Conveyance legal issues.

Conveyancing legal issues.

Conveyancing is a specialist field in the legal profession, since the property laws are often highly complex.

With this in mind, before purchasing property in Spain, the buyer must verify in particular the following issues:

a) Make sure the seller owns the property in its totality.
b) Make sure the property is free of debts and charges such as mortgages.
c) Verify the urban classification of the land on which the property is built.
d) Verify the urban development plans of the land on which the property is built.

In order to satisfy these issues, there are a number of checks that should be carried out by the purchaser. In this sense, conveyancing will differ from case to case.

Two of the most common are the following:

1) Acquiring a property registry report (Nota Simple Informativa) from the land registry (Registro de Propiedad), which clarifies ownership and any charges corresponding to the property. (The Land Registers record estates, house, etc., including their transfers, mortgages and other liens and seizures).

2) Checking with the Town Hall the urban classification of the land on which the property is built, and its place in urban development plans.

Sales contracts in Spain must be executed before a notary to have full effect, if they are to be entered in the Land Registers.

It is common practise for both parties to enter into an initial private agreement (which may involve a deposit, or Earnest) and afterwards to complete a public deed of sale before a Public Notary and register the transaction in the land registry.

After the purchase you should notify the corresponding Gerencia Territorial del Catastro of the change of ownership resulting from the sale.

Applicable taxes on the acquisition of property in Spain: Sales Tax (VAT) & Stamp Duty.

These taxes only apply if the property is being sold for the first time and the seller is a property developer. The Sales Tax (known as IVA in Spain) is 7% on the price of the purchase, and the Stamp Duty is fixed between 0,5% and 1,5% on the price of the purchase, depending on the Spanish Autonomous Region in which the property is located. If any deposit is paid before completing of the sale, this deposit will be subject to VAT (7%) at the moment of its payment.

The buyer always pays VAT and Stamp Duty. VAT is paid directly to the seller, and the Stamp Duty is paid to the tax office. Usually the Stamp Duty is paid by the lawyer representing the buyer through a previous provision of funds.

Transfer Tax (Impuesto Sobre Transmisiones Patrimoniales -ITP)
This tax only applies if the property has been bought and sold before. The amount is 7% (in some places it is 6%) on the price of the purchase, depending on the Spanish Autonomous Region in which the property is located, and the buyer always pays the tax.

In this scenario, if any deposit is paid before completion of the sale it is not subject to the transfer tax. However the full amount of the transfer tax still has to be paid upon completion directly to the tax office.

Usually the buyer pays this tax to the lawyer who deals with the acquisition on behalf of the buyer. The lawyer uses to require the buyer to advance a provision of funds.

Other taxes: Local Capital Gains Tax (Plusvalía)
A local / municipal tax that applies to the increased value of the land upon which urban properties are located, and that is levied at the time of transfer of ownership.

It is calculated on the basis of the 'valor catastral' of the property (an administrative value that is usually lower than the market value). The amount due will depend upon how long the seller has owned the property, with the tax amount increasing with duration of ownership.

The seller pays this tax, though it is possible that sellers of resale property may try to shift the burden of this tax to the buyer. It is common to increase the price of the property by this tax: in practise, the buyer finally pays this tax.

There are other taxes related to the ownership of real estate in Spain (Property Ownership Tax or Impuesto sobre bienes inmuebles - IBI), and specific taxes applicable only to non-residents, in which the jurisdiction of residence for tax purposes is very important because in some cases the double-tax treaties provide advantages in specific countries. We will be more than happy to assist you in any question related to this matter.