This can be a “nerve wracking” experience and this guide is purely to help you achieve a better understanding of the methods of purchasing property in Spain

Investigations before signing a full contract

Buying a property in Spain free of debts, mortgages and other encumbrances requires thorough investigation before signing any document. The most important of these are:

• The community of owners
• Water supply
• Planning situation of property
• Rubbish collect charge
• Bank guarantees ? Real Estate Tax
• Land Registry
• Electricity supply
• Planning permission
• Construction Licence
  

Contracts

Preliminary Contract - In same cases, the property can sell very quickly, perhaps because is especially attractive, or it is extremely well priced. As a result of this, it is very often that you will be asked to sign some a document to confirm your interest. There are various types of preliminary documents- these include:

Offer to Buy - A formal written offer from the potential buyer to the potential seller. It will state that the potential buyer wish to buy the stated property for a stated price and that he will complete the transaction within a stated period. The offer will normally be accompanied by the payment of a deposit to the estate agent or seller.

Reservation Contract - A written document in which the seller offers to take a stated property off the market for a fixed period and to sell it at a stated price to a stated person at any time within a stated period. The seller will usually require that the potential buyer pay him a deposit. Once he has received this deposit the seller must reserve the property for the buyer until the end of the period specified in the contract. If the potential buyer does not go ahead, they can lose the deposit. If the seller refuses to go ahead the buyer is entitled to claim compensation.

Full Contract - A full binding commitment to buy the property. It is the most common type of document and it is called “Contrato privado de compraventa”. It is an agreement that commits both parties. The seller must sell a stated property at a stated price to a stated person on the terms set out in the contract. The buyer must buy. Remember that under Spanish law by signing and completing this contract you become, in some senses, the owner of the property, though you will need to sign a deed of sale (escritura) and register your ownership to be safe as far as third parties are concerned.

Common terms

Escritura - The title document proving who the owner of the property is and containing a detailed description of the property itself. It is, under Spanish law, necessary for the Escritura to be signed before a Spanish Notary Public.

Notary - The Notary is a public official who put on the public record the fact that the title deed recording the sale/purchase has been signed in his presence and understood by the parties concerned. The function of the Notary is not to advise or to protect either your interests or the interests of the person selling the house.
When the Escritura is signed in front of the Notary the purchase price must be, in his presence, handed over to the person selling the property or the seller must confirms that the money has already been handed over. Proof of such payment must be then incorporated into the title deeds of the property.
Buying property in Spain

Fees and Taxes - In Spain when a property transaction takes place, as in any other country taxes and fees have to be paid at completion. Failure to do so means that registration of the Escritura at the Property Registration cannot take place. The fees & taxes you should expect to pay are as follows:

Notary's fees - The Notary's fees for the execution of the Escritura are fixed by a sliding scale established by law.

Land Registry's fees - For the registration of the Escritura at the Land Registry, again a sliding scale is applicable dependant on the purchase price. In accordance with Spanish law the Land Registry’s fees must be paid by the seller.

Commissions - The seller will have an agreement with an agent or agents to pay them a commission upon completion of a sale to a client that agent has introduced, the commission the vendor has to pay will always be reflected in the final negotiated purchase price.

Transfer Tax or VAT - If the seller is a private individual and not a property developer, the sale is subject to a transfer tax (“Impuesto sobre Transmisiones Patrimoniales” – ITP) at the rate of 7% (“Comunidad Autonoma de Murcia” and “Comunidad Valenciana”) levied on the purchase price as declared in the Escritura (Article 11.1.a) LITP-AJD). If the seller is a company or developer, the sale is subject to a VAT (“Impuesto sobre Valor Añadido” - IVA) at the rate of 7% (Article 91.1.7º LIVA) will be levied on the purchase price plus a stamp tax at the rate of 0,5 or 1% (Article 31.2 LITP-AJD)

Plusvalia Tax (Impuesto sobre el Incremento Del Valor de los Terrenos de Naturaleza Urbana) - This is a municipal tax on the increase in urban land value; The Plusvalia is based on the assessed increase in the official value of the property from the date of the previous sale to the date of the current sale. The amount payable varies widely since it is based upon the assessed increase in the land's value and the lapse of time since the prior transaction. The amount payable also depends on the location of the property and the applicable scale.
In accordance with Spanish law the Plusvalia Tax must be paid by the seller.

Capital Gains Tax - This must not be confused with the above-mentioned Plusvalia Tax, as it is not based on the official value of the property like the Plusvalia Tax, but on the real value. The Capital Gains Tax is based on the increase in the purchase price and the sales price.

There are many obligations to fulfil throughout your purchase in Spain and we would always recommend that you appoint a Spanish lawyer to represent you throughout