchaser of a re-sale property must pay a Property Transfer Tax, which amounts to 7% of the declared value of the property. The purchaser has 30 working days of the date of the escritura to pay this tax. The tax applies whether the buyer is resident or non-resident. This is the only conveyance tax liability a purchaser has on a resale house (but remember they are also responsible for the notary and property registry fees).

The seller has a land value tax (Plus Valia) to pay, which is calculated by the relevant Ayuntamiento (Town Hall) upon production of the escritura. Broadly speaking, it is a tax covering the increase in land value since the property purchase, so you can assume the longer you have held the property, the higher the tax. The seller has three months to pay a Plus Valia. Please note that if this tax is not discharged, the Town Hall will look to the subsequent owner to honour the debt. It can take two years for a non-payment of Plus Valia to come to light, so if you are buying a property, do try to ensure the sellers have administered this payment.

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