By Jason Porter is a director at Blevins Franks (blevinsfranks.com),
Spain is the most popular country for UK residents buying property abroad. The Home Office estimates that close to 400,000 UK expatriates live there. It is just as simple to buy property in Spain as it is in the UK – as long as you take the correct professional advice, and proceed with caution.
Over the years, high demand has led to the development of various unscrupulous practises by developers, lawyers and estate agents. There are an estimated one million illegally built homes in Spain, of which it is believed around 10 per cent were purchased by British buyers. Some Britons have seen these homes demolished and been left out of pocket.
There are many reputable estate agents in Spain, mainly members of the API or GIPE (professional real estate associations), who can provide an experienced guide to the locations you prefer. But this is a deregulated industry in Spain, and almost anyone can broker a property sale, so choose your estate agent with care.
You should always engage the services of an abogado (qualified lawyer), registered with their local Bar Association. It is only registered lawyers who will have indemnity insurance. Do not take up any recommendation of the selling estate agent. Unless your Spanish is excellent, make sure they are English-speaking so they can guide you through the purchase process without language barriers. The gov.uk website has lists of English speaking lawyers across Spain and its islands.
The legal process of buying Spanish property will always include a notario (notary). There is no real equivalent in the UK but they are effectively a neutral lawyer for the Spanish state, who makes sure all the legal documentation is correct and that all taxes are paid.
Once you have found the property you wish to purchase, you may be asked to sign a reservation contract. While not a necessary part of the buying process, signing a reservation contract should mean the property is no longer marketed by the estate agent. This may seem to be an innocuous document, but it is roughly equivalent to being sold subject to contract in the UK. You should therefore have your lawyer review this document before signing.
The next stage is a private purchase contract – the equivalent of an exchange of contracts in the UK. At the point this contract is signed, the buyer becomes legally liable to complete the purchase and will, at least, lose their deposit (normally 10 per cent) on withdrawal.
It shouldn’t be rushed, but if outstanding matters remain, such as obtaining a Spanish mortgage, or legal searches, then it is possible to include various conditions, or “get-out” clauses.
If those clauses are not subsequently met, you could still be involved in a legal battle to extricate yourself from the contract, however, so it is always preferable to deal with these matters first. You will then need to:
1. Establish you can borrow the right amount of mortgage, and have it legally in place.
2. Obtain the services of a valuer. If the property is a large independent property, the valuer will establish that what is showing at the land registry is accurate. If an application has not been made and the relevant licence granted to increase the property size, this could mean that parts of the property are illegal. This must be resolved prior to purchase.
3. Utilise the services of a surveyor. A Spanish survey will consider things like the adequacy of foundations, the utilities, the presence of insects, whether asbestos is present and the condition of the roof. Contracts are not subject to survey in Spain, so it is important these issues are unearthed in advance.
4. Ensure all legal searches have been completed. If you are purchasing a new build, this will allow you to establish that the property is being built legally, the extent of local development, and what is expected to be built immediately surrounding your property.
When choosing an existing property, the searches will establish if there are any outstanding fines, debts or bills with the authorities, utilities or banks. In Spain these attach to the property, not the individual, and you may become legally responsible if they are not cleared prior to completion.
5. Ensure that the full value of the property is shown in the documentation. In the past, under-declaration of the sale price was a routine means for the seller to reduce capital gains tax. You may still come across the odd vendor asking you to declare you are buying the house at a price that is lower than the real price agreed – the difference satisfied by a cash payment. The seller may assure you this fraudulent practice is perfectly normal in Spain, but it is not.
The “fiscal value” is the value of the property registered at the town hall, and is used by the tax authorities in Spain in assessing any purchase taxes payable. Your Spanish lawyer should emphasise to you the legal and financial consequences of paying taxes on completion based on a price which is less than the fiscal value.
Buying a property in Spain needn’t be a daunting prospect. It is, however, crucial that in your rush to buy the property of your dreams, you do not find you are buying a house with issues that could come back to haunt you later.
Jason Porter is a director at Blevins Franks (blevinsfranks.com), the international tax and wealth management advisers to UK nationals living in Europe