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Selling Property in Spain
This guide is, of necessity, both brief and general and is therefore no substitute for proper professional advice, which we will be happy to provide on request.
Valuations of property
You will have to decide the price to ask for your house.
We can arrange for a valuation to be carried out if you would find this of assistance. The valuation can either be a low cost valuation, carried out by an Estate Agent, or it can be an official valuation, for which a substantial fee will be payable. The former type of valuation is usually sufficient.
Choosing an Estate Agent
We can usually recommend a suitable agent.
What price should I show in my contract?
For many years there has, in Spain, been a practice of showing in the contract a price less than the actual price agreed for the sale. This can, initially, save both the Buyer and the Seller some tax, but it can lead to a lot of problems later.
Not surprisingly, the authorities have tightened up on this practice. The price that should be declared is the full value of the property — discounting any sum received in respect of furnishings etc.
It is illegal to declare less than the true value. It is normally highly dangerous to declare less than 80% of the price of the property. The Spanish Notary may refuse to sign the title deed if he considers that the price to be declared is too low. Even if he does sign it, the tax authorities have five and a half years in which to challenge the declared price and to raise a supplemental demand for tax — plus interest and penalties.
What about the money I receive?
You may usually receive payment in Sterling in the UK or in Euros in Spain.
If the Buyer is also English it is normally easier for you if we can arrange for payment of an amount (agreed in £s Sterling) to be made in the UK as this eliminates your exchange rate risk. This is seldom possible if the buyer is not English.
What taxes do I have to pay?
Generally there are two taxes that you will need to think about.
Capital Gains Tax
This is payable in Spain and, if you are UK resident, also in the UK.
If you are NOT tax resident in Spain, the Spanish tax will be calculated at a flat rate of 18% of the gain (profit) that you made when you sold the house. This is the price declared on the escritura (deed of sale) when you sold the house MINUS the price declared on the escritura when you bought it. From this gross profit you can deduct your expenses of sale and purchase, the cost of any major improvements to the property – provided you can document them – and an annual allowance to reflect inflation. If you have owned the property since before 1986 more generous allowances are available.
If you are resident in Spain for tax purposes other – more generous – rules apply.
In the UK the gain you have made will be treated as part of your worldwide capital gains and will, therefore, be taxed in the UK too. The rules used to calculated the gain will be the UK rules, so the taxable gain will be a different amount from the amount in Spain. Any tax paid in Spain will be deducted from your UK tax liability.
'Plus Valia'
This is a – generally – modest Spanish tax. Be aware, however, that if you have owned the property for a long time – and, especially, if it has been reclassified as building land during this period – the tax can be substantial.
It is a local tax.
It is payable by the Seller unless the contract provides for it to be paid by the Buyer.
On most sales it is about £300.
The tax deposit
You should also bear in mind that, unless you have been the registered owner of the property since 1985, it is now the buyer's responsibility to lodge 5% of the purchase monies with the Spanish tax authorities on behalf of the Seller. Only the remaining 95% is paid to the Seller.
This responsibility is the same whether the money is paid in Sterling or in Euros.
The tax authorities retain this deposit until they have assessed the taxes, including capital gains tax, that are owed to them by the Seller. Once the Seller's tax position has been assessed, any surplus monies should be returned to the Seller. You must apply for any refund within 3 months of signing the deed of sale (escritura). The authorities may take up to a year before returning any money.
Can I be paid by instalments?
Arrangements can be made for payment of the price of a property in Spain by instalments. There are various methods of doing this and we would be pleased to advice as to which may be the most suitable in your circumstances.
What does the conveyancing process involve in Spain?
You will probably be familiar with the Conveyancing process in England. The system in Spain is in many ways very different from the British system.
The first and most important thing to say is that you should NEVER sign ANYTHING until you have sought independent legal advice.
Once you have asked us to look after your sale for you, we will confirm the title of the property and, in most cases, prepare a preliminary or, as it is known in Spain, "private" contract to transfer it into the name of the buyer. This will be drafted so as to protect your interests. When this is signed you will, typically, receive 10% of the agreed price as a deposit.
Once this has been done, it is necessary for the official Contract/Conveyance ("the Escritura") to be prepared and then signed before a Notary Public in Spain.
The Notary is a public official who is there simply to put on the public record the fact that this document has been signed in his presence and understood by the parties concerned. He is not there to advise as to whether the document is valid or fair and he is certainly in no way there to protect either your interests or the interests of the person buying the house.
Do I need to be in Spain to sign the deed of sale?
Usually it is necessary for the person selling the house to attend in person before the Notary but, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another stipulated person to attend on their behalf. We normally recommend that we and our Spanish associate be named in the Power as this can aid the smooth progress of the case and, of course, giving the Power to us ensures that it will not be abused.
It is when the Escritura is signed in front of the Notary that the money is handed over to the person selling the house, less any retention that must be lodged with the Spanish tax authorities.
What does all this cost?
Our charges for all the normal legal work involved in the sale of your property are 1.0% of the price of the property, subject to a minimum charge of £1,500. We require a payment on account of our charges of £1,000.00.
What do I have to pay on top of your fees?
The main item is usually the estate agents' charges – typically 5% - 7.5% of the price of the property.
There are usually some other, relatively modest, payments that will have to be made on your behalf. These might include, for example, fees for a search at the Land Registry, couriers fees and bank charges.
Until we know more about your particular transaction we cannot tell you exactly what will be needed in your case.
We will, of course, advise you fully as to the amounts of tax and other liabilities that you will be taking on in the course of your sale of property once these are known.
We will also have to pass on to you the cost of any surveyors fees, bank charges and the like levied in respect of your particular transaction, including the fees of our associates in Spain, and any appropriate English or Spanish VAT.
We will also have to charge you — on the basis of our normal hourly charging rates — for any work required over and above the work normally involved in a sale. This might include, for example, sorting out any defects in title; protracted negotiations over the terms of your contract; registration for and payment of any outstanding taxes which need to be cleared in advance of the sale; the preparation of a Power of Attorney to allow somebody to sign the Escritura (Title Deed) on your behalf in Spain or our attending as your Attorney to sign the Escritura before the Notary.
Are there any other things I should do when I sell my property?
You will need to make your Spanish tax declarations in order to recover any unused balance of the retention paid to the Spanish tax authorities. Once again, if you wish, we can assist with this work.
We believe that it is a good idea to review your English Will - especially if you have previously made a separate Spanish Will. For most people the cost of this is fairly small.
What do I do next?
If you would like further advice, please telephone.
We can then have a brief discussion over the telephone and, if necessary, make an appointment so that we can meet to look at the matter in more detail.
We are used to acting for Clients from all over the world and, generally, find that it is not necessary to meet in order to deal with the sale of a property in Spain. Of course, we are delighted to meet to discuss matters personally if that is convenient for you.
The International Law Partnership LLP
Solicitors & International Lawyers
The Vaults
Holborn Hall
193-197 High Holborn
London WC1V 7BD
Tel: 020 7061 6700
Fax: 020 7061 6701
Email: info@LawOverseas.comInternet: www.LawOverseas.com© John Howell & Co – February 2007
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