Selling properties in Spain – Taxes, expenses, and process

If you have decided to sell your property, please pay attention to the following information:

1.- DOCUMENTS TO PRESENT BEFORE THE SALE:

- Title deeds from the property (Escritura)

- Water and electric bills.- the most recent ones.

- Council Tax Bill (IBI – SUMA) .- It is absolutely necessary to present the latest receipt but it would be a good idea to have the receipts for the last five years , to show good faith. If the property is not in the SUMA it must be inscribed it in the SUMA office before completion.

For this inscription, an architect must go to your property to make the plans and measurements and  together with a copy of the rest of the documents (deeds, padron, plan of location of the plot, photos, etc.), must be presented in the SUMA offices.

Once the process of the inscription is finished, the Town Hall will withdraw the bills for the last 4-5 years. Usually the bills will be delivered to the property one or two years after completion, and must be paid by you although you were not the owners then. So, in these cases, is common to calculate the amount of bills before the sale, and provide the new owners with enough provision of funds to pay them this coming form the present owners when the new owners receive them in the future.

The IBI receipt also confirms that the house exists and is registered for taxes. Finally the IBI  must be presented when you sign the contract at the Notary because it also displays the number of the referencia catrastral, which since 1997 is a required part of the documentation in property transfers.

- Certification of No Infraction .- This is called “Certificado de No Infracción Urbanística”. This is a certification made by the Town Hall, establishing that the property is free (or not), from any fines or penalties established by the Town Hall over any constructions added to the property, or in fact any charges or  fine on the current  property itself.

Why this Certification is necessary to sell my property?.

Because it will help your sale to go smoothly if you have all your documents in order such free of any debts and fines for the main building of the house or construction extensions over the property. It builds confidence in the possible buyer and his own Solicitor.

In the past, to obtain these certifications were free, and public. Right now to obtain them are restricted to owners, or to professionals with written authorization from you.

From now on ,this certification is ESSENTIAL to sale the property, and must be obtained from the owner  before completion.

How do you get the Certificado de No Infracción Urbanística?: The way to obtain it is to go in person, or through your lawyer (with an authorization signed by you) to the Construction Dept. from the Town Hall (“Departamento de Urbanismo”), and asking for it.

To proceed with this you will need the following:

• Copy of the escritura (deeds of the property)
• Copy of the SUMA (Council Tax)
• Water and Electricity bills sometimes can help
• Authorization signed (as we said if you have instructed a lawyer).

Please, make sure that you or your entitled person, bring these documents with you when you make the application of this certification in the Town Hall. Or you may have to return with them.

- Original NIE numbers: In the past, you could buy the property without NIE numbers, or with a copy of them. Right now you need the ORIGINAL ones to sell the property, otherwise the Notary and the Land Registry could refuse it.

If you do not have the NIE numbers or if they are lost or you only have a copy, you must apply for the original ones in the NIE offices in the nearest area. The process will be exactly the same that to apply for a new one. If your original one is lost they will give you a copy with the same number.

- CERTIFICATE OF HABITATION, also called “LICENCIA DE PRIMERA O SEGUNDA OCUPACIÓN”: This is a document which resumes the confirmation from the Town Hall that the property is ready for habitation, and it is applied once the property is finished with the Construction Completion Certificate (Certificado Final de Obra) and inscribed in the land registry with the Declaration of New Building – DON (Declaración de Obra Nueva).

You need this document to obtain the permission of the Town Hall to live in the house. Before you get it, what you have a is a construction, but not a “house”.

This document will be necessary to obtain the individual supply of the utilities on your name, and with “house” use.

This document is then extremely important to get the electric and water contracts on individuals name. Before the Builder obtains the certificate of habitation, there could be water and electric supply in the construction, because, is normal that the builder obtains this supply to make the works (for the tolls, machinery, etc.). But the supply obtained from the builder is a supply for “works”, but not for “house”.

Sometimes, Buyers or Promoters are left in their properties with electric and water supply for works use for years, because the builder did not obtain the proper CH (Certificate of  Habitation). They have water and electricity but in a very poor conditions, and expensive than the normal supply for a house.

In order to guarantee you, as buyer or promoter, that the builder will obtain the proper CH, it will be highly advice to leave a part of the payment of the price when the CH is obtained. It will force the builder to work right and to do his best to get this document asap.

CONCERN : “I have a property in Spain and I don´t have the Certificate of Habitation, How I could get it?”.

In order to answer to this question, you have to clarify if the property is in Urban or Rustic Land:

A) Urban Land Properties: The Town Hall should give the CH always that the property, when built, fulfilled with the legalities of construction, mainly the Ten Years Guarantee and the Final Works License.

B) Rustic Land Properties: It depends on the area, region  and each Town Hall. Our experience on this is that each Municipality has different criteria to give or not the CH.

Usually if both, the land and the house, fulfill with the general rules for construction, the Town Hall should give the CH.

But if the land or the house do not fulfill with the general rules for construction (less than the 10.000 or 20.000 sqm, or in a protected area, or not license, etc.), then the Town Hall will approve the CH or not studying every individual case. You should get a proper legal advice in these cases.

- ELECTRICITY.- Sometimes happens that In rustic land the property is built in a land of less than 10.000 sqm. So in these cases, Certification of Habitation (Certificado de Habitabilidad ) will never be obtained.

How this affects the electric connections?- Your property could be in one of the following situations:

A) If your property already has electricity connection, with the proper contract of supply. In this case usually the contract will not be for House Supply (Vivienda), will be just for Agricultural Warehouse (Almacén Agrícola).

It means that, for the supplying company, your house is not a house, is an agricultural warehouse. This is very common, but consequently the supply given to your house will be for farm purposes, because in theoryin less than 10.000 sqm., in rustic land only farm sheds must be built but not houses.

Also, it seems that if for any reason, the supplying company inspects the connection in your property, and they detect that you are using it for domestic use and habitation purposes they can fine the property (although this is rare) is common that if your property is over 6 years old it is accepted without too many problems.

If it is used for a different use than the one authorized (for farming), for your peace of mind, our companies have not detected this kind of inspections in the area yet, but the buyer must be informed, in the initial steps of the transaction, about the current situation of electric contract, in order to avoid problems in further steps of process.

On completion, you must sign a formal authorization to transfer the contract to the new owner.

B) Your property has electricity connection with a “Construction Contract”.

This means that the Builders, when they were building your property, they contracted to build your house. Once they completed the building, as the electric company only supplies power when the certification of habitation is supplied, then the electric company would take over the contract from the builder. If in your case, this certification is not supplied (less than 10.000 sqm.), the builders, simply, left the house with construction supply in order to provide you with enough power for living.

In these cases, the problem is bigger than in the previous one, because, legally, the electric company (Iberdrola) is not allowed to supply connection for construction purposes for more than 2 years. Passed this time through, they can cut the supply at any time and fine the owners who are using the supply in this way.

If your property is in this condition, please ask a specialist. Usually these type of contracts are in the Builders name.

C) If your property has electricity but you have not any contract and you have not paid, nor received any bills during your stay in the house. In this case, please consult your solicitor urgently.

D) If your property has supply for habitation purposes. It occurs in old houses with less than 10.000 sqm or in houses with more than this surface. In these cases, there are not any problems.

E) If your property has supply for habitation purposes, but the contract is older than 20 years. Normally it happens in old houses. In these cases, to transfer the contracts to the new buyers, you as the vendor must to provide a certification from an official electrician in order to guarantee that the old installation is in a perfect condition. This document is called “Boletín Eléctrico”.

F) Whatever the type of contract is and bills are coming on the previous owners name, but you are paying them.- It happens when the electricity company did not authorized to make the changing of the names in the supplying contracts. In these cases, a specialist must be consulted to clarify what was the problem.

2.- TAXES INVOLVED IN THE SALE:

A) IF  THE VENDORS ARE NON-RESIDENTS:

When you, as vendor, bought your property in Spain, you paid the taxes involved in the same transaction of the purchase as normal buyer. These expenses were, mainly, the notary and land registry fees, legal and solicitor fees, the 7% for the Transfer Tax.

After 2007, the retention was reduced from 5% to 3%. So now the Capital Gains retention for Vendors when NON SPANISH RESIDENTS IS THE 3 % of the price of the sale.

When you bought the property,  as owner of Spanish property, you had to make the following declaration of taxes, EVERY YEAR, DURING THE TIME IN WHICH YOU WERE THE OWNER OF THE PROPERTY:

- Income Tax:  After completion, the Spanish government considers that you, just for the reason to own a property in Spain, have to pay the 0.25 % of the official price of the property. This tax is a part of the General Income Tax.

- Wealth Tax: Mainly, the 0.2-0.4 % from the price of the property.

You had to make the proper declarations of the Income Tax, and the Wealth Tax, with the famous 214 model , and after 2008, only exists the Income Tax because the Wealth Tax is cancelled, now the Tax New Model is the 210. These taxes are calculated over the general incomes received, and from the official value of the property.

If you have not made any of these declarations, please, feel free to consult us in order to instruct you how to do it.

I.- From 01-01-2007, the Capital Gains system for non-Resident Vendors is the following modifications:

- Capital Gains is of 18 %, over the net profit.

- Retention is of 3 %, instead of the previous 5 %.

II.- In the past, the control for the Capital Gains from the part of the government was very weak. It resulted in that, for sure, hundreds and thousands of transactions in the area were made with official prices reduced from the real ones, with the intention to reduce the Capital Gains payments from the vendors, and the Transfer Tax, from the buyers.

In order to control transactions which could result in illegal reductions of prices, between buyers and vendors, the control is extremely higher now than in the past.

- Third: If the Spanish customs detect a non declared value, fines will be double than in the past, and, in some situations vendors and buyers could be denounced not only for fiscal actions, also for money laundering.

B) IF THE VENDOR IS A SPANISH RESIDENT:

- FOR CAPITAL GAINS:

• They pay 18 % of the net benefit.
• They do not have to pay the 3 % Retention on completion.
• If they are selling their main residence, and they invest in another main residence in Spain in less than 2 years, they have 100% exemption of CG tax for the sale of the property.
• If they are aged than 65 years old, they have 100 % exemption for CG tax for the sale of the property.

BEFORE 2010 the “Spanish fiscal residence” could be obtained in the Spanish Customs showing the Padron, the escritura, the Passports, water +electric bills, and the NIE number, confirming that he/she was living in Spain for more than 6 months each year.

It means, that, before 2010, a vendor could avoid to pay the 3 % Capital Gains Retention, if he showed a Certification made from the Spanish Customs confirming he was Spanish resident, called “CERTIFICADO DE RESIDENCIA FISCAL”. This confirmed that the vendor was living in Spain for more than 6 months per year.

But, IN JANUARY 2010, has entered in force a new requirement from Notaries and the Spanish Customs from which they require a NEW CERTIFICATION from the Spanish Customs, confirming not only that the vendor is Spanish resident (living in Spain for more than 6 months during the year), also, that he/she has paid the taxes in Spain AS SPANISH RESIDENT. Usually, declaring with the Models 100, or 110.

Thus vendors who have been paying their taxes as non residents, with the Model 214, or the new 210, or simply not declaring anything, they will be considered as Non-Residents, and subjected to the payment of the 3 % retention for CG.

It means, that, after January 2010, vendors will be forced to pay the 3 % retention on the sale of their properties, if they do not proof that:

- First: They are living in Spain for more than 6 months each year. This is proved with the “Certificado de Residencia Fiscal”.

 - Second: They are declaring and/or paying their taxes in Spain as “Residents”. It means that they have been declared previously as non residents in their countries of origin, and paying the Spanish Income Tax as Spanish residents, with the models 100, 110,etc.

OTHER TAXES FOR VENDORS-PLUSVALÍA

The PLUSVALÍA: (Arbitrio sobre el Incremento del Valor de los Terrenos ) is a tax charged by the Town Hall on the increases in an offical set of values for the property. The Plus valia varies widely, depending on the amount of time that has passed between sales. Before completion you can find out how much it would be simply by going into the municipal tax office in your Town Hall.

In these cases, a retention from the Buyer to the Seller is enough to cover the payment of this tax.