Investors Guide to Spain

The Purchasing Process

Purchasing property in Spain follows very straightforward and easy to understand procedures. When deciding to purchase a property, it is necessary for non-residents to obtain an NIE number. This is an ID number necessary for carrying out property purchases, financial transactions and to work legally in the country. The NIE number can be arranged for buyers by their representing solicitor, their real estate agent, or even obtained on their own accord. Applying for the NIE at the earliest stages of the purchasing decisions is advisable to ensure the documentation is processed in time for the completion of the sale.

Holding deposits are paid to remove the selected property from the market while the legal documentation is checked to ensure a safe and secure purchase. The fee will usually range between €3,000 and €6,000 and is often held by the representing legal firm. In Spain the holding deposit may be refundable, non-refundable or transferable depending upon the developer or real estate agent used.

Once the holding deposit is paid, the buyer’s solicitor will arrange the necessary legal due diligence checks. These searches are to ensure the property complies with legal restrictions before proceeding with the purchase. It is at this stage that the buyer will arrange the issuing of their NIE number if it is required. For new developments undergoing construction, a Private Purchase Contract (PPC) will be drawn up. This contract will outline the staged payment requirements throughout the construction progression. The PPC will also outline the legal compliances of both the buyer and the seller as an agreement of the sale process.

The time frame between the holding deposit and the reservation stage is normally between 2 and 4 weeks. If the buyer’s legal representative confirms that the property is suitable for purchase, a reservation deposit of between 10% and 30% of the purchase price will be paid.

The following staged payments will need to be paid as instructed in the PPC document. If paying money directly to a developer, rather than being held in an escrow account of your solicitor always ensure that you receive either a bank or insurance guarantee for a property under construction. The final payment will be made at the notary upon the handing over of the title deeds.

Fees & Taxes

The associated purchasing costs on Spanish property range between 8% and 11%. These purchasing costs are the same for both residents and non-residents. The advantage to obtaining residency when planning to purchase Spanish property for re-location purposes is a reduction in the amount of taxes the owner is liable to pay.

• Property Transfer tax 6% - 7%
• Notary and Land Registry fee 0.50% - 2%
• Title Deed Tax 0.50%
• Legal fees 1% - 1.5% (+ 16% VAT)

Taxes in Spain are considered to be quite high, with different taxation rates imposed on residents and non-residents. For buy-to-let investors, the tax on rental income is charged at a flat rate of 24%. Deductions of running costs and depreciation values are not taken into account, although only 50% of the rental income is necessary to be declared. There is also an exemption on the taxes to owners renting their properties to tenants up to the age of 35.

Non-residents are charged a progressive rate of capital gains tax if the ownership of the property is less than 1 year. Properties that have been owned for more than one year are subject to 18% capital gains tax. Non-residents are also liable to pay an annual tax of 3% of the cadastral value of their Spanish property.

• Rental Income Tax is 24%
• Annual Real Estate Tax is approximately 0.4%
• Non/resident Capital Gains tax is 18%

Financing the Property

As an established property market, Spain offers a wide variety of mortgage options to suit all personal preferences. Various national and international banks can provide a selection of offers, enabling buyers to shop around to find their ideal financing option.

For several years the banks in Spain were readily supplying mortgages and loans to clients, assisting with the fuelling of the property market boom. This was followed by a slowdown in the market in recent times, leading to a large number of default payments, repossessions and distressed sales. To assist in rectifying the issues facing the Spanish property market, banks have started to place stricter control on lending criteria.

Depending upon the bank or financing company used to obtain financing, along with the ability to fit their specific criteria, terms and conditions will generally be as follows:

• Up to 100% financing for resident of the valuation amount
• Up to 80% financing for non-residents of the value amount
• Financing available for re-sales, new developments and land
• Variable and fixed rate loan options
• Minimum term of between 10 and 15 years
• Maximum term of between 30 and 40 years
• Maturity up to the age of 75
• Interest rates based on the Euribor

More about overseas property finance

Visitors Guide to Spain
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