MONEY MATTERS

Stage payments

Stage payments vary with the type of property being bought.

The basic rules

• A deposit of 10% or less is normal for a new or resale property. For a partly-built property it will vary according to the amount of work completed. It is payable by cash or banker’s draft to the agent or to the seller.
• The deposit is non-returnable if the buyer fails to complete, unless there is a clause in the contract to the contrary.
• If the builder fails to deliver a new property on time penalty charges accrue. Again these should be stated in the contract. In practice the contract will always state a flexible date of completion.
• If a seller fails to complete the transaction, the buyer is recompensed to a value twice the amount of the deposit unless the contract states otherwise.
• Final and stage payments should be paid by banker’s draft in euros.

Allowing for additional buying costs 

It is normal to allow 10% of the property value declared in the escritura for the additional costs in buying, this covers three taxes, two fees and charges from the abogado. A breakdown of these costs is as follows:

Black money

It is quite common in Spain to have two purchase prices for a property. One price is the actual price paid, exclusive of any fees or taxes. The other is a lower price declared in the escritura. As a guideline, the difference between the two prices should be less than 15% to 20%. The difference between the two prices is normally paid to the vendor in cash.

Agents, buyers and sellers, builders and developers, the abogado, the bank manager and the notary are aware of what goes on. The tax authorities know it. In fact everyone knows it. It is a mechanism of tax evasion, which if not radically abused, is tolerated by the Spanish taxman. Many people are now seeing the folly of this practice, but once started it is difficult to stop. The saving on initial taxes when purchasing can easily be outweighed by a greater loss in capital gains when reselling.

INHERITANCE

A person with British nationality at birth will find that Spanish authorities permit an estate to be bequeathed to whoever they choose, so long as this is allowed by their own national law. But a Spanish estate is subject to Spanish inheritance tax. Anyone with assets in Spain should make a Spanish will disposing of their Spanish assets in order to avoid time-consuming and expensive legal problems for heirs. A separate will should be made for disposing of assets located in the UK. Make sure a UK will states clearly that it disposes only of assets in the UK and make sure a Spanish will disposes only of assets in Spain.

Inheritance tax is regarded by many as the cruellest of taxes. Having spent a lifetime paying income tax yet another lump of assets amassed over the years will be claimed back by the tax authorities. With careful planning people need pay little or nothing in inheritance tax. It has been described as a ‘voluntary levy paid by those who distrust their heirs more than they dislike the Hacienda (Spanish Tax Office)’.

Spanish inheritance tax is payable when an inheritor is a resident of Spain, or the asset inherited is property in Spain. Spanish inheritance tax is not payable if the asset is outside Spain and the recipient is not a resident in Spain. Inheritance tax is the liability of each beneficiary and not the deceased’s estate.

There is no exemption between a husband and wife where each holds joint ownership of a property. In many countries a property can be held in joint names. If one person dies the property passes automatically to the other person. This is not the case in Spain where each person holds an equal share. Upon the death of one person, the other is subject to inheritance tax when inheriting the other half.

Spanish inheritance taxation law does not recognise a common law spouse. The relationship has no legal standing. They have no inheritance tax exemptions. They are also taxed at a premium rate being treated as non-relatives.

Note

This is only a summary of the property buying process. A full explanation is given in the author’s companion book Buying a Home in Spain and the complexities of inheritance are explained in Knowing the Law in Spain both published by How to Books.