Spain

Why Spain?

Spain is one of Europe’s most attractive countries, with much to offer those who settle there, as the hundreds of thousands of Britons who have bought a Spanish property in the last three decades can bear witness.

Other issues that have been well-publicised in Spain revolve around the granting of illegal licenses for property development in certain parts of the country and corruption at the highest levels of local government.

However, property in Spain will always be popular with British buyers who are looking to relocate or who are buying for lifestyle reasons. While investors may choose to look elsewhere in the world, Spain remains one of the best countries in the world for a relaxed way of life.

Spain still has much to offer the property purchaser, from small apartments and fincas to palatial frontline beach properties and golf villas.

Popular locations in Spain

Since the 1960s, when Britons first started travelling to Spain, the Costas have been among the most popular destinations. The Spanish islands, including the Balaeric and Canary Islands, have long been popular tourist destinations, and are proving to be great locations in which expats can settle. The arrival of low-cost airline flights to many of Spain’s cities has opened up the tourist market, while student properties near universities are also popular investment properties.

The Balearic Islands

Househunters should consider Mallorca, Menorca, Ibiza and Ibiza’s little sister, Formentera. Formentera is an ideal getaway destination.

Costa Blanca

This gives tourists and property buyers great access to the region throughout the year, and with the Mediterranean motorway running alongside the coast for virtually the whole length of the Costa Blanca, moving around within the region is also easy.

Costa del Sol

Probably the best known of all the Costas, the Costa del Sol runs from Nerja to Gibraltar.

Buying a property in Spain

The purchase process

Before you begin the purchase process, you will need to obtain a fiscal number (numero de identificacion de extranjeros). You should also retain the services of a lawyer who speaks Spanish and English.

In the case of an off-plan purchase, you will be asked to sign a reservation contract and pay a small fee, at which point the property will be taken off the market for a limited period (usually 30 days). This first payment is normally 10 per cent or more of the purchase price and is non-refundable.

In the case of a resale, once your offer has been accepted, you pay a small deposit. Should you breach the contract, you forfeit your deposit. Once completion has taken place, various fees and taxes are payable, and the property is then registered at the Land Registry.

Some sellers of resale property in Spain will encourage you to under-declare the value of the property to the authorities, and pay a proportion of the price in cash in order to secure a slightly cheaper price. This is illegal, and is done purely so that the seller can avoid paying part of the capital gains tax that they will owe on the property. Costs

As a yardstick, anyone buying property in Spain should allow between 10 and 14 per cent on top of the agreed purchase price for the various fees that must be paid.

The buyer pays:

• Legal fees (usually between 1 and 2 per cent)

• IVA (Spain’s equivalent of VAT) at around 7 per cent, plus stamp duty of 0.5–1 per cent, on a new property,

• Stamp duty at 6–7 per cent (depending on the property’s location) on a resale

• Notary and property registration fees of about 1 per cent

If the property is located within a complex, there will be maintenance charges.

Spanish property mortgages

There are two main options for using a mortgage to fund your property purchase. These are remortgaging your UK home or arranging a mortgage on your Spanish property through a UK or Spanish lender.

Bear in mind that an overseas mortgage may incur higher set-up costs (sometimes 3 to 4 per cent of the amount borrowed) and that Spanish lenders will not be interested in doing business if existing loans exceed 35 per cent of the borrower’s income, as is the case in much of Western Europe.

Remortgaging offers the easiest solution. Releasing equity in a UK property means that the second home can be purchased for cash, without the need for another mortgage. Several UK mortgage providers will lend funds of up to 80 per cent of the purchase price for second home purchase over, typically, a 15-year term.

Euro mortgages, which are tied to the rate set by the European Central Bank (ECB), currently lower than the Bank of England base rate, may seem an attractive option, and several UK lenders offer them. However, because of the volatility of the currency markets, a euro mortgage may not be the best option for many people, who cannot afford to lose heavily should the currency move against them.

The self-employed are seldom eligible for a euro mortgage, as comparatively few European lenders will consider self-certification of income.

Taxation on property in Spain

In Spain, taxes are levied by three tiers of government: central government, autonomous regional governments and local municipalities. The Spanish tax system is particularly complex, and you are strongly advised to seek professional advice tailored to your individual circumstances.

Personal taxation: non-residents

Non-residents are taxed at a flat rate of 24 per cent on their Spanish-sourced income – for example, rental income from property in Spain, income from a business in Spain and interest on funds deposited with a Spanish bank.

Those who own a Spanish property exclusively for their own personal use and have no other source of taxable income in Spain pay a version of income tax called imputed income tax, which is calculated on the property’s valor catastral, or rateable value.

Local taxes

The impuesto sobre bienes inmuebles (IBI) is an annual property tax levied by the local municipality and used to fund local services. Like imputed income tax, it is calculated on the valor catastral, so it varies widely from one property to another. Owners might pay as little as 100 euros (£68) per year for a small country property, but a luxury home in an expensive development on the waterfront in Marbella might cost as much as 3,000 euros (around £2,000) or more per year.

Money matters

In 2002, Spain exchanged the peseta for the euro. The current rate of exchange is one euro = £0.78 sterling.

Travellers’ cheques are normally acceptable in Spanish cities and tourist areas. Bureaux de change can be found in larger towns, cities and tourist areas. Virtually all credit and debit cards are widely accepted throughout Spain.

Passports, visas and residency

Passports and visas

EU passport holders visiting Spain for business or pleasure for up to 90 days do not need a visa.

Residency

With the incorporation of Spain into the European Union, the residence card became the only formality required for EU citizens to take up residence in Spain.

Spain has recently relaxed the rules on residence cards for EU nationals. There are two categories of residence card, the temporary residence card (valid for stays of between 90 days and a year) and the residence card (valid for stays of between one and five years, and renewable thereafter).

The Spanish economy

Spain’s economy today ranks around fifth in the EU and accounts for slightly less than 10 per cent of the EU’s output. Catalonia and the Basque country are the driving forces of the economy, and it is worth noting that just five of the provinces produce over half the country’s industrial output. These are Oviedo, Navarre, Madrid, Vizcaya and, of course, Barcelona. In fact, around 85 per cent of the Catalonian-based companies are located in Barcelona, making it the driving force for the country..

And finally…

Buying a home in Spain is a major, and life-changing, experience. Here are some tips:

• Think carefully before making any decision and ensure that your family is behind you.
• Research is vital. Choose the area you’re most interested in, and then take several holidays there.
• Once you know which area and property you’re interested in buying, be certain you have enough funds for the purchase. Don’t forget to consider such aspects as the cost of moving your possessions from the UK to Spain.
• Don’t be rushed into making a decision, and don’t let yourself be pressured. Certainly don’t sign anything until you’re ready.
• Pensioners should make certain that they can have their pensions paid into a Spanish bank. It’s most important that your have health insurance in place and that you make a Will.