Buying and Selling Property in Spain: Navigating the Legal LandscapeLegal Tax
Navigating the Legal Landscape of Buying and Selling Property in Spain
Investing in real estate in Spain can be a rewarding endeavour, but it comes with its own set of legal complexities. Understanding the key legal aspects of purchasing and selling property is essential for a seamless and legally sound transaction. Melissa Sullivan from TGS Edisa in Santander gives an overlook of the main aspects to consider when buying or selling a property in Spain.
- Main Legal Documents and Process:
The journey begins with a private pre-agreement, known as “contrato de arras,” wherein the parties establish the primary terms of the sale. While not mandatory, it serves as a crucial precursor to the transaction. This document outlines key details, including the purchase price, payment method, choice of the Notary, payment of the fees, date of the signature of the Public Deed, etc. The pre-agreement may also include more specific clauses such as conditions precedent to the sale, like obtaining a loan.
The subsequent step involves the signing of the Public Deed for the sale before a Notary in Spain. This formal document legally transfers the property from the seller to the buyer. It is not uncommon for one party to use a power of attorney if they cannot be present during the signing. The draft of the Public Deed is usually reviewed by a professional before signing, and clauses can be added, if needed.
- Expenses and Taxes:
Notary and registry fees are payable in property transactions, with the agreement usually being that the buyer bears these costs. The fees are fixed by law and vary based on the property’s price and the length of the Public Deed. For example, for a property priced at €200,000, the Notary fees might be around €600, and the Registry Fees approximately €500.
In terms of taxes, the buyer has to pay the Transfer Tax (ITP), which varies regionally. Sellers, on the other hand, are liable for Local Capital Gain Tax if the property is sold at a profit. Two methods exist for calculating the tax base, and the taxpayer can chose to pay the lowest amount resulting from both methods.
- Aspects for Non-Residents and Non-Spanish Nationals:
Foreign nationals must obtain a Tax Identification Number in Spain to acquire property.
A foreign investment declaration is required after the sale for transactions exceeding €500,000.
Payment methods commonly include wire transfers through the Bank of Spain or bank checks, necessitating a bank account in Spain.
Special consideration is given to the Local Capital Gain Tax, because the buyer is responsible to pay the tax if the Seller does not proceed to its payment, our advice is that the Buyer retains the amount corresponding to the tax to guarantee its payment by the Seller.
To illustrate the financial implications, consider the purchase of a secondhand property in Barcelona priced at €300,000. The buyer would incur Transfer Tax of €30,000, with additional fees for Notary and Registry, totaling €31,200. In contrast, if a non-resident sells a secondhand property in Marbella for €500.000 bought for €450.000, it involves various taxes as Local Capital Gain Tax and Non-Resident Income Tax on the Capital Gain (with a withholding of 3% of the price by the Seller to cover its payment), resulting in a total of €9.995,30.
- Inheritance Tax:
Properties inherited in Spain by non-residents are subject to Inheritance Tax (IHT). The applicable rates and benefits depend on regional laws, for example tax benefits apply in the following regions when inherited from parents, Andalucía (1.000.000 € exemption), Valencia (99% tax benefit), Madrid (99% tax benefit), and Cantabria (100% tax benefit). The IHT Tax Treaty with France, the only applicable tax treaty for inheritances signed by Spain, should be applied to avoid double taxation on inheritances between both countries.
Understanding these key legal aspects is crucial for a successful and legally compliant real estate transaction in Spain. Seeking professional advice and staying informed about regional variations will help ensure a smooth process and safeguard your investment in the vibrant Spanish property market.
If you have any questions relating to the article or would like advice on legal aspects regarding Spanish property matters, you can contact Melissa at TGS Edisa on +34 94 23 12 762
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