1. PURCHASING A RESALE PROPERTY IN SPAIN |
COSTS OF PURCHASING
There are various taxes and costs associated with the purchase
of property which will add approximately another 10% to the purchase price. The
various charges are:
Transfer tax
The transfer tax, called “Impuesto de Transmisiones
Patrimoniales” in Spanish, is levied at 8% of the purchase price when it is
lower than 400,000 euros, 9% when the purchase price is from 400,000 euros to
700,000 euros and 10% from 700,000 euros onwards.
Plusvalia
The other tax to be paid on a property purchase is the “arbitrio
sobre el incremento del valor de los terrenos”, which is the municipal tax
charged on the increase in the value of the land since its last sale, using the
official value of the land as the taxable base which tends to be always lower
than the market value. The land is officially revalued periodically for this
purpose. This tax may be paid by either the vendor or the buyer, as agreed
between the parties.
Warning to buyers
Since January 1, 1999, the “plusvalia” tax can be charged
directly against the property itself, meaning that should the vendor be liable,
and “forget” to pay it, then liability for payment will pass to the new buyer.
Notary Fees
The notary fees are fixed by an official scale and the fee
varies according to the size of the land, the size of the dwelling and its
value.
Land Registry Fees
This
will be a similar amount to the notary fees, and relates to the entry of the
property in the land registry (“Registro de la Propiedad”).
APPOINTING A LEGAL REPRESENTATIVE
It is highly recommended to appoint a legal representative as
early as possible in the purchase process. Your lawyer will explain to you the
legalities involved in the purchase and also carry out the due diligences on
the property, including advising you of any debts, provide you with an estimate
of the annual running costs of the property and prepare all the documentation
required to complete the transaction.
POWER OF ATTORNEY
Should you not be able to be present to sign all the necessary
documentation related to the purchase, then you may grant power of attorney to
your legal representative or to another third party. The power of attorney
would list all the duties that can be carried out by the third party, which may
include buying and selling property, opening and administering bank accounts,
applying for and accepting a mortgage, representing you with respect to utility
companies and the tax authori-ties etc. The power of attorney would be signed
before a notary public in Spain, and should cost approximately 60 euros.
Should you not be able to visit a notary public in Spain and
need to formalise the power of attorney in your home country, the procedure is
different. Your lawyer will prepare the document in Spanish and English, and
this will need to be signed before a notary public in your home country and
then provided with the “Hague Apostille” at the Foreign and Commonwealth Office
in London. Some notaries will take care of this process too. More information
on the procedure can be obtained from their website: www.fcogov.uk
DECIDING ON A PROPERTY
Once you have decided on a property, you will need to pay over
an initial deposit/reservation fee to ensure that the property is taken off the
market. The fee may be placed with the real estate agency or with your lawyer.
A corresponding “offer and reservation document” should be signed on making the
payment, indicating the basic terms of the purchase, i.e. the price, details of
the vendor and buyer, details of the property, and the date by which the
“private purchase contract” should be signed.
THE PRIVATE PURCHASE CONTRACT
The private purchase contract will then be signed approximately
20-30 days after payment of the initial deposit/reservation fee, and once due
diligences have been carried out on the property. Normally a 10% deposit would
be paid; however, this may vary according to the vendor’s wishes. The contract
will stipulate all the terms and conditions of the sale, including the final
date by which the title deeds must be signed and final payment made, and this
will then give the buyer time either to obtain a mortgage or get together the
money required to complete the balance. Should the buyer fail to complete the
sale by the final date, the buyer would lose the deposit. On the other hand, should
the seller decide to pull out of the sale, or should the seller find another
buyer who offers to pay more, then the original buyer has the right to claim
back twice the amount of the deposit.
MORTGAGE
It is important to note that should you consider applying for a
mortgage in Spain, this will add approximately another 2% to 3% to the purchase
costs. For a non-resident buyer, the mortgage is usually limited to around 70%
of the valuation of the property. Once the mortgage is approved by the Spanish
bank based on your proof of income, the bank will issue a binding offer which
can be compared with other bank’s offers.
DUE DILIGENCE
Apart
from checking the legalities of the property, your lawyer will also check that
all running cost and local tax payments are up to date. This will also enable
your lawyer to advise you of the approximate annual running cost of the
property. These checks will include:
Utility Bills
Utility bills usually refer to electricity, water, gas and
telephone. If you as a buyer are faced with unpaid utility bills from the
previous owner, you should be aware that these are in fact personal bills
issued by private companies. They are not attached to the property so that only
the person who signed the contract with the utility company is liable for them.
If left unpaid, the company will cut off the services. However, on payment of a
reasonable fee, the utility company will conclude a new contract with you for
these services. This fee is exactly the same as the charge for changing the
electricity contract into your own name, which you would have to do anyway.
Community Fees
These
fees are charged by the community of property owners which is the legal body
that controls all the elements of the property held in common. This includes
the lifts, gardens, swimming pools, roads, etc. Each owner is assigned a quota
or percentage of the expenses which must be paid by law.
Your lawyer will request a copy of the rules and regulations of
the community, together with a copy of the minutes of the last AGM so that you
can ascertain the current situation with respect to any community issues.
Decisions are taken by majority vote of the owners at each
year’s AGM and these actions are recorded in an official document that you are
entitled to inspect when you become the property owner.
IBI (local rates) and BASURA (refuse collection)
The IBI is the municipal real estate tax and BASURA is the local
refuse collection tax. When purchasing the property, your legal representative
must check the IBI receipts and BASURA for the last 5 years, since you can be
liable for five years of back tax. The IBI tax can be as low as 120 euros or as
much as 2,000 euros per annum.
It
is recommended to have these local taxes paid automatically from a bank account
each year, in order to avoid unnecessary surcharges, and also to benefit from
discounts for early payment, which can be as much as 10%.
THE TITLE DEED AND REGISTRATION
The “Escritura Publica” or “Title Deed” is the final document of
the sale and is signed between the buyer and vendor when the final balance due
on the property is paid. The signing takes place in the presence of a notary
public, which makes the document legally binding. The notary public is an
official of the state, and his duty is to certify that the contract has been
signed, monies paid over, and that the buyer and vendor have been advised of
their tax obligations. The notary public keeps the original of the document and
the purchaser is issued with a second authorised copy, which is then entered in
the property registry (against the payment of the stamp duty or transfer tax).
This means that if the buyer loses the buyer’s copy, then the notary public can
always issue another copy.
PROPERTY VALUES
When going through the purchase process, you will come across
different values which are attached to the property. It may be helpful to
understand these different values:
.
• Catastral
value
.
• Fiscal value
.
• Valuation
value
.
• Market value
.
• Declared
value/Sales price
Catastral value
The “catastro” office is the second form of property
registration, and deals more with the exact location, physical description and
boundaries; unlike the property registry which deals more with ownership and
title. The “catastro” office is also the source of the “valor catastral”, which
is the assessed value of the property used in calculation of local rates. The
figure is normally considerably lower than the real market value. If you are
purchasing a new property this will not have been assigned a “valor catastral”,
it therefore becomes the buyer’s responsibility to register the property at the
“catastro” office for this tax. An existing property should already have its
own “valor catastral”. The annual real estate tax IBI, charged by the
municipality, will be calculated based on the “valor catastral”.
Fiscal value
This is the value assessed by the tax authorities, and is the
minimum value that should be declared on the title deed when a sale takes
place.
Market value
Depending on the market, a real estate agent or property valuer
will give an estimate of a property’s current market value.
Declared value/Sales price
The
declared value is the sales price of the property. All the costs and taxes are
based on the sales price.
2. PURCHASING A NEW PROPERTY – OFF PLAN |
Purchasing a property off plan in Spain means you pay in advance
for a property not yet built. However, you make great savings in the end. This
is because the builder gives very favourable terms to the buyer because the
buyer is financing the project and the property will have increased in value
when it is eventually finished.
The costs associated with purchasing a new property are slightly
different to those for a resale. ITP (transfer tax) is no longer applicable
since you are purchasing from a developer, and instead you pay 10% of IVA (VAT)
and 1.5% of AJD (stamp duty). Both taxes are based on the purchase price.
The
“plusvalia”, as previously mentioned, may be payable by the buyer or the
vendor, as agreed in the contract. Other costs are the same as the resale
property, i.e. the notary and land registry fees.
It is very important to appoint a legal representative when
purchasing “off plan” so that this representative can check that all the
necessary licences are in place. The good news is that a new Andalusian decree
has been introduced to protect the consumer. Since February 2007, all
developers are obliged to supply a complete information package to a
prospective buyer. The documents include papers identifying the builder, the
planner, the project manager and the developer and any other intermediary
involved in the sale. It also includes the floor plans, building
specifications, dimensions, delivery date, terms and conditions of the sale,
property registration details, and information on the building insurance that
protects the buyer should the builder not complete the project.
Spanish law requires that the purchase contract must contain the
delivery date with a penalty clause, specifying that the property must be
handed over within “x” days of the first occupation licence being issued.
The developer must also provide bank guarantees for the payment
made when private purchase contracts are signed and any further payments made
during the construction period.
Your lawyer or property consultant will request and check the
following:
.
• The
construction specifications
.
• The
specifications of the materials used
.
• Details of the
communal areas
.
• Bank guarantee
details
.
• The contract
.
• Whether the
developer or purchaser will pay the plusvalia tax
.
• Whether the
developer can offer a mortgage
• If the 10 year
insurance policy covers defects on the property.
The developer is responsible for attending to defects at the
moment the property has been handed over:
.
• Up to 1 year
for any snagging defects
.
• Up to 3 years
for any minor defects
.
• Up to 10 years
for any structural defects
3. SELLING YOUR PROPERTY |
When you find a buyer for your property, you will first receive
a reservation fee, at which time you must take the property off the market. The
private purchase contract is then signed within a specified time frame and you
will receive a full 10% deposit on signature of the contract. The private
purchase contract will stipulate all the terms and conditions of the sale,
including the final date by which the balance of the sales price must be paid
and title deeds signed before the notary public.
3% TAX RETENTION for a non-resident vendor
Up until January 1, 2007, all buyers of Spanish property from
non-resident owners were required to withhold 5% of the total purchase price
and pay it to the Spanish tax authorities due to the non-resident seller’s
capital gains tax liability. The new law has cut this retention to 3%.
Non-resident sellers and persons who buy from non-resident owners must remember
that they are required to make this retention and declare it to the tax
authorities by filing tax form 211. If they do not do this, the tax authorities
can charge the retention to the property itself.
As a seller, once the sale has been completed, you will
therefore need to file your capital gains tax form 212, indicating the capital
gain payable, within 30 days of the sale taking place. Should this amount
exceed the 3% deposit, then you will be entitled to a refund of the difference,
or alternatively if the capital gains tax is more, you must pay the difference
within the 30 days.
CAPITAL GAINS TAX
On November 28, 2006, the Spanish parliament passed law 35/2006,
modifying the 2007 regulations, with the outcome that, as of January 1, 2007, a
non-resident owner pays 21% of the profit made when selling a Spanish property.
The resident owner’s capital gains tax has been raised to 21% from 0 to 6,000
euros of gain, 25% from 6,000 euros to 24,000 euros and 27% from 24,000 euros
onwards.. The non-resident tax cut comes in response to a ruling from the
European Union that the former rate of 35% discriminated against non-resident
EU property owners in Spain, while residents were taxed at only 15%. These
rates have now been made equal. Since January 2010, the new rate of 21% applies
to all sellers, resident and non-resident, even if they are not EU citizens.
Until January 1, 2007, all buyers of Spanish property from
non-resident owners were required to withhold 5% of the total purchase price
and pay it to the Spanish tax authorities because of the non-resident seller’s
capital gains tax liability. The new law has cut this retention to 3%.
Nonresident sellers and persons who buy from nonresident owners must remember
that they are required to make this retention and declare it to the tax
authorities. If they do not do so, the tax authorities can charge it to the property
itself.
As a vendor, you will need to file capital gains tax form 211 on
which the non-resident declares his capital gain or loss when he sells his
Spanish property. On this form the non-resident seller applies for a refund, if
the deposit of 3% is greater than the tax, or makes an extra payment, if the
deposit is less that the tax due.
LONG-TERM OWNERS
Long-term owners are no longer exempt from capital gains tax
when they sell their Spanish property. Until 2007, owners who bought before
December 31, 1986 were able to apply a reduction factor and had no capital
gains tax at all.
This total exemption was cancelled with effect of January 20,
2006. Now the long-term owners are also required to pay this tax. The original
reduction is still in force, so they will pay only for the percentage of
profits generated after January 20, 2006; however, they must pay something.
The long-term owners applied a reduction factor of 11.11% per
year of ownership, i.e. after 10 years, they had no capital gains tax at all.
This reduction factor was cancelled in 1996 so that only those who owned their
property for 10 years before 1996 had a total exemption. Buyers between 1986
and 1994 had partial reductions. Even when the factor was cancelled, the early
buyers retained their right to exemption.
They retain their reductions up to January 20, 2006. After that
they face capital gains tax of 21% on the portion of their profits generated
after January 20.
All sellers, both resident and non-resident, still have the
right to use the inflation correction factor which helps to reduce their
taxable profit.
NEW ANDALUSIAN DECREE ON REAL ESTATE
The
Andalusian government enacted the Decree 218/05 to support consumers in buying
and selling properties. Briefly, the decree imposes the obligation on real
estate agents to have one “data sheet” for each property on their books which
must include the following data (Article 10) which you as the vendor must make
available to the estate agent:
1.
1. Address of the
property.
2.
2. General
description of the property and of the building or development.
3.
3. Price of the
property.
4.
4. Owner, land
registry charges or encumbrances, possible rights of way, residential and
constructed size, i.e. all of these backed up by a recent (no older than 3
months) land registry “nota simple”.
5.
5. Date of
construction, if available.
6.
6. Percentage of
the communal elements allocated to the property.
7.
7. Note of the
presence of electricity, water, tele- phone or gas supplies.
8.
8. When visiting
the property, there is a period of time during which the buyer will be able to
process the required paperwork for completion.
9.
9. Declaration as
to whether the vendor can or cannot provide the following documentation: copy
of by-laws of the community of owners, certificate indicating that there are no
debts with the community, available insurances and guarantees, the property
book (only provided by developers).
10. Certificate proving that council tax IBI is
paid up to date.
Article 12 provides for a mandatory document containing the
right of the consumer to be given a copy of the property data sheet in Spanish.
Articles 14 and 15 relate to enforcement of the obligations and
to the fines imposed in the event of non-compliance, ranging from 200 to 5,000
euros (pursuant to articles 71.4 LEY 13/2003, DE 17 DE DICIEMBRE, DE DEFENSA Y
PROTECCION DE LOS CONSUMIDORES Y USUARIOS DE ANDALUCIA). Contraventions which are
considered “serious” may be subject to higher fines (5,000 to 30,000 euros) if
the agent has deliberately or negligently ignored the obligations, repeats the
offence (which is therefore considered habitual) or if such non-compliance
affects a large portion of the market.
With respect to developers, it must be remembered that failure
to guarantee down payments is subject to a fine of 5,001 euros to 30,000 euros,
depending on the size and gravity of the offence but fines can be as high as
30,001 to 400,000 euros.
NON-RESIDENT CERTIFICATE
This may be required by the buyer, not by you as the vendor. If
the buyer is non-resident and the form of payment is not via a bank cheque
which identifies the buyer, as the issuer, and the issuing bank, the buyer must
in advance obtain a certificate of non-residence from the Spanish Ministry of
the Interior; it can take up to two months for this certificate to be issued.
If
payment takes place abroad, by transfer from the buyer’s account in the UK to
your account in the UK, this is perfectly legal, but it offers the Spanish tax
authorities no control over the transaction for documentation purposes. The tax
authorities therefore require the certificate with full details of the buyer
and vendor and their respective banks outside Spain.
If the buyer pays through a Spanish bank, a certificate of
conversion of the respective currency into euros for the property purchase will
have been issued, and the transaction will have Spanish documentation. If the
sale takes place in pounds sterling or in any other currency outside Spain,
this is also perfectly legal and acceptable as long as the cheque is presented
when the deal is completed before the Spanish notary.
INCOME TAX DECLARATION
As
a non-resident vendor you will normally be requested to submit the form 210 in which you have
declared and paid property owner’s income tax as well as the Spanish wealth tax each year. The buyer may also
ask to see the form 210 in which the imputed income tax has been declared. If your annual non-resident
tax declarations are not up to date, these taxes may be deducted from
the 3% retention amount by the tax authorities.
TAXES AND FEES
As the vendor, the only tax that you may be liable for is the
local “plusvalia” tax. However, you can negotiate for this tax to be paid by
the buyer. All other costs related to the sale, for example the transfer tax
ITP, notary fees and land registry fees are payable by the buyer.
Other
costs, however, may include legal fees and estate agent’s fees.
4. ANNUAL PROPERTY AND INCOME TAXES |
PROPERTY TAXES
All property owners in Spain are liable to pay three separate
taxes every year.
These
taxes are:
.
• Property
owner’s imputed income tax
.
• Wealth tax
.
• Annual real
estate tax (IBI)
Property Owner’s Imputed Income Tax
Spanish
property owner’s imputed income tax is not charged on a resident owner’s
principle residence; however, a second home would be taxed. In the case of a
non-resident, since this property will not be considered to be the principle
residence, the tax must be paid on a yearly basis.
The tax payable is 2% of the rateable value of the property
attributed to the property owner as a fictitious income on rental. This is
reduced to 1.1% if the rateable value has been raised since 1994 – and many of
the values have been raised. Residents pay tax on this notional income by
having it added to their other income as if it were more earnings. Lower
incomes pay 15% tax and higher incomes 30% or even 40%. A non-resident is
always taxed at the flat rate of 24% on any income arising in Spain.
This tax of 24% on income must not be confused with the capital
gains tax of 21% which applies to profits from the sale of assets, such as a
house or shares in a company.
Wealth Tax
The
wealth tax will now only affect properties with a property purchase price
higher than 700,000 euros.
Annual Real Estate Tax (IBI)
This tax is based on the “valor catastral”
and can vary widely from town to town for the same type of property because it
is a municipal tax. This real estate tax is called the IBI, the “Impuesto sobre
Bienes Inmuebles”. The tax is increased every year in line with inflation. For
a non-resident, the best solution is to have the tax paid by standing order
from a bank account. The bank will provide a form which authorises them to pay
the tax, and a copy of the form is deposited with the local council. This
ensures that taxes are paid when they are due, just as with the other utility
bills of your property. In addition to the assessed value of your property
(“valor catastral”), the IBI also lists your referencia catastral number, which
will identify your property at the “catastro” office together with its
officially documented size. This can be important in buying and selling
property because sometimes the physical description does not agree with the
description given in the property title.
These three taxes cannot be avoided as the Spanish tax agency,
“Hacienda”, will audit the books at the time of the property sale. They will be
holding your deposit of 3% of your total sale price, which is a guarantee
against your imputed income tax and wealth tax obligations for the previous
four years, as well as against your capital gains tax liability. You will also
be required to present the current real estate tax receipt, the IBI, when you
sign the sale contract.
SPECIAL TAX ON OFFSHORE COMPANIES (3%)
There are thousands of offshore tax havens used for the sole
purpose of owning a property in Spain. Tax exempt companies formed in Gibraltar
to own Spanish property are no longer recognised since the end of 2010.
The
strict controls on tax havens and money laundering have made these changes
necessary.
There is a new form of non-resident company that offers many of
the same advantages. The special tax on properties owned by offshore companies
is 3% of the “valor catastral”. For companies registered in Gibraltar or other
tax havens there are no exemptions.
NON-RESIDENT RENTAL TAX
It is legal and acceptable for you, as either a resident or
non-resident property owner in Spain, to rent out your property. However you
must remember that you must declare your rental income to the tax authorities.
You are actually required to declare the income within 30 days of receiving it,
but can instead apply to make quarterly tax declarations in order to save
paperwork.
It
is true that almost all owners who let their properties do not declare this
income to the Spanish tax authorities and the chances of getting caught are
slim. Nonetheless, Spanish income tax is due on any profits arising in Spain.
If you are non-resident, you are liable to pay 24,75% from the
very first euro of rental income. You cannot take advantage of the reduction of
50% for resident landlords.
If you are a resident, you should include your rental income
with your other income when you make your annual Spanish income tax declaration.
If you register your property as a tourist letting operation,
you can charge the maintenance expenses of your property as a business expense
and offset it against tax.
BUSINESS INCOME
If
you are a non-resident, but own and operate a business in Spain, such as a
restaurant, or a bar etc., you are also liable for Spanish tax on your profits.
YOUR FISCAL REPRESENTATIVE
The
non-resident property owner of only one property is no longer required by
Spanish law to appoint a fiscal representative who is resident in Spain. Owners
of two or more properties, however, must do so – under penalty of fines that
can go as high as 5,000 euros in the event of noncompliance.
The
fiscal representative guarantees to the Spanish tax authorities that they have
a reliable contact inside Spain for the non-resident tax payer. Most
non-residents appoint their tax consultant or legal representative as their
fiscal representative.
NON-RESIDENT’S FISCAL IDENTIFICATION NUMBER (NIE)
If
you are a non-resident property owner, you must pay the above-mentioned taxes
and may have to name a fiscal representative. In order to pay these taxes, you
must apply for a NIE (Numero de Identificacion de Extranjero), which is your
Spanish tax identification number. Non-Spanish residents of all nationalities
also have such a number.
You
should apply for this number when you purchase your property. The number
identifies you to the Spanish authorities and is required when you pay taxes or
have any dealings with “Hacienda”. To obtain it, you need to make an
application at the nearest police station, or “comisaria”, which has a
foreigner’s department and to submit a photocopy of the relevant pages of your passport.
If you are an EU citizen coming to live in Spain, you will be assigned your NIE
number when you obtain your new certificate of registration which has replaced
the residence card.
Alternatively, you can appoint a legal
representative to apply for it on your behalf by means of a power of attorney.
Residents in Spain must declare overseas assets
Since
February 2013, all residents in Spain must declare their overseas assets worth
more than 50,000 euros. Severe fines will be awarded for failure to comply with
the new law. Tax residents have until 30 April to present their declaration for
2013 and 30th of March of the following years.
The new legislation regarding the disclosure
of overseas assets by all fiscal residents and businesses in Spain has now
fully come into force (since 1 February) and declarations, made by filling out
Model 720.
5. TAX ADVANTAGES FOR RESIDENTS |
Foreigners sometimes believe that taking out an official
residence permit in Spain will cost more money and expose them to Spanish taxes
which non-residents can avoid. The reverse is actually true. The resident
property owner has a number of tax advantages over the non-resident.
EXEMPTION FROM CAPITAL GAINS TAX
(Under the following circumstances)
Residents over 65
An
official resident of Spain aged 65 or more who has lived in a principle
residence for three years is not subject to CGT when selling the residence. If
you are 65 or over and hold a Spanish residence permit or the EU certificate of
registration, you can buy a principal residence this year, live in for three
years and sell it on with no capital gains tax to pay.
Residents reinvesting profits in a new home
An official resident of Spain who reinvests all the proceeds of
a house sale in the purchase of another Spanish residence as a principal
residence will have complete relief from CGT. If a portion of the total amount
of the house sale is used, a percentage of relief up to the amount invested
will be granted. However, the seller must have lived in the home for three
years to qualify.
Holders of usufruct
These
are people who have the right to live in a property until their death. A person
of 65 or older who has a contract with a company to sell a principle residence
in exchange for a lifetime right to inhabit the property and a monthly stipend
will not be subject to tax. This makes such deals to turn home ownership into
lifetime income more attractive for older persons of modest means. The right to
inhabit the property is called “usufructo”.
3% RETENTION NOT APPLICABLE
If you are a resident and you sell your property, you are not
subject to having 3% of the total purchase price withheld and deposited with
Spain’s tax authorities as a guarantee against your capital gains tax
liability. Also, any tax payable on the sale will not be due until the
following year. A non-resident must however declare and pay within 30 days.
95% REDUCTION IN INHERITANCE TAX
Official residents of Spain who leave their principle residence
to a wife or to children, who are also official residents, may be eligible for
a 95% reduction in their tax base under the national law. This is 99.9% in
Andalusia.
Three
conditions apply to be eligible for this reduction:
1.
1. You must have
held an official residence permit for at least three years.
2.
2. The home you
bequeath must be your principle residence and you must have lived in it for at
least 3 years.
3.
3. The heirs must
undertake not to sell the property for 10 years, or for 5 years in many
regions. If they do, they are subject to taxation.
This reduction applies only up to a maximum of 120,000 euros.
For example if the inheritance is a property worth 120,000 euros, you can
reduce this total by 95%, deducting 114,000 euros, and therefore only paying
tax on 6,000 euros, i.e. no tax at all.
This
reduction is also available for a principal dwelling left to a brother or
sister over 65 years of age who has been living with the testator for the
previous two years. The reduction does not apply to any other assets, such as
cars, yachts or shares in companies, only to the home itself.
ANNUAL IMPUTED INCOME TAX NOT APPLICABLE
Spanish property owner’s imputed income tax does not apply to
the owner’s principal residence. A resident of Spain also has an exemption,
which ended in 2007, on the first 108,000 euros of valuation for Spanish
capital assets tax.
UNLIMITED STAY
If you actually live most of the year in Spain as a
non-resident, then you are breaking the law as it says that your tourist stay,
even as a European Union citizen, is limited to 180 days per year. You can be
fined 300 euros if you over-stay this limit.
RESIDENT PAYS CAPITAL GAINS TAX AS INCOME TAX
A resident pays CGT as part of income tax, so if you sell in
2012, you do not declare the tax until May of 2013 when you file for Spanish
income tax. In Spanish, the capital gains is called “incremento de patrimonio”.
Until 2007, the resident had his capital gain taxed at a maximum rate of 15%.
Under the new law, this is 19%, i.e. just under 20,000 euros on a profit of
108,000 euros.
RESIDENCE PERMITS
The
Spanish Royal Decree 240/2007 went into force in 2007 ending the need for EU
citizens to obtain a residence card in Spain. EU citizens are now issued with a
certificate of registration which also contains the EU citizen’s NIE number.
Only citizens of the EU are entitled to this certificate (including the
European Economic Area and Switzerland). All other nationals must apply for
cards as before and this also applies to non-EU family members of an EU
citizen.
6. REGISTRATION AT YOUR TOWN HALL |
The “Padrón” is the list of all the people who live in a certain
town. “Empadronarse” is the act of registering yourself on this list at your
local Town Hall.
Who should be registered?
Officially all residents in Spain are required by law to
register on the padrón, yet many still have not done so. The “Padrón” is the
way the Town Hall knows how many people live in their area without having to
make any investigations as to a person’s official residence status or financial
affairs.
The
information provided at registration is confidential and protected by data
protection laws and will not be provided to any other official or private
entity.
What are the benefits?
Better public services
The Central Government allocates money to the different
municipalities according to how many people are on the “Padrón”. Therefore, if
you are not registered, your Town Hall is losing money for the provision of
health centres, doctors, police officers, firefighters and schools.
Access to benefits and social care
You must be on the “Padrón” for a certain period of time to take
advantage of some income-related benefits and other aspects of social care
available through social services at your Town Hall. Those on the “Padrón” can
enjoy discounted courses, leisure and cultural activities run by the Town Hall.
Voting rights
In
order to register for local or European elections, you must first be registered
on the “Padrón”, as this is where the Census Office in Malaga collects the data
when preparing the electoral roll. When you register, you should also ask for
the form to register for the vote in these elections.
Day-to-day life
Because this document is your official proof of address, you
will need your “Padrón” certificate to carry out almost any administrative task
such as registering for healthcare, registering your car with Spanish number
plates or any procedure carried out at the Traffic Headquarters, enrolling your
children in Spanish schools, etc.
What Documents are necessary to register?
1.
1. Original
passport and photocopy/NIE or Certificate of Registration with the National
Police Foreign Office and photocopy
2.
2. Proof of
ownership of property (either your title deeds or a rates receipt in your name
and a photocopy).
3.
3. If you do not
own a property and are renting, your rental contract in Spanish and photocopy
will be necessary.
4. 4. If you do not own a property and you
are not renting, you have to come with the owner of the dwelling in order for
him to sign the registration form, authorising you to register at his property.
5. All family members over the age of 18, have
to sign the registration form.
This certificate is valid for three months but can be issued
again upon request.
Does it need to be renewed?
The
Town Hall will send you a notification at the address on the “Padrón” if and
when renewal becomes necessary.
7. SPANISH WILLS & INHERITANCE TAX |
SHOULD I HAVE A SPANISH WILL?
If a non-resident dies in Spain, without a will, the estate in
Spain will be distributed according to the Spanish laws of inheritance.
Let us take as an example a man who dies leaving 3 children and
a spouse. The only property is the house they are living in. If the widow’s
name is in the title as half-owner, she continues to own half the house. The
other half of the house constitutes the estate which is divided equally between
the 3 children. When the estate is settled, each child will own one third of the
title in half of the house, i.e. each of them owns one sixth of the house, and
the title deed has four names on it (the widow and each of the three children).
The widow is, however, entitled to hold a usufruct (lifetime use) of the
children’s share. This means she can stay in the property until she dies.
However, all parties must then agree and sign the deeds if the
house is to be sold. It is this provision of inheritance law that causes the
situation frequently seen in the Spanish countryside and villages where six
brothers are part-owners of a finca.
Dying without a will can give rise to time-consum-ing and
expensive legal procedures for your heirs, so if you really want to look after
them and if you have definite ideas about how you want your estate to be
apportioned, you should make a Spanish will. It is a simple procedure and you
will feel more secure.
All
the tax rates and exemptions refer to national inheritance law, and apply to
almost all non-resi-dents. Residents will find regional differences.
SPANISH WILL
There are four points to consider:
1.
1. You should make
a Spanish will which disposes of your Spanish property in order to avoid
time-consuming and expensive legal problems for your heirs. Make a separate
will to dispose of assets located outside Spain.
2. 2. As a foreigner, Spanish law does not
require you to be subject to the Spanish law on the statutory division among
the heirs according to which you must leave two-thirds of your estate to your
children. Most foreigners enjoy free disposition of their estate so that you
can bequeath your Spanish property to any person of your choice as long as your
own national law allows this. Your estate will, however, be subject to Spanish
inheritance tax, which can be high when property is left by a non-resident to
non-relatives. The law also states that any foreigner officially resident in
Spain is subject to Spanish inheritance tax on his worldwide estate. However,
in practice the authorities will not ask the testator if he or she is an
official resident or not. The only requirement enforced by Spain is the payment
of the inheritance tax on the property or assets held in Spain.
1.
3. There are a few
ways around the inheritance tax and these legal ways require advance planning.
Spanish law does not allow any large exemption from inheritance tax, as many
other countries do where the family home is concerned. Tax is payable after the
first 16,000 euros for each beneficiary.
2.
4. If you are an
official resident of Spain leaving your property to a spouse or child who is
also resident, you may be eligible for a 95% reduction in the value of the
property for inheritance tax calculation. This is not available to non
residents, and the reduction applies to the first 120,000 euros.
FAMILY TRUST
Amongst the perfect legal possibilities is the formation of a
family corporation or “trust”, in which the family’s assets pass into the hands
of the company, with each family member becoming a director of the company. So
when one member of the company dies, it involves only a reorganisation of the
board of directors and a transfer of some of the company shares, thus ensuring
very little tax.
However, in Spain, trust documents do not exist under Spanish
law, so instead a Spanish company is used.
EQUITY RELEASE, REVERSE MORTGAGE
A
wide variety of plans are now available from Spanish lenders. You may borrow
half the value of the property and pay back nothing until the property is sold
or you die, at which time the full amount plus interest becomes due. Your heirs
can repay the loan and take possession of the property or sell the property and
repay the loan, dividing up whatever is left over. As the loan is a charge
against the property, the inheritance tax is greatly reduced.
OFFSHORE COMPANY
For non-Spaniards, the constitution of a Gibraltar-based company
or other offshore operation in order to own real property in Spain has been
another way to avoid Spanish inheritance taxes. When the founder of the company
dies, he leaves his shares in the company to whomever he chooses, in a will
made outside Spain. As far as the Spanish authorities are concerned, the same
company continues to own the property and no transfer has taken place, hence
there is no tax or any other costs to pay.
FOUR YEAR LIMIT
The statute of limitations on inheritance tax runs out after
four years. The state cannot collect the tax once four years have elapsed. At
the end of this time the beneficiary opens the will and applies to register the
property, free of any inheritance tax, in his name. Spanish law requires that
an inheritance be declared within six months of the death. If not you can be
subject to a surcharge of 35% on the tax due. This period of six months is
included in the statute of limitations, so in reality four years and six months
is the period for prescription.
POWER OF ATTORNEY
Many
foreigners have been confused by the reference in English to an “enduring power
of attorney”. This POA does not mean that it endures beyond the death of the
person who grants it. A POA dies with its maker, in Spain and in the UK. The
“enduring” only means that it has no other fixed date of expiry.
8. SPANISH BANK ACCOUNTS |
The accounts of residents and non-residents differ in that
different regulations apply to money transfers for the resident and the
non-resident. The main difference is that Spanish withholding tax of 21% is not
withheld from the non-resident account.
If you are a resident, 21% of your interest earnings will be
withheld and paid to the Spanish tax authorities in your name, just as for
Spaniards.
If you are a non-resident, no tax will be withheld, but you will
be liable for tax in your country of residence.
Any bank transaction of more than 1,000 euros requires the payor
and the payee of the amount to be identified.
Some
banks charge more than 4% when transferring money out of Spain. Other banks
charge fees of around 21 euros per 6,000 euros of transfer so make sure you
discuss the conditions which apply to your bank account at the time you open
it.
