PAYING THE MONEY

Stage payments for a new property purchased off-plan

Example 1	Example 2	Example 3
British developer	German developer	Spanish developer
10% reservation contract	40% on signing contract	3% reservation contract
40% stage payment	60% on completion	16% on signing contract
25% stage payment		14 letras each of 1.5%
25% on completion		60% on completion

In all three examples IVA is included in the price and paid at the various stages. The Spanish developer uses the peculiarly Spanish system of letras.

Payments for a resale property

5% to 10% on signing a contract

90% to 95% on completion

IVA — paid on completion

A partly built property

50% on signing a contract (walls, roof, windows and doors completed)

20% stage payment

20% on completion

10% retained for up to one year to cover snagging defects

IVA – paid on completion

The basic rules

All payments can be negotiated. Remember a contract is a private agreement between a buyer and a seller and cannot be overruled.

If the buyer fails to complete, deposits are non-returnable unless there is a clause in the contract to the contrary. 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.

If a builder fails to deliver a new property on time penalty charges accrue. These should be stated in the contract.

Property sales between individuals follow a system of private contract and deposit(s), followed by the notary and final payment. There is nothing binding about this. If everyone agrees it is perfectly possible to go direct to the notary, pay the money and obtain the escritura.

ALLOWING FOR ADDITIONAL BUYING COSTS

It is normal to allow 10% of the property value declared in the escritura for the additional buying costs which covers three taxes, two fees and charges from an abogado.

Transfer Tax or IVA (Value Added Tax)	7%
Actos Juridicos Documentados on a new property only	1.0%
Plus Valla tax	0.5%
Notary fees	0.5%
Property registry fees	0.5%
Charges from an abogado	1.0%

Transfer Tax and IVA

Impuesto de Transmisiones Patrimoniales is the Spanish for Transfer Tax which is charged on a sale between two individuals. IVA, the Spanish equivalent of Value Added Tax, is a business charge on a sale between, say, a property company and an individual. Governments can vary taxes, and they do, but it is normal to allow 7% for either of these two taxes.

Actos Juridicos Documentados

Effectively stamp duty of 1% payable on a new property. It is not payable on a resale property.

Plus Valia tax

Plus Valia is payable on a resale property and a new property. It is assessed locally on an increase in the value of the land since the previous owner bought the property or a developer bought the land. An apartment on an urbanisation where little land is involved or where there has been no increase in value in a short time will result in a low plus valia tax charge. Conversely a home with a large plot of land, held by the previous owner for say 30 years, will suffer a high charge.

Of course it is the seller who should pay this tax. They have gained the benefit of the increase in land value. The law of the country supports this view. In practice however this tax has often fallen on the purchaser since it a more secure method of collection. After all, a vendor may flee the country leaving this tax unpaid.

A purchaser may feel, quite rightly, aggrieved at paying this tax. Recourse is simply to have a clause inserted in the contract stating it is the vendor who pays the Plus Valia tax and withholding this sum from the final payment.

Notary fees

These vary according to the value of the property declared in the escritura and the number of pages in the document. Allow 350 Euros or 0.5%.

Property registry

Again there is a fee to have the property registered. It is wise to allow 0.5%.

Charges from the abogado

Naturally this fee will depend on the amount of work done. If the basic paperwork has been handled to a straightforward conclusion then the charge will be low. If on the other hand there have been complications or the need to draw up multilingual contracts then the charges will be higher. Allow 1 % for this charge.

Who pays?

The buyer and seller can agree between themselves who pays taxes, fees and charges. This can be incorporated into the contract and is not overridden by Spanish law. In practice however the buyer pays either directly, or on occasions indirectly when the agent incorporates these charges into an overall selling price. Todos los gastos is the Spanish phrase meaning all expenses arising.

It is also normal practice to deposit the approximate figure of 10% of the escritura value with the abogado or the bank manager (for mortgaged properties) who will pay these accounts on behalf of the buyer, submitting an itemised statement when transactions are complete.

Five per cent tax deposit

One last twist in the tail. If a property is bought from a non-resident, then 5% of the purchase price declared in the escritura must be deposited with the tax office in the vendor’s name. In other words only 95% is paid direct to the vendor. Why? This deposit is designed to cover a nonresident’s liability for capital gains tax.