Acquiring property in Spain <<BACK

Searching for a home in Spain is not more difficult than in the UK although you are likely to face additional challenges such as the language and legal and tax concepts, most of them foreign to the UK system.

Nevertheless, our experience is that despite the difficulties, the level of satisfaction of the foreign purchaser after acquisition is generally high.

There are certain recommendations to ensure a sound transaction, starting with choosing the right area to acquire the property.

Enlisting the help of a reputable real estate agent is a good way to find your property.

The next thing to consider is choosing a Spanish Lawyer (Abogado), specialising in property transactions and the various tax implications for the UK client. The Firm of Abogados that you use must be registered with the Spanish Local Law Society (Colegio de Abogados) and if the practice in England, regulated by the Law Society or Council of the Bar.

If you are using a Solicitor in England or Scotland the same principles will apply, and the solicitor must be qualified to give advice in Spanish Property Law and Tax and registered as a European Lawyer in the Spanish Law Society.

The acquisition process in Spain starts with choosing the property until registering the Public Deed (Escritura) in the Land Registry (Registro de la Propiedad).

Every transaction must be considered taking into account the particular circumstances and the will of the parties. Bi-lingual skills, sound legal knowledge and a good understanding of both parties’ intention are crucial.

The preliminary agreements

After selecting the property, the transaction process starts with the preliminary agreements. The vendor and the purchaser, without committing formally, express reciprocally the intention to draft a contract. Usually, pulling back at this stage does not create any obligation for the parties, if the nature of the agreements is clearly defined as not binding to the parties.

The term “preliminary arrangements” does not necessarily mean that you are not entering into a contractual relationship. It must be noted that once a payment has been made the contract is actually final and legally binding.

The private purchase contract

The proper contractual relationship starts when the property and the price have been determined and agreed by the parties. A private purchase contract (Contrato Privado de Compraventa) may be drafted at this point and the parties should fully understand and agree the nature of the obligations and rights arising from this contract, before signing it and make it executable. In Spain there is no requirement to witness the signature of the parties to a private contract.

Guarantees from developers and builders

When paying any monies on account for properties under construction, proper bank guarantees or insurance policies should be arranged. There are statutory provisions (Spanish Laws L 38/1999 and L 57/1968) for the developers and agents to guarantee the payments on account for properties in progress, until the completion stage. There are also statutory provisions to guarantee the properties themselves against any building defects up to ten years after the construction date.

The signature of the Public Deed

The private purchase contract cannot be registered in the Land Registry without the intervention of a Public Notary (Notario), who is the only person entitled to grant a Public Deed (Escritura de Compraventa) based on the terms privately negotiated by the parties in the private purchase contract.

The Land Registry

After signature, the notarised deed needs to be submitted to the local Land Registry (Registro de la Propiedad) and this is to be done by the lawyer. The registration of the deed provides the highest public level of protection.

The use of companies and trusts to acquire property in Spain

Using a Spanish company is an excellent option to purchase property in Spain. A limited company (Sociedad Limitada, SL) or a public one (Sociedad Anonima, SA) can be formed in Spain to own the property after the shareholders tax position has been discussed with a qualified tax adviser.

UK Limited Companies can be used but the Benefit In Kind position must be considered for the directors and potentially for the shareholders (shadow directors).

Foreign companies owning property in Spain and registered in a country with no Double Tax Treaty with Spain, will be charged a 3% annual tax on a deemed income based on the rateable value. Tax planning should be undertaken prior to proceeding with any corporate scheme.

Finally, it is important to mention that the Trust as a legal entity is not recognised in Spanish legislation. Trusts cannot own property in Spain unless the acquisition is made by a corporate structure owned by the Trust. Otherwise, the trustees, beneficiary or settler should make private arrangements to acquire the property in their own name, overriding the legal or tax advantages of the trust in England.

Anyone contemplating purchasing on behalf of a Trust should discuss the details involved in both jurisdictions with a qualified lawyer able to offer advice in all the jurisdictions involved.