Spain’s real estate market offers exciting opportunities for both buyers and sellers. This guide provides a detailed walkthrough of the processes involved, the professionals you’ll encounter, and crucial considerations for successful property transactions in Spain.
The Key Steps to Buying Property in Spain
1. Property Search (Búsqueda de Propiedad)
Start by researching areas and properties that interest you. This can be done independently or with the help of a real estate agent (agente inmobiliario).
Professional involved: Real estate agent (optional)
2. Making an Offer (Hacer una Oferta)
Once you’ve found a property, submit an offer through the seller’s agent or directly to the seller.
Professional involved: Real estate agent (optional)
3. Hiring a Lawyer (Contratar un Abogado)
While not mandatory, it’s highly recommended to hire a lawyer to protect your interests and guide you through the legal aspects of the purchase.
Professional involved: Lawyer (abogado) (recommended)
4. Due Diligence (Diligencia Debida)
Your lawyer will conduct thorough checks on the property to ensure there are no legal issues or outstanding debts.
Key checks:
- Property registration (Registro de la Propiedad)
- Outstanding debts or mortgages
- Building licenses and permits
- Community fee payments
- Property taxes (IBI – Impuesto sobre Bienes Inmuebles)
- Utility bills
Professional involved: Lawyer
5. Reservation Agreement (Contrato de Reserva)
Sign a reservation agreement and pay a small deposit to take the property off the market.
Professional involved: Lawyer (recommended)
6. Preliminary Contract (Contrato de Arras)
Sign a preliminary contract and pay a larger deposit, typically 10% of the purchase price. At this stage you are commited to going ahead with the sale
Professional involved: Lawyer (recommended)
7. Mortgage Application (if needed) (Solicitud de Hipoteca)
If you require a mortgage, apply with a Spanish bank.
Professional involved: Mortgage broker (optional)
8. Notary Appointment (Cita con el Notario)
A notary will oversee the signing of the deed of sale (escritura de compraventa).
Professional involved: Notary (notario) (mandatory)
9. Final Payment and Key Handover (Pago Final y Entrega de Llaves)
Make the final payment and receive the keys to your new property.
Selling Property in Spain
1. Property Valuation (Valoración de la Propiedad)
Determine the market value of your property.
Professional involved: Real estate agent or professional appraiser (optional)
2. Hiring an Agent (Contratar un Agente)
While not mandatory, an agent can help market your property and handle negotiations.
Professional involved: Real estate agent (optional)
3. Preparing Documentation (Preparación de Documentos)
Gather all necessary documents for the sale.
Required documents:
- Property deed (escritura)
- Latest IBI and community fee receipts
- Energy Performance Certificate (Certificado de Eficiencia Energética)
- Habitability certificate (Cédula de Habitabilidad)
- Building specifications (Libro del Edificio)
4. Marketing the Property (Comercialización de la Propiedad)
List and advertise your property through various channels.
Professional involved: Real estate agent (optional)
5. Negotiating Offers (Negociación de Ofertas)
Review and negotiate offers from potential buyers.
Professional involved: Real estate agent (optional)
6. Accepting an Offer (Aceptación de Oferta)
Once you accept an offer, the buyer typically signs a reservation agreement.
7. Preliminary Contract (Contrato de Arras)
Sign a preliminary contract with the buyer.
Professional involved: Lawyer (recommended)
8. Notary Appointment (Cita con el Notario)
Meet with the buyer at the notary’s office to sign the deed of sale.
Professional involved: Notary (mandatory)
9. Final Settlement (Liquidación Final)
Receive the final payment and hand over the keys.
Costs and Taxes
Costs and Taxes for Buyers
- New Properties: VAT (IVA) at 10% and Stamp Duty (AJD) at 1.2% to 1.5% of the purchase price, totaling around 11.5%.
- Resale Properties: Transfer Tax (ITP) ranging from 7% to 10% depending on the region and property price.
- Additional Costs: Notary fees (0.5% to 1%), Land Registry fees (0.5% to 1%), and legal fees (around 1%).
NB: Estate Agent fees are usually paid by the seller but it’s not unusual for the seller to ask the buyer the pay these charges or to split the charges 50/50 so that they can list the property for less. Check who pays these fees before making your offer.
The problem with buying the property cheaper and paying the Agent fees (or buying the furniture at an inflated price is that it can mean you will pay more Capital gains tax when you sell the property.
Costs and Taxes for Sellers
- Capital Gains Tax: (Impuesto sobre la Plusvalía) 19% for EU/EEA residents, 24% for others.
- Municipal Capital Gains Tax (Plusvalía Municipal): Based on land value increase.
- Energy Performance Certificate: Mandatory before selling, costs vary.
- Additional Costs: Estate agent fees (typically 3% to 6% of sale price), legal fees, and potential mortgage cancellation fees. Energy Performance Certificate cost.
Costs can vary depending on your residency status (non-resident, resident, or tax resident). Non-residents may face higher tax rates in some cases.
Capital Gains Tax Considerations
Capital Gains Tax rates differ for residents (19-23%) and non-residents (19%). Residents aged 65+ selling their main home may be exempt, and you may also be exempt if you have been tax resident in Spain for 3 years, the property has been your main home for that time, you invest all the profits of the sale in your new home in Spain and live in that home for 3 years as a Spanish tax resident. Some expenses related to the purchase and sale can be deducted to reduce the taxable gain.
Documents Required
For Buyers
- NIE (Número de Identificación de Extranjero): A tax identification number for foreigners.
- Proof of Funds: Bank statements or mortgage approval.
- Pre-Sale Agreement: If applicable.
For Sellers
- Title Deed (Escritura): Proving ownership.
- Energy Performance Certificate (Certificado Energético): Mandatory for all sales.
- IBI and Basura Receipts: To show these taxes are up to date.
- Mortgage Settlement Document: If applicable.
Key Considerations and Potential Problems
Debts on the Property
- Description: Debts like unpaid mortgages, community fees, and taxes stay with the property and transfer to the new owner. Always ensure these are cleared before finalizing the purchase.
- How to Avoid: Conduct thorough due diligence or hire a lawyer.
Licensing and Legal Use
- Description: Ensure the property has the correct licenses, especially for rural properties or those intended for commercial use.
- How to Avoid: Check with the local Town Hall (Ayuntamiento) or hire a lawyer.
Scams and Fraud
- Description: Be wary of underpriced properties or deals that seem too good to be true. Always verify the seller’s identity and property ownership.
- How to Avoid: Use a reputable real estate agent and lawyer.
IBI and Basura Costs
- Description: The IBI is an annual property tax, and the Basura is a rubbish collection tax. Ensure these are up to date before purchasing.
- Costs: IBI varies depending on the location and property size. Basura costs are generally low, around €100 to €200 annually.
Off-Plan Purchases
- Description: Buying a property that is not yet built carries risks, such as delays or the developer going bankrupt.
- How to Avoid: Ensure the developer is reputable and that your payments are secured with a bank guarantee.
Illegal Builds
- Description: Some properties may lack proper licenses or may be in violation of planning laws. (check there is a licence of first occupation)
- How to Avoid: Conduct a thorough check with the local Town Hall (Ayuntamiento) and hire a lawyer.
Overvaluation and Hidden Costs
- Description: Sellers or agents may inflate the property value. Be aware of all costs, including taxes and agent fees.
- How to Avoid: Get an independent property valuation and a detailed breakdown of costs.
Other Potential Problems and Scams
- Unlicensed real estate agents
- Sellers expecting the buyer to pay the real estate agent fees
- Outstanding debts on the property
- Timeshare scams
- Pressure to sign documents without proper review
- Misrepresentation of property features or location
Always work with licensed professionals, conduct thorough due diligence, and never sign documents you don’t fully understand.
How Can I Check if a Property has any Outstanding Debts or Liens?
Here are a few key ways to check if a property in Spain has any outstanding debts or liens:
- Obtain a Nota Simple from the Land Registry (Registro de la Propiedad). This official document will show any mortgages, liens, embargoes or other charges registered against the property.
- Request the latest IBI (property tax) receipt from the seller to verify property taxes are up to date. You can also check with the local town hall.
- For properties in a community, ask for a certificate from the homeowners association confirming there are no outstanding community fees.
- Check with utility companies (water, electricity, etc.) to see if there are any unpaid bills associated with the property.
- Have your lawyer conduct thorough due diligence checks, including reviewing the property title and checking for any legal claims or proceedings against the property.
- For non-resident sellers, verify the 3% retention tax was properly paid on previous sales.
- Request proof of payment for municipal taxes from recent years from the town hall or seller.
- Consider obtaining a full property report from a specialized company that can uncover hidden debts or issues.
The key is to be thorough in your checks, as any debts or liens on the property can become the responsibility of the new owner in Spain. Working with an experienced local lawyer is highly recommended to navigate this process properly.
What Are the Key Differences Between Buying and Selling Property in Spain as a Resident Versus a Non-Resident?
When buying or selling property in Spain, there are key differences between the processes and tax implications for residents and non-residents. Understanding these differences is crucial for navigating the Spanish real estate market effectively.
Buying Property
Residents
- Taxes: Residents typically pay a property transfer tax (ITP) on resale properties, which ranges from 6% to 10% depending on the region. For new properties, VAT (IVA) is 10% plus a stamp duty of about 1.5%.
- Financing: Residents may have easier access to local financing options and potentially better mortgage rates due to their established presence in Spain.
Non-Residents
- Taxes: Non-residents face the same tax rates as residents when buying property. However, they must be aware of currency exchange rates and potential additional costs associated with international transactions.
- Financing: Non-residents might find it more challenging to secure a mortgage from Spanish banks and may face higher interest rates.
Selling Property
Residents
- Capital Gains Tax (CGT): Residents pay CGT on the profit from the sale at rates ranging from 19% to 23%. However, there are exemptions, such as for those over 65 who have lived in the property as their main residence for at least three years.
- Municipal Tax (Plusvalía): This tax is based on the increase in land value and applies to both residents and non-residents, but the rate can vary based on location and duration of ownership.
Non-Residents
- Capital Gains Tax (CGT): Non-residents are taxed at a fixed rate of 24% on capital gains. Additionally, the buyer must withhold 3% of the sale price and pay it to the Spanish tax authorities as an advance on the seller’s CGT.
- Withholding Requirement: The 3% withholding is unique to non-residents and ensures compliance with Spanish tax obligations.
Additional Considerations
Energy Performance Certificate
- Both residents and non-residents must obtain an Energy Performance Certificate before selling a property. The cost varies depending on the property’s size and can be obtained from an architect or engineer.
Documentation
- Residents and Non-Residents: Both need to provide title deeds, proof of tax payments, utility bills, and other relevant documents. Non-residents must also ensure they have a NIE (Foreigner’s Identity Number) for tax purposes.
Currency Exchange
- Non-residents should be mindful of currency fluctuations and consider using financial services to manage exchange rates effectively when transferring funds internationally.
Understanding these distinctions can help both residents and non-residents effectively manage the buying and selling process in Spain, ensuring compliance with local laws and optimizing financial outcomes.
What are the Tax Implications for Non-Residents Selling Property in Spain?
When non-residents sell property in Spain, they face specific tax implications that differ from those applicable to residents. Here are the key tax considerations for non-residents:
Capital Gains Tax (CGT)
- Rate: Non-residents are subject to a flat capital gains tax rate of 19% on the profit from the sale of the property. This rate applies to residents of the EU and the European Economic Area. For non-EU residents, the rate may be higher.
- Calculation: The capital gain is calculated as the difference between the sale price and the purchase price, adjusted for any costs related to buying, selling, or improving the property. Non-residents cannot offset gains from one property against losses from another.
3% Withholding Tax
- Requirement: When a non-resident sells a property, the buyer is required to withhold 3% of the sale price and pay it to the Spanish tax authorities. This serves as an advance on the seller’s capital gains tax liability.
- Adjustment: The withheld amount can be offset against the final capital gains tax liability. If the withheld amount exceeds the actual tax due, the seller can apply for a refund.
Municipal Plusvalía Tax
- Nature: This is a local tax levied on the increase in the value of the land from the time of purchase to the time of sale. The amount varies depending on the municipality and the duration of ownership.
- Responsibility: Although the seller is typically responsible for this tax, the buyer may pay it on behalf of the seller and deduct it from the purchase price.
Filing and Payment
- Forms: Non-residents must file a tax return using Form 210 to declare the capital gain and adjust the withholding tax. The deadline for filing is four months from the date of sale.
- Professional Advice: Due to the complexity of Spanish tax laws, non-residents are advised to seek professional tax advice to ensure compliance and optimize their tax position.
These tax obligations highlight the importance of understanding the Spanish tax landscape for non-residents selling property, ensuring compliance with local regulations and potentially reducing tax liabilities through strategic planning.
What are the Tax Implications for Non-Residents Buying Property in Spain?
When non-residents purchase property in Spain, they are subject to several tax implications that they should be aware of:
Non-Resident Income Tax (IRNR)
- Imputed Income Tax (Renta Imputada de Inmuebles Urbanos): Non-residents who own property in Spain but do not rent it out must pay an annual imputed income tax. This tax is calculated based on the cadastral value of the property and is generally around 2% of this value, with a tax rate of 19% for EU/EEA residents and 24% for others.
Property Taxes
- Property Transfer Tax (ITP): When buying a resale property, non-residents must pay a property transfer tax, which varies between 6% to 10% depending on the region.
- Value Added Tax (VAT) and Stamp Duty: For new properties, non-residents pay VAT at 10% and a stamp duty of approximately 1.5%.
Wealth Tax
- Applicability: Non-residents may be liable for wealth tax on the net value of their property in Spain. The tax rate ranges from 0.2% to 2.5%, depending on the region and the value of the property.
Local Taxes
- Municipal Property Tax (IBI): This is an annual tax based on the cadastral value of the property and varies by municipality. It is similar to a council tax and is payable by all property owners, regardless of residency status.
Additional Considerations for Non-Residents
- Tax Residency Status: It’s crucial for non-residents to correctly establish their tax residency status in Spain to avoid fines for miscalculating or incorrectly declaring taxes.
- Professional Advice: Due to the complexity of Spanish tax laws and the potential for changes, non-residents are advised to seek professional tax advice to ensure compliance and explore possible tax mitigation strategies.
These tax obligations highlight the importance of understanding the Spanish tax landscape for non-residents buying property, ensuring compliance with local regulations, and optimizing financial outcomes.
What is the Difference Between “Resident” and “Tax Resident” in Spain and How Does it Affect the Buying or Selling Process?
The distinction between being a resident and a tax resident in Spain has significant implications for the buying and selling of property, primarily due to differences in tax obligations and residency requirements.
Definitions
Resident
- General Residency: This refers to having a residence permit that allows you to live in Spain. It does not automatically make you a tax resident.
- Residency Permit: Required for non-EU citizens who wish to live and potentially work in Spain long-term. Having this permit means you are legally allowed to reside in Spain but does not necessarily mean you are subject to Spanish tax laws.
Tax Resident
- Criteria: You are considered a tax resident if you spend more than 183 days in Spain within a calendar year, have the core of your economic interests in Spain, or if your spouse and dependent children reside in Spain.
- Tax Obligations: Tax residents are taxed on their worldwide income, which includes income earned both in Spain and abroad.
Implications for Buying and Selling Property
Buying Property
- Residents:
- Financing: Residents may have easier access to Spanish mortgages and potentially better interest rates due to their established status in the country.
- Taxes: Residents pay taxes on their worldwide income, which can include rental income from properties abroad.
- Non-Residents:
- Financing: Non-residents may face more stringent requirements when applying for mortgages and might encounter higher interest rates.
- Taxes: Non-residents are only taxed on income generated within Spain, such as rental income from Spanish properties. They must pay a non-resident income tax on imputed income if the property is not rented out.
Selling Property
- Residents:
- Capital Gains Tax: Residents pay capital gains tax on the profit from the sale of any property worldwide. The rates are progressive, ranging from 19% to 23% depending on the gain amount.
- Exemptions: Certain exemptions apply, such as for residents over 65 selling their primary residence.
- Non-Residents:
- Capital Gains Tax: Non-residents are subject to a flat capital gains tax rate of 19% on the profit from the sale of Spanish property. Additionally, the buyer must withhold 3% of the sale price and pay it to the Spanish tax authorities as an advance on the seller’s tax liability.
- Limited Tax Scope: Non-residents are only taxed on the income and gains generated within Spain, not worldwide.
Understanding these distinctions is crucial for anyone involved in real estate transactions in Spain, as they directly affect the financial and legal responsibilities of both buyers and sellers. Consulting with a tax advisor or legal expert is recommended to navigate these complexities effectively.
What are the Differences and Requirements if I am Buying the Property to Let Out Long Term or Short term (eg: AirBNB)
When buying property in Spain with the intent to let it out, there are distinct differences and requirements depending on whether you plan to rent it out long-term or short-term, such as through platforms like Airbnb. Here are the key differences:
Long-Term Rentals
Legal Framework
- Regulation: Long-term rentals are governed by the Urban Leases Law (Ley de Arrendamientos Urbanos, LAU). This law provides tenants with significant rights, including security of tenure.
- Contract Duration: Typically, contracts are for a minimum of one year, with the tenant having the right to extend up to five years (or seven years if the landlord is a company).
Requirements
- Registration: Generally, long-term rental properties do not require special registration or licenses.
- Tenant Rights: Tenants have the right to renew the lease and are protected against arbitrary eviction.
Tax Implications
- Income Tax: Rental income is subject to income tax. Non-residents pay a flat rate of 24% on gross rental income, though EU/EEA residents can deduct certain expenses and pay 19% on net income.
NB: There’s a widespread misconception known as “the 11-month myth”, suggesting that by signing a lease for less than a year, one can bypass the obligations set by the Urban Lease Law (LAU). However, this practice, aiming to differentiate between “housing rentals” and “rentals for uses other than housing”, doesn’t manage to dodge the mandatory rules of the LAU. Despite fraudulent attempts, jurisprudence has been clear in emphasizing that the essence of a lease isn’t determined by its duration, but by the cause or purpose of the contract. It’s crucial for the parties to clearly define their intentions when signing, avoiding standardized models and reflecting the real situation of both at the time of contracting.
Short-Term Rentals (e.g., Airbnb)
Legal Framework
- Regulation: Short-term rentals are heavily regulated and vary by region. They are often classified as “tourist rentals” and are subject to regional tourism laws.
- Licensing: Most regions require a tourist rental license. The process and requirements for obtaining this license can differ significantly between regions.
Requirements
- Registration: Properties must be registered with the local tourism authority, and a license number must be displayed in all advertising.
- Compliance: Owners must comply with health and safety regulations and provide certain amenities, such as air conditioning and first aid kits, depending on regional laws.
Tax Implications
- Income Tax: Similar to long-term rentals, short-term rental income is subject to income tax. However, the tax treatment can be more complex due to additional local taxes and fees.
- VAT: In some cases, VAT may apply to short-term rentals, especially if additional services (like cleaning or catering) are provided.
Additional Considerations
- Community Rules: Some residential communities may have rules restricting short-term rentals, which must be adhered to.
- Insurance: Adequate insurance coverage is essential to protect against potential liabilities associated with short-term rentals.
Conclusion
Choosing between long-term and short-term rentals in Spain involves considering legal, financial, and operational factors. Long-term rentals offer more stability and fewer regulatory hurdles, while short-term rentals can be more profitable but come with increased regulatory and operational challenges. Consulting with legal and tax professionals is advisable to navigate these complexities effectively.
Are There Specific Licenses Needed for Short-Term Rentals in Spain?
Yes, specific licenses are typically required for short-term rentals in Spain, though the exact requirements can vary by region. Here are the key points about licensing for short-term rentals in Spain:
- Tourist License Requirement: Most regions in Spain require property owners to obtain a tourist license (also called a vacation rental license or “Vivienda Vacacional” license) before renting out their property for short-term stays.
- Regional Variations: The specific requirements and process for obtaining a license can differ significantly between Spain’s 17 autonomous communities. Each region has its own regulations.
- Types of Properties: Licenses generally apply to apartments, houses, condominiums, rural properties, and other accommodations used for tourist stays.
- Application Process: To obtain a license, property owners typically need to:
- Register with the local tourism office
- Ensure the property meets certain safety and quality standards
- Provide required documentation (e.g. property deeds, floor plans)
- Pay any associated fees
- Restrictions: Some areas have restrictions on:
- The number of licenses issued
- The maximum number of days a property can be rented per year
- Specific neighborhoods where short-term rentals are allowed
- City-Specific Rules: Major cities like Barcelona and Madrid have implemented stricter regulations, including moratoriums on new licenses in certain areas.
- Penalties: Renting without a proper license can result in significant fines.
- Additional Requirements: Besides the license, owners may need to:
- Register guests with local authorities
- Collect tourist taxes
- Comply with specific safety and hygiene standards
It’s crucial for property owners to check the current regulations in their specific location, as rules can change and vary significantly across different parts of Spain. Consulting with a local real estate lawyer or property management company is often advisable to ensure full compliance.
Conclusion
Navigating the Spanish real estate market, whether you’re buying or selling property, requires a thorough understanding of the legal, financial, and regulatory landscape.
From distinguishing between residents and tax residents to understanding the specific licensing requirements for short-term rentals, each aspect plays a crucial role in ensuring a successful transaction. Whether you’re considering long-term rentals or exploring the lucrative short-term rental market, being well-informed will empower you to make sound decisions and optimize your investment.
As you embark on this journey, remember that seeking professional advice from real estate agents, lawyers, and tax advisors can provide invaluable support and help you navigate the complexities of the Spanish property market with confidence.
Disclaimer
The information provided in this guide is intended for general informational purposes only and should not be considered legal or financial advice. Real estate laws, tax regulations, and licensing requirements in Spain can change frequently and may vary by region. It is essential to consult with qualified professionals, such as real estate agents, lawyers, and tax advisors, who are familiar with the specific circumstances of your situation before making any decisions related to buying or selling property in Spain. The authors and publishers of this guide are not responsible for any actions taken based on the information provided herein.
Read More: The Real Costs of Buying Real Estate in Spain 2024
Resources
- Realista – Buying Property in Spain: What Taxes Can You Expect?
- Teseo Estates – Spanish Property Taxes and Fees
- N26 – Taxes on Home Sales and Purchases in Spain
- Giambrone Law – Spanish Real Estate Taxes: Buying, Selling & Renting Guide
- Idealista – What Are the Taxes and Costs of Selling a House in Spain in 2023?
- Spanish Land Registry (Registro de la Propiedad)
- Ministry of Justice of Spain (Ministerio de Justicia)
- Spanish Tax Agency (Agencia Tributaria)
- College of Property Registrars of Spain (Colegio de Registradores de España)
- Spanish Association of Notaries (Consejo General del Notariado)
- General Council of the Spanish Lawyers (Consejo General de la Abogacía Española)
- Spanish Real Estate Agents Association (Asociación Profesional de Expertos Inmobiliarios)
- Spanish Cadastre (Catastro)
- European Land Registry Association (ELRA)
- Spanish Ministry of Transport, Mobility and Urban Agenda (Ministerio de Transportes, Movilidad y Agenda Urbana)
- Spanish Association of Property and Commercial Registrars (Asociación de Registradores de la Propiedad y Mercantiles de España)
- Spanish General Council of Administrative Managers (Consejo General de Colegios de Gestores Administrativos de España)
- Spanish Association of Real Estate Developers (Asociación de Promotores Constructores de España)
