Andalucian Country Living

SELLING A PROPERTY IN SPAIN

When seller and buyer have reached an agreement verbally a reservation contract will be prepared and it will be signed by both parties and an agreed reservation deposit paid (normally in the region of 5000 euros). With the offer accepted and the reservation deposit paid, the next step is to exchange private contracts drafted and negoitiated by respective lawyers. This usually happens within two weeks from the offer being accepted. In the private contract (contrato de compraventa) the parties, the property, the price, the method of payment, and the date of completion are the most important items and must be specified and described clearly and in detail. The completion normally takes place at a public notary when the possession is handed over to the buyer and the rest of the price is received by the vendor.

The Sellers Costs

Estate Agent´s Commission 5% exclusive of IVA.

Legal Fees Normally a standard lawyers fee is 1% plus 16% IVA and can be deducted when calculating Capital Gains Tax.

Impuesto sobre el Incremento Patrimonial (capital gains tax) - CGT Residents and non-residents both have two allowances they can claim:
(1) there is an annual allowance available to adjust the original purchase price to allow for inflation – so for example, if you bought the property in 1996 and sold it in 2000 you are allowed to inflate the purchase price by this coeficiente de actualización (inflation factor) – which in this case is 1.08; and (2) expenses of purchase, including transfer tax or VAT, plusvalía, and the notary, lawyer, registration and other fees.

3% Witholding Tax when the seller is a non-resident in Spain the buyers lawyer will withhold 3% of the purchase price and pay it directly to the Tax Office within a month as a payment in advance on account of Capital Gains Tax.

Residents have three other allowances not available to non-residents, which mean that they can avoid CGT, and at worst will only pay 20%: (1) most importantly, if a resident is aged over 65, he is exempt from CGT completely; (2) the proceeds of the sale of a principal residence are also exempt from tax if they are used to purchase another main home; and (3) the maximum rate of tax is 20% if the gain has been generated over more than 2 years. A resident has his capital gain added to his income and taxed at his marginal rate. Normally, this starts at 15% and rises to 40% - but tax on the gain (if earned over more than 2 years) is limited to a maximum of 20%.

Municipal ‘Plusvalia’ Tax paid every time a property is transferred and based on the increase of the value of the land during the time that the seller has owned the property and calculated in accordance with the rateable values, it does not depend on the selling price. This payment is subject to negotiation between buyer and seller and should be stated in one of the clauses of the private contract as to who is responsible for this cost.

Notary Fees (usually 1%) It is normal that the buyer pays the total notary fees but this can also be paid by both buyer and seller with the seller paying for the “matriz” and the buyer paying for the notarised copy of the deed of sale.

Conclusion
It is important to prepare for the sale in advance, and checking the title and relevant documents to make it easier for the potential buyer and to make the process itself faster and smoother. Choosing the right professionals to handle the sale is essential. Knowing all of the costs and taxes in advance for selling the property is particularly recommended in order to avoid unexpected costs after the sale, especially in terms of Capital Gains Tax. It is also extremely helpful to have the following prepared:

- Make sure any home improvements, updates, extensions have been registered .
- Copies of most recent water, electricity and telephone bills and IBI bills.
- Rates, garbage collection, community of owners rules, alarm contract, insurance policy, building plans and administrative licenses
- Escritura
- Plusvalia Tax
- Certificate from the Community of Owners