Notaries are independent legally-qualified officials who are ultimately responsible for the legal form and official declarations and payments related to any public document they oversee. The UK has public notaries – have a look HERE for the type of thing they do – but most official or formal private legal matters are conducted through solicitors. Spain, however, has a full notarial system Spain for public and official transactions, whether making a Will or enacting a power of attorney, or buying and selling property.
It is for property matters that most people come across notaries, and this page explains how a property is transferred, with both vendor and purchaser appearing together before the notary for sellers to hand over the keys, and for buyers to hand over the money (normally as a bank draft). Both sign the escritura (title deeds) and the notary oversees and also signs to confirm that the transaction has taken place and is legal.
As part of the procedure, the Notary will verify that the property is legally owned and registered to the vendor, that it is free of all costs and charges, and that it comes with vacant possession. An official translation of the documents involved in your completion will be provided if required. If a buyer or seller cannot sign in person, then they can allocate a representative by specific Power of Attorney to sign on their behalf. What Notaries do not do is confirm the specific legality of the property being transferred. It is possible to transfer, legally, a property that is actually illegal, and so it is still necessary to undertake a full and independent conveyance beforehand.
After completion, the taxes due on the transaction must be filed with the tax authorities, the Escritura submitted to the Land Registry, and the costs disbursed. These costs, known as gastos, are paid by the purchaser in Spain, and up to 10% should be mentally allocated on top of an agreed purchase price: any over-allocation will be refunded at the end of the procedure when the final Escritura is returned a few months later. These gastos include the Notary’s and land registry fees, as well as, primarily, taxes, which will either be 7% or 6.5% depending on whether the property is new or resale. Gastos must be paid within a month of purchase, and are normally paid when the escritura is signed at Notary.
Tax. Either 6.5% ITP (Impuesto sobre Transmisiones Patrimoniales, a transfer tax) for resale properties, or 7% IGIC (Impuesto General Indirecto de Canarias, equivalent to VAT) on new properties: this IGIC was 5% but was increased as part of measures announced in April 2012 – see HERE. For new properties only, a document registration tax (AJD – Impuesto sobre Actos Jurídicos Documentados) of 1% will also be payable, making the “tax” on new properties 8% as opposed to 6.5% for a resale.
Notary Fee. This will vary depending on the value of the property, and should be between 500 and 1000 Euros. The minimum charge is around 300 Euros.
Land Registry. Your new property must be registered in the municipal land registry (Registro de la Propiedad), and the fee should be around half of the Notary fees, except for garages or parking spaces, where the fees will be around the same as the Notary fees. (Bear in mind that if the property being sold is mortgaged, this mortgage will not only need to be cancelled by the bank at notary, the Land Registry charge on the property needs to be removed as well: this is a fee payable by the borrower/seller, and can amount to 500€ or so).
Plusvalía. In addition to these expenses, there is another issue for buyers, and sellers, to consider: plusvalía. This is a tax on the increase in assessed value of the land on which a property is situated during a vendor’s period of ownership. Its proper name is Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana. It is calculated both on the surface area of the plot as well as the difference in its Valor Catastral (rateable value) between the point of previous sale and your own purchase. Plusvalía has risen significantly over recent years and is now in the region of around €1,000 for an average sized apartment owned for six years or so. Indeed where a large amount of land is involved or the previous owner has held title for many years, it can rise to several thousand. The amount is often not known much in advance of signing, and sometimes not until afterwards, because it is calculated by the municipal authorities, some of which only produce the figure after completion. By law, the vendor is required to pay this tax even though many will have stories of years past where it was routinely paid by the purchaser. The period for payment is one month unless the property has been inherited, in which case the heir has six months to settle the tax (this six months can be extended to one year with prior permission from the tax authorities).
Note that from May 2017, there is a Constitutional Court judgment that plusvalía may not be charged on any property sold at a loss. The judgment has the usual four-year tax limitation, and so applies to any property sold after May 2013. Until legislation changes, plusvalía is likely still to be charged by councils on all sales, but anyone selling at a loss will be able to reclaim the cost. Please see HERE.
Property owners will have ongoing costs to maintain it legally. These include utilities bills, annual local and national taxes, and community fees if the property is part of a complex. You should allow for:
Water. This is usually paid directly to the relevant Water Board and is charged according to metered usage. Occasionally, it will be paid via a community who will meter usage internally.
Electricity. This is normally paid directly to the relevant Electricity Company and is also charged according to metered usage. Very occasionally, it too will be paid via a community who will meter usage internally.
Rubbish (Basura). This is usually paid directly to the municipal authority and is charged annually or half-yearly depending on municipality. Occasionally, it will be paid via a community where it will be included in the community charge.
Rates (IBI: Impuesto sobre Bienes Inmuebles). These are usually payable in May/June, or September/November in Adeje. The rate depends on the size, location and age of your property, and is calculated at around 0.45% of Valor Catastral (rateable value), or the chargeable base rate, base liquidable, if different to the Valor Catastral after a local rates revision.
Community Charge. This is payable by owners of properties which are part of complexes governed by the Law of Horizontal Division, under which a Community must be legally established. At an AGM of owners, the community will approve and adopt a budget which will depend on the various facilities and features of the complex, e.g. lifts, swimming pools, gardens, security, lighting, etc. The budget will be divided amongst the owners according to their quota, which is determined by a recognized formula: in simple terms, it is mainly based upon square metreage. The resulting community charge is paid into a communal fund which is disbursed by a Certified Administrator appointed by the Community who acts in accordance with all instructions arising from decisions made by the owners at Annual or Extraordinary General Meetings.
Income Tax (Impuesto sobre la Renta). Residents and non-residents owning property or investments in Spain are obliged to file annual tax returns. The basic income tax rate has been 24.75% since 2012 as a result of the Government’s austerity measures (the original rate was 24%). On 20 June 2014 it was announced that the rate will be reduced to 20% from the beginning of 2015 and further lowered to 19% in 2016 (these rates apply to EU residents – as the UK is currently – and those resident in Iceland and Norway. The rate for non-EU residents is 24%). Income tax is applicable to declared and notional rental income. This notional rental income – Impuesto Sobre la Renta de no Residentes – is assessed on non-residents even if they do not let out their properties, i.e. non-residents are deemed to have a certain level of rental income that they don’t declare. The amount of income is assessed at 1.1% of the property value (or 2% if the Catastral Value has not been updated within the previous ten years), the value being defined as the highest of the price declared on the Escritura, or the Valor Catastral, or the value deemed by the municipal authority if the Escritura price is not accepted.
Wealth Tax. This annual tax was reduced to zero in 2008 by the introduction of a 100% tax deduction, but due to Spain’s economic situation, the deduction has been abolished from 2011. This means that the tax, which we were able to treat as effectively abolished, has now reappeared. It was restored on a “temporary basis only” in 2011 but is still in place. It is paid annually in arrears, at a tax rate ranging between 0.2% to 2.5%, depending on net wealth over a threshold of (now) €700,000 per taxpayer, so for a couple, this is €1.4 million! For non-residents it is applicable only to Spanish assets, so it will only be payable by the very wealthiest of property owners.
If you have any questions on the above, please post a comment on the Q&A on owning property in Tenerife page HERE, which is where previous questions have been moved.