In Spain the transfer of real estate has to be arranged much more by the parties themselves than in other countries. Issues such as payment of transfer tax, registration in the land register, registration municipality, possible registration association of owners, utilities seem to be obvious, but there is more to it.
In many cases the buyer is also liable for the payment of certain taxes and other debts of the seller. The Spanish notary does not take care of this. So be careful.
Ongoing bills or annual taxes are generally settled between the parties on a pro rata basis. However, these amounts are often only known after the transfer. In most cases an amount is deducted from the purchase price. We always recommend that this amount remains in the account of the lawyer of either party, preferably the buyer.
When the seller is not a resident, i.e. is not residing in Spain, some very important deductions of ‘invisible’ liabilities must be taken into account. Invisible, because these debts are not reported in the land register. The buyer can only find out by actively investigating. It concerns the following debts:
I. The national capital gains (3% rule)
II. The municipal profits tax (plusvalía)
III. Property tax
IV. Debts Owners’ Association
I. The 3% deposit on the capital gains
When selling real property in Spain, the capital gains return must always be submitted. Even when no profit has been made on the sale. If the seller is resident in Spain, the profit will be included in their annual tax return and there is no obligation to withhold. However, in the case of non-residents who sell, the buyer will be held jointly liable.
So the remarkable thing here is that the buyer must deposit 3% of the purchase price into an account of the tax authorities. In this way, the Spanish tax authorities will not be left out as the seller goes back to his country and does not declare the profits made.
It is important that the buyer makes this deposit on time, because the seller needs the deposit slip to make the tax return regarding the profit (or loss) made with the sale.
If the capital gains to be paid is higher than the amount already paid (3% of the purchase price), the seller should make an additional payment. However, in practice this rarely happens.
If the capital gains to be paid is lower than the amount already paid, the seller can claim the difference back. A requirement for the refund of the 3% paid is that the seller has paid the annual income tax for non-residents, at least over the last 4 years. If this is not the case, this can still be done if the payment of the overdue tax with penalty interest is lower than the amount expected to be refunded.
II. The Plusvalia
This is the council tax on the capital gain of the land. The official name of this tax is ‘Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana’. This tax is based on the (increase in) value of the land as set out in the ‘Catastro’ and is calculated as a percentage per year that the seller held the land, with a maximum of 20 years. The percentages are determined independently by each municipality.
Even in the case of an apartment, on the part of the land attributable to the apartment must be paid plusvalía municipal.
For this tax, too, the buyer must in principle settle this with the council, but if the seller is not resident in Spain, the buyer will also be held liable for the payment of this tax. In the latter case, the amount due will therefore be deducted from the purchase price.
III. Property tax
In Spanish called “Impuesto sobre Bienes Inmuebles”. This tax is also called “IBI”. Towns and municipalities are entitled to determine and collect this tax. This tax is generally collected by external parties, such as the Suma in Alicante, for example, and therefore the name of these taxes is sometimes mistaken for the name of these companies. This tax is determined on the basis of the Valor Catastral and the buyer can be held liable for payment of this tax up to 4 years before the date of purchase.
IV. Debts Owners’ Association
The purchaser may be held liable for payment of all contributions owed to the Owners’ Association and not paid in the current year prior to the date of purchase and 3 years back.
Selena Escandell