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Buying property in Spain as an American or Canadian

KNOW BEFORE YOU GO: BUYING PROPERTY IN SPAIN AS AN AMERICAN OR CANADIAN CITIZEN

Written by Gustavo Calero Monereo on . Posted in andalusia, conveyancing, costa del sol, golden visa, lawyer, malaga.

Buying property in Spain as an American or Canadian
Buying property in Spain as an American or Canadian

The remarkable rise of property transactions in Spain by US and Canadian citizens was driven partly by the options to reside in Spain, with a favourable tax status for buyers. The real estate market in some areas as the Costa del Sol (Andalusia) has grown strongly in recent years.

Residence permits, such as the Golden Visa in Spain or the Digital Nomad Visa and favourable exchange rate plus the greater frequency of flights between Spain and the US have increased sales. According to www.idealista.com there´s an increase of 90% since 2019.

Can a US or Canadian citizen buy property in Spain?

Yes, all they need is the money to buy, the desire to do it and a good exchange rate. Otherwise, there are no substantial differences between a property purchase by a US citizen or a Canadian or British citizen compared to a European citizen.

I understand that the answer may be simplistic but it isn’t since, because of the European Directive on the Prevention of Money Laundering, the European Union (EU) publishes a yearly list of countries that represent a threat to the financial system of the European Union.

Citizens resident in the countries that appear on this list have a very hard time acquiring a property in Spain, when the funds come from these countries.

Why buy property in Spain?

The prestigious American newspaper The Wall Street Journal emphasised this growth in an article published in February this year. This article analysed that prices per built square metre in different Spanish cities, such as Marbella, Malaga and Madrid, in comparison to American cities, were still very attractive for American investors.

In Spain the province of Malaga is a pole of attraction for American property investors with a constant increase in US investors with great purchasing power. Many of them interested in exclusive and luxury properties.

Benefits of investing in real estate in Spain

Spain is a very interesting country for foreign investment in real estate. The Spanish and autonomic governments have been increasing tax benefits to attract foreign investors and encourage the purchase and sale of real estate. Also the profit in the renting, purchase and selling of properties has been increasing in cities like Malaga, Seville or Madrid in the last few years. Many people and investment companies are interested in the Spanish real estate market because of its legal security, culture, climate and lifestyle. Especially the Mediterranean coast and Costa del Sol.

Currently, the dollar vs. euro exchange rate continues to be favourable to the American dollar, so this change makes investing in real estate in Spain more attractive for North American buyers.

What is the process of buying a property in Spain?

Basically, as a very short summary, we can differentiate the following steps in the legal process to purchase a property in Spain. 

 

Purchase process Spain

Reservation contract

A small deposit is paid to the estate agent or seller to take the property off the market and a period of 2 to 4 weeks is provided to sign the private contract. On many occasions this reservation contract is prepared by the estate agent. But your lawyer can take a look at it and suggest changes, if necessary.

Private Sale Contract

This is the main document governing the purchase of a property, where the buyer pays 10% of the purchase price. All the obligations of both parties are established until the signing of the public deed of sale on the date of the sale. If the property to be acquired is under construction, i.e. if the seller is a developer, the provisions of the contract and the amount payable are different to those that would apply to an existing property.

Signature of the Public Deed of Sale

This document is signed before a notary and, when it is signed, the buyer pays the rest of the price and receives the keys to the property. From that moment, the buyer will be the full owner of the property. It’ll be very important to obtain home insurance and an alarm system to prevent squatting problems in the property. Especially if the property will be vacant at different times of the year.

Payment of Taxes & Property Register

Once the Public Deed is signed, it will be necessary to pay the Tax on Asset Transfers (ITP) or Legal Deeds (AJD) for a new property, so the property can be registered in the Cadastre and the Property Register. This last phase will entail registering to change the name of the different utilities.

Legalities of Property Purchase in Spain for Americans and Canadians

Obtaining an NIE (Número de Identificación de extranjeros)

When the reservation is signed, the buyer will have to obtain a Spanish NIE (foreigners’ fiscal identification number), as well as provide the necessary financial documentation to comply with money-laundering regulations. This documentation should be provided by your law firm and/or the financial entity in Spain where you will open a current account, as appropriate.

Getting s Spanish Mortgage for purchase a property

If the buyer needs a Spanish mortgage to acquire the property, the best option is to try to obtain its approval between signing the reservation and signing the private sale contract.

We have published a long document about the process of buying a property in Spain. Here you can find all the details about this process.

Why is it important to hire a lawyer to carry out the property due diligence?

Due diligence (legal investigation) of the lawyer in Spain
Due diligence (legal investigation) of the lawyer in Spain

Buying a property in a country different from the one where the person is from without proper legal advice is an unnecessary risk. Especially because the legal cost of a lawyer is very low, in comparison to the other costs involved in a property purchase. Such as the price, the estate agents’ fees or taxes.

A law firm specialising in property law will give you peace of mind throughout the purchase process, giving you an explanation of all the details about the property and answering any questions that may arise.

Real Estate Due Diligence in Spain for American and Canadians

It’s important for the law firm representing you in your purchase process to include property due diligence, where the entire legal, planning and tax situation of the property is put down in writing. With this document, you’ll have all the relevant information about the property in writing and making the decision to buy it will be more satisfactory.

Likewise, it is ideal for the due diligence to take place before the private sale contract is signed. So when you pay 10% of the price, you’ll have all the relevant information about the property, reducing the risk of problems arising during the purchase process.

Tax Considerations for Americans and Canadians Buying Property in Spain

A law firm specialising in property and tax law will also adapt the due diligence of the property investment, depending on whether the buyer is an individual or a company. This as well as on whether the buyer intends to make an investment to operate a business activity, such as holiday lettings. Good tax advice to reduce taxes paid and maximise the returns on your investment is essential in the process of buying a property in Spain.

Luxury investment with Golden Visa
Luxury investment with Golden Visa

The purchase of a property and the Golden Visa for US citizens

The Golden Visa is a special visa for non-EU citizens to reside in Spain. The main requirement of which is to purchase one or more properties, for a minimum total price of 500,000 euros without a mortgage.

There are other requirements to obtain a Golden Visa but generally meeting these requirements isn’t a problem or isn’t generally one. The important thing is to make a financial investment in buying a property.

Qualifying for the Spanish Golden Visa

A Golden Visa enables holders to reside in Spain and move freely throughout the Schengen area, without being considered tax resident in Spain just for having this visa. A person with a Golden Visa will not be considered tax resident in Spain and will continue to pay taxes in the country of origin. Being considered tax resident in Spain will only happen when the person remains in the Spanish territory for over 183 days per year.

The visa for digital nomads for non-EU citizens

This visa allows holders to work remotely in Spain, either for a foreign company or as a freelancer, provided that at least 80% of the income comes from foreign clients.

The greatest tax advantage is that digital nomads are considered non-resident in Spain for tax purposes, i.e. they will only be taxed in Spain for income obtained from working remotely in Spain for a foreign employer or for a foreign client, if they are freelancers. For administrative and immigration purposes, digital nomads are resident in Spain.

These workers will not need to file form 720, will not need to file Wealth Tax and, for the purposes of other Tax Agencies, they are considered tax resident in Spain.

The Spanish tax for income obtained for digital nomads

The tax for income obtained from working remotely will be taxed in Spain at a flat rate of 24% on the first 600,000 € for a period of 5 years. Without a doubt, this flat-rate tax is very favourable, as a tax resident would pay up to 47% for such earned income.

Double Taxation Treaties with the US and Canada

The key question that may arise on this point is whether this income received by working remotely in Spain, on which a tax rate of 24% is applied in Spain, would be subject to taxation in the country of origin. The answer will depend on whether there is a double-taxation agreement between Spain and that country, and on the contents of the agreement.

Since a digital nomad is tax resident in Spain and can obtain a certificate of tax residence, these international agreements can be applied. Spain currently has 99 double-taxation agreements in force, including the EU-countries and:

  • USA
  • Canada
  • United Kingdom
  • Saudi Arabia
  • Switzerland
  • Morocco
  • Rusia
  • China
  • South Africa
  • Mexico
  • United Arab Emirates 

Additional Tips for a Smooth Property Purchase in Spain

C&D Solicitors Malaga, Spain
The team of C&D Solicitors Malaga, Spain

If you are planning to change your life and thinking about residing or working remotely from Spain or simply invest in the purchase of a property in Spain, don’t hesitate to contact us. Our lawyers will help you throughout the entire buying and selling process.

At C&D Solicitors we specialise in providing property advice to foreign clients. Whether individuals seeking to buy a second home or an investment property in Spain, as well as investment companies or investment funds seeking to grow their asset portfolio and take advantage of the capital gains they can obtain in the property market and in property operation.

We offer “full service” advice throughout the process in your native language: English, Dutch, Swedish, French and German. You can call us at +0034 952 532 582, send us a WhatsApp message at +34 639 54 16 02 or write to us at info@cdsolicitors.com. We’ll look into your case, we’ll send you information about the process and a cost estimate for this, with no commitment whatsoever.

 

 

Due diligence (legal investigation) of the lawyer in Spain

DUE DILIGENCE (LEGAL INVESTIGATION) OF THE LAWYER IN PROPERTY CONVEYANCING IN SPAIN

Written by Gustavo Calero Monereo on . Posted in abogado, andalusia, conveyancing, property law, Sin categoría.

Due diligence (legal investigation) of the lawyer in Spain
Due diligence (legal investigation) of the lawyer in Spain

Due to our daily professional experience as specialized property lawyers, we can´t emphasize enough the importance of proper legal advice during the buying process in the form of due diligence (legal investigation). After all, your foreign purchase requires a substantial financial investment, regardless of whether you are an individual, a company, whether the property will be used as a personal home or for rental investment purposes.

It’s not possible to provide appropriate legal advice to a property buyer or investor unless there is a process to study the legal/planning, physical and tax situation of the property. A process that should take place before the purchase private contract is signed. If this full study of the property and its total situation isn’t reflected in writing in a document usually called “property due diligence” or “property legal report”, it´s very difficult to rely on all the information that a buyer/investor needs to know before becoming contractually bound to the purchase of a property.

In this case, we aren’t only referring to buyers, as property owners or holders seeking to sell a property in Andalusia have been increasingly requesting property due diligence. So, as to know and solve any potential issues or deficiencies in the legal documentation of the property.  This legal checklist prior to selling the property will help the owner maximize the profit that can be obtained from the sale and process it as quickly as possible.

What is the property due diligence report during property conveyancing?

The property due diligence report or legal report is a legal document that any lawyer specializing in property law should draw up and send a client. Whether he or she is buying or selling, detailing all the legal and planning situations of the property he or she intends to buy or sell. This document should include all the relevant legal, planning and tax information of the property, enabling a buyer to be in possession of all the appropriate information to make the most satisfactory investment decision in terms of said property. And for a buyer to have the greatest legal certainty possible in terms of that investment.

Likewise, from a legal standpoint, this document binds the lawyer to the client and allows for defining the legal work carried out. As well as providing certainty during the conveyancing process through the detailed information explained to the buyer in the legal due diligence report.

Why is a property legal investigation so important if I’m buying a property?

The answer is simple: because this document will give you as buyer legal certainty. It will contain all the relevant information about the property you are seeking to acquire in writing, making it easier to understand and comprehend, along with an explanation of everything studied in that process. Likewise, this document includes matters that have not been ascertained yet on the date the report is drawn up, those that are pending or those that cannot be ascertained for different reasons, as appropriate.

This report will prevent or reduce the possibility of the buyer finding problems during the conveyancing process and after it, once the private purchase contract or even the public deed of sale has been signed. These are often problems that, if known to the buyer in advance, would lead to a negotiation with the seller before signing the private contract or could even conclude in abandoning the buying process.

What should the property due diligence or legal report contain?

Cadastre Spain
Cadastre Spain

Property due diligence is like a tailored suit, which means that this document and its contents will depend on the client’s profile and the intended use of the property.

1. REGISTER STATUS

The general section of this document, regardless of the type of purpose of the purchase, will be to review the cadastral (Catastro) and registry (Registro de la Propiedad) description of the property and see how it matches its physical reality.

2. DEBTS

Likewise, reviewing potential registry charges or other encumbrances, such as the existence of mortgages, easements, liens or seizures. A good property lawyer also checks if there are no debts from the service provides (water, electricity, etc.), town hall taxes or te community of owners.

3. DETAILS TOWN HALL AND URBANISATION

It is also important to study any potential administrative easements, such as roads, coasts, the public water domain and the situation with the property owners’ association and potential debts or extraordinary assessments.

4. (COMMERCIAL) LICENCES

The study of the planning situation of the property is also very important and, in this case, the study will depend on the intended use of the property: a hotel, a holiday home, commercial premises, a residential home, industrial use, etc. At this point, a technician is usually called in to carry out a structural survey or checklist.

5. TAX IMPLICATIONS

Lastly, a tax audit during property purchases is very important, especially in purchases by investment companies and investment funds. These need to obtain a valuation of these assets, as well as engage in property tax planning for the acquisition of the property, in order to save on taxes and lower the tax impact.

When should a client receive the property due diligence?

The property due diligence should be drawn up before signing the private purchase contract, a document that generally entails having the buyer pay 10% of the selling price. In other words, the important thing is for the buyer to be aware of all the legal, planning and tax information of the property before paying a substantial amount of money during the process and signing the private contract. In the property field, property due diligence is usually prepared after signing the reservation contract with the payment of a small reservation deposit and before the private contract of sale is signed.

If the buyer receives all the relevant and important information about the property in advance, he or she will have much more legal certainty in the investment. And, if there are any issues or problems, these can be negotiated with the seller and the situation can be reflected in the private purchase contract. This will have a positive effect on the process, reducing stress and the chances of the process not ending satisfactorily for both parties.

Otherwise, signing a private contract and making a substantial payment to the seller, being unaware of the legal, planning and tax situation of the property, could lead to problems between the buyer and the seller. In this scenario if there are any problems with the property in question but the seller wasn’t made aware of anything when signing the contract, the contract may not protect the buyer sufficiently.
Or, it may lead to the seller feeling that having 10% of the price in his or her pocket and a signed contract gives him or her the upper hand when negotiating changes affecting the selling price or the obligations of the parties.

Who is the right professional to draw up a property due diligence?

Without a doubt, a lawyer specializing in property law is the right professional to draw up this important document when buying or selling a property in Spain. Making an investment of a certain significance in a property asset and trying to save on the cost of a lawyer is a textbook mistake and makes absolutely no sense, as the cost of a lawyer compared to all the costs of a property purchase is quite small.

Be wary of anyone who encourages you not to hire an independent lawyer during the purchase of a property in Spain, especially when this person has any interest in the transaction. Seek the lawyer you believe is best positioned to advise you in your purchase by experience and reviews. Compare the information available on the lawyer’s website regarding the services offered and the information you receive after you make the first contact with the lawyer. Make sure that this lawyer is an expert in property law and is familiar with the subject matter.

Why is a property´s legal investigation important when I’m selling a property?

Obtaining property due diligence for a property you seek to sell is highly recommended, as the owner will be able to detect any problems or issues with the property, as well as solve them, before selling. If the owner identifies, corrects and solves the potential problems that there may be with the property before it is sold, it’s very likely that the profit obtained from the sale can be maximized, as the buyer will be more satisfied with the legal situation of the property and the transaction will be faster.

Putting a property on the market when the vendor has previously made sure that all the documentation is correct and the necessary permits are in order, will lead to any buyer being faster in finalizing the sale and will reduce any arguments to reduce the price of the property.

C&D Solicitors Malaga, Spain
The team of C&D Solicitors Malaga, Andalusia

Law firm specialized in due diligence of properties in Andalusia

At C&D Solicitors, we specialize in providing property advice to foreign clients, whether individuals seeking to buy a second home or an investment property in Spain, as well as investment companies or investment funds seeking to grow their asset portfolio and take advantage of the capital gains they can obtain in the property market and in property operation.

We offer “full service” advice throughout the process in your native language: English, Dutch, Swedish, French and German. You can call us at 0034 – 952 532 582, send us a WhatsApp message at 0034 – 639 54 16 02 or write to us at info@cdsolicitors.com. We’ll look into your case, we’ll send you information about the process and a cost estimate for this, with no commitment whatsoever.

Author: Gustavo Calero Monereo, CEO & lawyer at C&D Solicitors, Torrox/Malaga (Andalusia)

 

Property investment in Spain

THE KEYS TO BUYING A PROPERTY INVESTMENT IN SPAIN: HOLIDAY OR LONG-TERM RENTAL?

Written by Gustavo Calero Monereo on . Posted in andalusia, Andalusian, conveyancing, english speaking solicitor, legal advice, Property law, Sin categoría.

Buying a property investment in Spain: holiday or long-term rental?
Buying a property investment in Spain: holiday or long-term rental?

Except for 2020 due to the pandemic, over the last few years the interest of foreign investors significantly increased in buying a property investment in Spain. This goes both for holiday and long-term rentals. Many sale operations of homes in Andalusia, especially in touristic areas like Costa del Sol, are mainly intended to be used for lettings to enable the buyer to obtain gains from the property investment.

Among these investment buyers, many are European citizens not resident in Spain, from countries such as the Netherlands, Belgium, England, Sweden, Finland, France or Germany. According to a report issued by the OMAU (Observatory for the Urban Environment of Málaga), the city of Malaga has gone from having 14,885 total holiday lettings in 2015 to 54,685 in 2021.

Get informed about where to invest in the purchase of a property

There are four things to be taken into account when making a decision about where to buy and the price to pay.

  1. Average price or cost of homes. If homes are very expensive, it will obviously be more difficult to amortize or recover the investment by letting it.
  2. Average price or cost of rent. If the average rent is very low, the profit or gains will be lower and more time will be needed to achieve the desired returns.
  3. Tourism potential of the area where you seek to invest. It is obvious that, in terms of holiday lettings, beachfront properties, for instance, show periods of very high returns when let for holidays. Cultural or touristic cities like Malaga, Cadiz or Seville, for instance, are attractive to tourists for a large portion of the year.
  4. Maintenance expenses and tax costs to be paid for the rental. Holiday and long-term lettings have very different taxation considerations in Spain.

Calculate the ROI-profitability of a property investment in Spain

The most simple Return-On-Investment formula would be to start by calculating the gross income from rent per year, divide it by the purchase price and multiply the result of this calculation by 100 to obtain your returns. Let’s use a few examples:

Ruud, a Dutchman from Utrecht, is thinking about buying a new build home in Málaga, on the east side, which is one of the most expensive neighbourhoods, at a price of 470,000 euros, including conveyancing costs. He is thinking about letting it and has learned that the average rent would be around 1,400 euros per month or 16,000 euros per year.

Return-on-investment calculation long-term rental A:

  • €16,800 / €470,000 = 0.0357
  • 0.0357 x 100 = 3.57%

In other words, for Ruud, letting the home would mean recovering 3.57% of his investment per year. Once again, our friend Ruud is thinking of buying a home in Antequera, very similar to the one in Malaga, but its price is 150,000 euros, including conveyancing. He is thinking of letting it and has seen that the average rent is around €550 per month of €6,600 per year.

Return-on-investment calculation long-term rental B:

  • € 6,600 / €150,000 = 0.044
  • 0.044 x 100 = 4.4%

In other words, every year the rental of the home allows the buyer to recover 4.4% of the investment made.

How can you calculate the returns from a home used for holiday lettings?

Return On Investment Spanish holiday lettings
Return On Investment Spanish holiday lettings

The formula above is good for a long-term let, not for holiday letting. In the case of holiday homes, calculating returns is much more complex and it’s impossible to apply a standard formula, as prices present a great deal of variation and depend a lot on the type and characteristics of the property, its distance from the beachfront, amenities like a pool and gardens, etc. There are also big differences in rental prices due to seasonality.

According to data from the rental platform Holidu, published recently, analysing the supply and bookings for summer 2022 in Costa del Sol, the highest price per night for homes in the province of Malaga can be found in Las Chapas, Puerto Banús, Nueva Andalucía in Marbella, followed by San Pedro de Alcántara, Alhaurín de la Torre, Alhaurín el Grande, Estepona and Frigiliana.

Other coastal areas in Cadiz, such as Sotogrande, and the tropical coast made up by Almuñécar-La Herradura, also show a high volume of bookings for this summer 2022.

Think about fixed property and rental expenses

The fixed costs of a home tend to be: property taxes (IBI), co-ownership charges, waste disposal rates and income tax for non-residents, which would be paid during periods when the home is not let. Also, you shouldn´t forget about potential interest costs for your Spanish mortgage.

Likewise, when talking about a home for holiday letting, in most cases the owner is unable to manage and maintain the rental due to lack of time, for which reason it would be necessary to add the management expenses of the agent taking care of letting it. These can be around 18% to 24% of the rent received.

We also need to take into account tax costs or expenses to be paid on the profit from this letting in Spain, which I will be covering in more detail below. In short, if the person who owns the property is resident in Spain for tax purposes, when the property is rented as the tenant’s first-residence home, about 60% of the net profit is exempt from taxes. However, if the home is let for holidays or the owner does not reside in Spain for tax purposes, no exemption applies.

Consider other options: profit from holiday lettings in rural homes

Renting our rural property
Renting out a rural property

Without a doubt, this is one of the types of properties with the most benefit from the pandemic when it comes to holiday lettings, as demand for homes of this type has increased dramatically over the last few years. These homes, with a pool, a garden and land, are in very high demand for rentals during holiday periods. This has also caused an increase in prices of these properties, due to the interest of foreign investment buyers.

Our own clients, to whom we provide legal advice during the process to purchase a rural home in Andalusia, have told us about the large number of bookings their rustic properties receive in the holiday lettings market. Areas such as La Axarquía, the Guadalhorce valley, the Ronda Serranía or Sierra de Mijas can be very interesting for investors in the property market.

If you’re thinking about buying in Malaga, be aware of the average rent prices

In terms of long-term (non-holiday) lettings, according to a study of the Idealista property website, in Malaga the rental price for a home in May was 10.90 euros per square metre, which represents an increase of 16.40% compared to the same period in 2021 and of 6.6% compared to February this year.

For cities, the rental price increases during 2022 have been very significant. For instance, Casares has accrued an increase of 27.80%, Estepona of 24.80%, Mijas of 24%, Marbella of 21.70% and Fuengirola of 19.60%. In the city of Malaga, the increase has been 10.1% in 2022 and it is one of the most expensive cities in Spain when it comes to renting a home.

What are the requirements for a property to be used for holiday lettings?

In Andalusia, in order to let a home for holidays (contract of shorter than 2 months), it is necessary to register it before the Andalusian Tourism Registry (RTA). This registry has different categories depending on the type of property you wish to register.

There are a few technical requirements that the home must meet to be registered and, for urban properties, it must have a first occupation license (LPO) or a habitability certificate.

If the property you intend to buy and register with the RTA is rural, it would not normally have an LPO and, in this case, it would be correct to obtain a resolution of Assimilated out of Ordination (DAFO/SAFO) or Out of Ordination (FO)

RTA Licence through liability declaration

It is important to note that registration with the RTA is done through the submission of a declaration of liability, which means that the person declares, under his or her responsibility, that the home complies with all the technical and legal requirements for registration. There is no need to show at that time whether it meets them or not.

In other words, the Regional Government of Andalusia will register the property automatically in the RTA after submitting the affidavit of liability but reserves the right to inspect and fine the owner in the event that it doesn’t comply with the requirements to be registered in the RTA.

Can the Community of Owners prohibit holiday lettings?

The answer is YES. The Community of Owners, during a meeting, can prohibit holiday lettings in all properties part of the association. Herefore it is necessary to obtain a vote of 3/5 of the total number of owners representing 3/5 of the shares for this resolution to pass. However, it should be noted that for this agreement to be binding on the new owners of the property, it must be officially registered in the Property Register (Registro de la Propiedad).

Let’s imagine you’re thinking about buying a home to be used for holiday lettings in Almuñécar and, when you request an abridged property certificate, it does not show the express prohibition to use it for holiday lettings.

Even if the Community of Owners tells you that a ban has been approved for the total building, you, as the owner, are able to register your property in the RTA and let it to holidaymakers. The community cannot prohibit this use if it does not register the prohibition resolution in the Property Register prior to the issue of your property deed.

Could I pay more charges to the Community of Owners if I use the property for holiday lettings?

Once again, the answer is YES. Community of Owners can increase community charges by up to 20% for properties being used for holiday lettings. Once again, this resolution would require a majority vote of 3/5 of the total number of owners, representing 3/5 of the shares.

However, similarly to the prohibition to engage in holiday lettings, this increase cannot be retroactive and cannot be applied to homes already registered in the RTA.

Are more legal limitations and restrictions expected in the future for holiday lettings?

In large cities and towns that are very attractive to tourists, there are more and more people promoting the limitation and regulation of holiday lettings for homes, due to the nuisance they often cause resident owners.

In the city of Malaga, specifically in the historic centre, there are known problems with noise and dirtiness in some buildings, due to holiday lettings in high demand for (bachelor) parties and general leisure.

The debate in Malaga has been open for a few years and no restrictive measures have been taken so far. However, it is likely for this activity to become limited in the medium and long term since, in this part of the city of Malaga, as in other coastal areas or large cities like Granada, Seville or Cadiz, there is a certain oversaturation of housing of this type.

We should also add that the Regional Government of Andalusia is currently working on a new decree to regulate holiday lettings and it is very likely for this rule to establish further limitations on this activity.

What taxes will I have to pay for the earnings obtained from property investment in Spain?

Tax over rental investment Spain
Tax over rental investment Spain

If you are a non-tax resident in Spain but a citizen of the European Union, Norway or Iceland, you will have to declare 19% of the earnings obtained from holiday lettings in Spain to the Spanish treasury, with the ability to deduct some expenses. However, if you are non-resident in Spain and a third-country national, you will have to pay 24% of the earnings obtained from holiday lettings and you will not be able to deduct any expenses.

If you are tax resident in Spain, your earnings from holiday lettings must be declared in your Personal Income Tax, adding such earnings to your annual income. Therefore, since this is a progressive tax, the higher your returns, the more tax you’ll pay.

Tax benefit on long-term letting

Regarding long-term lets, if you are tax resident in Spain and the tenant intends to use the property as his or her main home, you should know that, under the current regulations, 60% of the net profit would be exempt from your income tax (IRPF).

However, in October 2022, the national government is seeking to approve a new Housing Law. This law, in its current form, would reduce the deduction to 50% but it could increase to 60%, 70% and 90% for various reasons, such as refurbishing the home, renting to people younger than 35 and the home being in an area with very high rent prices or when the tenant is a government entity or non-profit organization.

What other advantages can you get from holiday lettings compared to long-term letting?

The first would be the possibility for the owner to use the home during different periods, which would entail being able to enjoy it whilst obtaining an income or gains from it. The second would be that, if there is a bad tenant in a long-term letting, one that stops paying and refuses to leave the property, the legal eviction process is very slow and it is unlikely for the unpaid rent or court costs to be recovered.

At a minimum, between 6 and 9 months would pass from the time that a claim is filed in court before the tenant is evicted. It could take even longer if there are dependent children. As you may imagine, there are tenants who leave properties in deplorable condition when they know they are being kicked out on a specific date.

An additional advantage of holiday letting is that, if you want to sell your property, you have possession of the property and you can do so immediately. If there is a long-term tenant and this is his or her usual home, the law states that he or she will have 5 years to live there and can force the owner to comply with the contract for that time. Of course, unless the new buyer accepts and agrees to continue the lease.

Legal advice on property investment in Spain

In short, inform yourself and get specific advice in this process. Remember that C&D Solicitors is a legal firm specializing in providing advice to foreigners during the purchase of property in Malaga and Andalusia, with over 15 years of experience.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Torrox, Costa del Sol (Andalusia)

 

 

Tax over rental investment Spain

PERMANENT REDUCTION ITP AND AJD TAX ON THE PURCHASE OF HOMES IN ANDALUSIA

Written by Gustavo Calero Monereo on . Posted in andalusia, Andalusian, conveyancing, costa del sol, lawyer, purchase process, Stamp Duty, Transfer Tax.

REDUCTION ITP AND AJD TAX
REDUCTION ITP AND AJD TAX

On 30 April, we reported on the reduction in the ITP Transfer Tax and AJD Stamp Duty Tax approved by the Regional Government of Andalusia for the year 2021. This reduction would end on 31 December and the previous tax rates would start applying again from 1 January.

In this reduction, the Regional Government of Andalusia reduced the Transfer Tax a fixed rate of 7% without differentiating thresholds, for all home purchases completed during 2021. This represented a considerable reduction as, until that moment, 8% of the purchase price would be paid up to 400,000 euros, 9% between 400,000 and 700,000 euros and 10% from 700,000 euros.

This reduction mainly benefitted the sales of second-hand real estate luxury home market, which is currently very active in the coastal areas of Costa del Sol, such as Marbella, Málaga, Fuengirola, Nerja or Estepona, among others, or the Costa Tropical, such as Almuñécar (Granada province).

What is the new tax change of the reduction ITP and AJD tax?

On Wednesday 13 October, the Andalusian Parliament adopted a new law, which has reduced the ITP Transfer Tax in Andalusia to 7% PERMANENTLY, which means that buying a home in 2021 or 2022 does not make a difference, as taxation will be the same. In other words, the tax reduction established for 2021 alone will become permanent.

When do you pay the ITP Transfer Tax in Spain?

The IPT Transfers Tax must be paid when buying a secondhand home, within 30 working days following the completion of the Public Deed of the Purchase in the Notary office. The Autonomous Community where the asset is located is the one responsible for collecting that ITP tax in Spain.

When do you pay the AJD Stamp Duty Tax?

The AJD Stamp Duty Tax (Actos Juridicos Documentados) must be paid when purchasing a new or off-plan home, within 30 working days following the completion of the Public Deed of the Purchase in the Notary office. In the case of new building home purchases, the repercussions of this tax reduction are limited, as in these purchases VAT is chargeable at 10% and no Transfers Tax is paid. In new homes, in addition to VAT, buyers need to pay the Stump Duty Tax, which has now permanently become 1.2% of the purchase price of the property, instead of the earlier 1.5%.

When will the permanent reduction ITP Transfer Tax enter into force?

It seems that its entry into force is set for November this year. However, until 31 December, the transitional reduction approved in April continues to apply. In other words, any person in the process of buying a second-hand property in Andalusia will pay the ITP Transfer Tax at a rate of 7%, regardless of whether the purchase takes place in 2021 or in 2022.

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors (Torrox, Malaga)

 

TAX CONSEQUENCES OF BREXIT FOR BRITISH PROPERTY OWNERS IN SPAIN

Written by Gustavo Calero Monereo on . Posted in andalusia, Brexit, Capital Gains, conveyancing, costa del sol, ducth speaking solicitor, Income tax for non residents, lawyer, legal advice, property law, swedish speaking solicitor.

TAX CONSEQUENCES OF BREXIT FOR BRITISH PEOPLE IN SPAIN
Due to the Brexit there are many tax consequences for British citizens in Spain

We are near the end of the transition period established within the BREXIT for British citizens resident in Spain, which ends on 31 December 2020. There are many tax consequences for British citizens in Spain but for now we are only going to focus on British citizens with assets in Spain. For example pensioners or owners of a second home. From the perspective of trade or the movement of British citizens in Spain for work reasons, the tax and bureaucratic consequences of Brexit are higher, even though we will not cover that in this article. However, we will also briefly address the process to obtain Spanish residency. This because during the past few months we have witnessed many police stations becoming overwhelmed and unable to meet the many requests for appointments for British citizens and their family members to obtain a residence permit in Spain. This procedure was approved as part of the transition period set to end on the 31st of December 2020.

Over the last few weeks of 2020, it has been impossible for many British citizens to make an appointment at the police station in the province where they live and this also applies to the province of Malaga in Andalusia. This has led many British citizens resident in Spain or about to move to Spain starting 2021 without a residence permit.

 

What will be the situation of British citizens resident in Spain after BREXIT?

Well, these British citizens will have to apply for a residence permit after the final Brexit on the 1st of January 2021, just like any other citizen from a third country outside the European Union. We recommend that first of all these citizens register with their city hall as soon as possible and also request a S1 form from the United Kingdom to prove that their healthcare costs in Spain will be covered by the United Kingdom. After this, the easiest thing to do is to contact a law firm or administration company that can advise you and help you with the process, as it will be complicated to do it on your own. It is very important not to delay and do this as soon as possible, even though it is true that there is currently a lot of uncertainty about the procedure in question, as the negotiations with the European Union remain open.

 

How will the status of British citizens change after 1 January?

British citizens will be able to travel to Spain and stay for up to 90 days within a 6-month period, consecutive or not, without having to obtain a visa. They could even be required to prove their financial capacity to cover their stay in Spain, as is the case with travellers from countries outside the European Union. If they wish to stay longer, it is very likely that they will have to apply for a visa or work permit, even though this has not been defined yet since the negotiations remain open.

 

What will happen with the British driving licence?

From 1 January 2021, the general regulations will apply and British driving licence will be valid to drive in Spain for six months counted from the owner’s entry in Spain or from the date that legal residence is obtained. They will need to exchange their British driving licence for a Spanish one to continue driving in Spain after those six months.

 

How will Inheritance Tax change after Brexit on the 1st of January 2021?

As we explained in detail in an earlier article about inheritance tax, fortunately, from 1 January 2019, citizens not resident in the European Union are able to obtain the same tax benefits and bonuses for Inheritance Tax as European citizens. Therefore, the application of Inheritance Tax and its consequences would not change for British citizens.

 

Potential future Inheritance Tax when buying a home in Spain

When considering the purchase of a home in Spain, as the regulations applicable to this tax depend on the autonomous community where the property is located, a very important matter is to consider which autonomous communities have a higher and a lower inheritance tax, before making such investment(s). For instance, British nationals are the main buyers of homes in Spain. Alicante (Valencian Community) and Malaga (Andalusia) are the two main locations for foreigners to buy a home in Spain but. However, when it comes to Inheritance Tax, there are big differences between one community and the other. The Valencian Community has the third highest Inheritance Tax in Spain, while Andalusia has the third lowest, according to the General Economists Council of Spain, in their taxation study for 2020. This means that, when thinking about that tax, Malaga has a much cheaper rate of Inheritance Tax than Alicante.

 

What happens to taxes on profits obtained from renting out my home in Spain?

If you bought a home in Malaga as an investment, for instance, and you use it for holiday rentals as a citizen of the European Union, the profit obtained from such rental would be taxed at 19% through their IRNR income tax for non-fiscal residents with a house in Spain. Many expenses can be deducted: mortgage interest, repair and maintenance costs for the property, electricity, insurance, etc. However, once you are considered a citizen not resident in the European Union, it will be taxed at 24% and no deduction for property expenses may be applied.

 

Estate Tax or Wealth Tax on my properties located in Spain

Estate Tax or Wealth tax also apply to assets and rights that non-residents have in Spain. As this tax has a minimum personal exemption threshold of 700,000 euros over the minimal fiscal value, all non-residents -in the EU or outside it- with assets of a lower value would pay nothing. The main difference in terms of EU and non-EU citizens lies in the fact that EU citizens can apply the regulations of the autonomous community where most of their assets are located. However, non-EU citizens would have to follow national regulations instead of those of the autonomous community where the assets are located. If we compare the tax rates in Andalusia to the national ones in terms of estate tax, the national rate of estate tax is somewhat lower. Therefore, applying national regulations does not always entail a greater tax liability.

The actual impact of that tax is non-existent for most non-residents due to the minimum fiscal value of 700,000 euros applied per person. This is why it is recommended that, if you are thinking about luxurious purchasing a property in for example Marbella on the Costa del Sol, it might be interesting to put the property in more than one name to profit from this exemption. Still, estate tax could have a high impact for those with high-value assets in Spain or considering the purchase of luxury properties.

 

How will Brexit affect the sale of my home in Spain?

The tax rate on capital gains obtained from selling the property stays at from 19%. The withholding (down payment) of the Capital Gain Tax that a buyer must apply to a non-resident seller to pay the amount at the Tax Agency in Spain will continue to be 3% of the purchase price. This percentage is the same for EU citizens and non-EU citizens.

 

Will Brexit affect the ITP transfer tax on the purchase of a home in Spain?

No, it will not. The property ITP transfer tax paid in Spain for the purchase of second-hand homes do not vary for EU citizens and non-EU citizens, for which reason, from 1 January 2021, it would not lead to greater expenses for British people. The same counts for the 21% VAT tax and documented legal acts (AJD tax) paid for new off-plan properties. The ITP tax depends on the autonomic region. For instance, in Andalucia a house buyer pays 8% ITP transfer tax over the purchase price up to € 400.000, until € 700.000 it´s 9% and after this the ITP will be 10%. To calculate the ITP tax on more expensive houses for a married couple it´s important to take into account if the couple is married in community or separation of goods.

 

Is the double-taxation agreement in force between Spain and the United Kingdom important?

Yes it is. The main purpose of this double-taxation agreement is for a British national living in Spain or a Spanish national living in the United Kingdom to be able to work and invest in those countries without having to pay twice for the same thing. This agreement will remain in force and is unaffected by the United Kingdom leaving the European Union. This agreement, which came into force on 12 June 2014, contains special clauses that exempt certain public pensions paid by the British government from taxation in Spain, as they can only be taxed in the United Kingdom. Likewise, this agreement protects residents national of either country from being taxed twice on income from capital gains and dividends. Income tax for non-residents, company tax, personal income tax and estate tax are covered by this agreement, for which reason these aspects should not be taxed twice in both countries.

 

Potential changes in the future for British house owners

Over the next few weeks, there will surely be changes affecting British nationals as it is very likely for the negotiations to change certain important aspects. However, on the date this article is posted (22 December 2020), little is known. We advise that, if you have any doubts, you contact and obtain legal or tax advice from a lawyer or company specialising in non-resident house owners.

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Málaga

PURCHASE OF A HOME IN SPAIN AND HOME INSURANCE: WHAT YOU NEED TO KNOW

Written by Gustavo Calero Monereo on . Posted in AFO, andalusia, Andalusian, conveyancing, DAFO, english speaking solicitor, illegal building, malaga, nerja, Property law, purchase process, SAFO, Sin categoría, solicitors Nerja.

Home Insurance, purchase, property, Spain
Home insurance of your Spanish property

Buying a home in Spain entails a great financial investment and, therefore, you’ll want to do it with the lowest possible risk. This is why it’s very important to obtain legal advice and hire a specialised lawyer to help you throughout the purchase process, so that you can enjoy legal certainty and be aware of all the relevant information about the property.

However, there is another important thing to do before signing the Purchase Deed for the property. It is advisable to have home insurance ready to prevent any risk of financial loss due to potential damages, such as theft, water damage or fire. The importance of home insurance for the owner’s peace of mind and the investment made is self-evident.

This is why we’re posting this article, to clarify some concepts for foreign homeowners in Spain, so that they can understand this very important product well. In the event that you are buying with a mortgage, the bank will advise you and recommend that you obtain home insurance as, in the event of serious damage to the mortgaged property, the bank will want to secure repayment of the money borrowed.

At the end of the article, we cover home insurance for rural homes built in Andalusia, with or without DAFO/SAFO.

 

What are the building and the contents in home insurance?

A home insurance policy for an existing or new build property is based on two main concepts: the building and the contents.

1) The building (continente) is made up of the construction and structural elements of a home or building, whether these are walls, ceilings, floors or installations such as heating, water or electricity, among others.

2) The contents (contenido) are made up of the belongings of the people living in the home, such as furniture, electronic devices, personal effects, clothing, jewellery, art, etc.

 

What would be an appropriate value for the contents?

To properly assess the contents, we recommend that you think about how much it would cost you to buy the items you have in your home, going room by room until you cover everything in it. Jewellery or cash money have specific valuation in home insurance and may be insured up to a certain limit or under certain conditions. In other words, in this case, this information must be provided to the company so that it takes it into account in the policy.

 

And what is the right value for the building?

If the building becomes damaged, e.g. a fire, the company will provide compensation according to the cost of rebuilding the home, i.e. the potential cost of rebuilding the home must be calculated. The resulting value of this calculation is the one that should be included in home insurance as the value of the building.

A very common way to calculate said value is the use of average estimated building values published by the Colleges of Architects. For instance:

Mr Olle Johansson, a Swedish national, purchased a new home in the city of Malaga in 2020. It’s a flat measuring 120 sq. m.Well, taking into account the average estimated building values from the College of Architects of Malaga for 2020, the value per square metre built would be 809 euros. In other words, the value of the building for 120 square metres would be 97,080 euros. If there is an underground carpark and a store, these should also be appraised separately from the home, so that the policy covers them. Another example: Mr Jan Van Poppel, a Dutch national, will purchase a home in the countryside, in the Mijas area (rural land), which has: 200 built square metres plus 30 square metres for a pool. The value per square metre for an isolated home in the countryside is 984 euros and the value of the pool would be 445 euros per square metre. Therefore, the value of the building would be about 210,150 euros.

 

Valuing the building at the purchase price

When we buy a home and obtain home insurance, we often think about setting a value for home insurance as close as possible to the purchase price paid for the property. However, this reasoning is misleading as it should be taken into account that the land where the home is located is not covered by home insurance, as the land always remains intact. In the event of serious damage, if you already own the land, you only need to insure the cost of rebuilding the home. However, the value of this land is what makes up most of the purchase price of a home in most urban sales. For instance, buying a home in the golden mile in Marbella, in central Malaga or on the beachfront in Nerja entails a high cost due to the location (land) of the property, rather than for the value of the building itself.

Rebuilding is much cheaper than buying when you already own the land. Therefore, the most important thing is to insure the real reconstruction value in the event of serious damage. This is about assigning the actual value to the building of your property. You also need to take into account that, when you own a home in a block of flats, if there is serious damage affecting the building, the community insurance will cover part of the damages affecting only the common elements of the building. The façade, roof, terraces, etc., are elements that would be covered by the insurance of the Homeowner’s Association in the event of a fire. In other words, if you are buying a flat or apartment, you’ll need to insure the building. This is why, in these cases, you should calculate the reconstruction value of your building for insurance purposes. If you provide a value above the reconstruction value, this would lead to so-called over-insurance in your home insurance and, if you provide a lower value, it would lead to under-insurance.

 

What would happen in the case of over-insurance in the policy?

Imagine a home in a building measuring 100 square meters, with a building value of 300,000 euros because this was the price paid when it was bought. If there is a serious accident requiring the reconstruction of the home, the company will never pay more than the reconstruction value, which would in general be around 80,000 – 90,000 euros. In this case, the owner would be paying a very high premium every year for the insurance policy needlessly, as the company will only honour claims up to the reconstruction cost of the home. In extreme cases, the company could even interpret that there has been bad faith when obtaining the insurance policy and this could be a major issue, as it could declare the policy void and refuse to pay the amounts that should be paid in the event of damages.

 

What happens in case of under-insurance?

In the event that the building or content is valued below the actual value of the building or furniture, the company will not cover 100% of the damages, even if the amount of the claim is lower than the value of the insurance policy. For instance, if the actual value of reconstruction of the building is 100,000 euros and the policy contains a building value of 60,000 euros, the home would only be insured at 60%. Someone might think in this case that any damages equal to or lower than 60,000 euros would be covered by the policy but in reality that’s not the case. For instance, in the event of a small fire with damages valued at 10,000 euros, the company would interpret that 40% of the claim is not covered by the policy as only 60% of the building value of the home is insured. Therefore, it will only pay 6,000 euros as compensation, always applying the rule of proportionality to every claim.

 

Special insurance: luxury homes

If you own a luxury home or you are thinking about buying a luxury home, the estimated cost of reconstruction or replacement based on the coefficients of the colleges of architects would surely not be a valid calculation method for homes of this type. The key to insure the building in homes of this type is to calculate the reconstruction value of the property with objective parameters. I.e. if the home has very high quality finishes in terms of automation, insulation, aluminium or timber structures, flooring, taps, toilets, air conditioning, etc., this must be taken into account and, in this case, these values should be added to the building insurance. As mentioned, the value of the building must be as accurate an estimate as possible of what it would cost to rebuild the home to the same standards. In this case, it’s very important to inform the company of the “peculiarities” of this home so that it has as much information as possible and to accredit the reason behind the value of building insurance being above the average reconstruction values in the area. Keeping all purchase invoices and proof of purchase for high-value furniture is very important to prove the estimated cost.

 

What is the insurance compensation consortium?

All persons who have an insurance policy in Spain, whatever the type, pay a small part of the price to the consortium. The consortium is a public business entity that covers accidents such as flooding, terrorism, atypical cyclones, large fires or other risks set down in the “extraordinary risk insurance regulations”, which are not covered by insurance policies, with damages of this type being expressly excluded from insurance covers. When damages of this type occur, as the insurance company does not cover them, the consortium acts as guarantor to compensate policyholders and keep them protected in these situations.

 

Rural homes and the building value in home insurance

First of all, we should remember the legal premise that most existing rural homes (rustic / countryside) in Andalusia, which are used for residential purposes, are illegal and, therefore, in the event of the destruction and total loss of the home, such as due to fire, earthquakes, serious flooding, etc., they cannot be rebuilt. This is because the Urban Planning Law of Andalusia (LOUA) does not allow for issuing a building permit on rural land for a residential home. The existence and continuity of those thousands of illegal homes on rural land are based on their age. Therefore, in the case of destruction or total loss, there would no longer be an old home and it would not be possible to obtain a permit to build a new house or rebuild the one that was there.

The above explanation means that the value of the building in home insurance for these homes can be estimated, as mentioned above, at around 984 euros per square metre built in Malaga. As the value is based on what it would cost to rebuild the home and the rural home cannot be legally rebuilt in the event of total loss, what situation would we be in? In the event of total loss, if we have a country home with a surface area of 150 square metres and the building is valued at 150,000 euros, the company would pay that amount as compensation for the building, along with the amount corresponding to its contents. In this case, the owner would receive compensation for the home in addition to the value of land where nothing can be built. This is why the value of the land in a rural home is very low compared to the construction value, especially when compared to an urban home on land where it is legal to rebuild it.

 

Tips for a safe and well insured home

When obtaining home insurance and purchasing your property, think carefully about the value of the building and contents and don’t forget to include stores, parking spaces, pools, etc. If you have any doubts about the insurance value, talk to the insurance company itself. It’s important for the company to help you clear up any doubts when assessing your insurance value.

 

Author: Gustavo Calero Monereo, lawyer of C&D Solicitors (Torrox, Málaga Andalusia)

First occupation license for housing

FIRST OCCUPATION LICENCE (LPO) IN ANDALUSIA REPLACED BY RESPONSIBILITY DECLARATION

Written by Gustavo Calero Monereo on . Posted in andalusia, Andalusian, conveyancing, costa del sol, english speaking solicitor, malaga, new construction, Occupation licence, RTA, Sin categoría.

First Occupation License in Andalusia (LPO) and the RTA rental licenses
First Occupation Licence in Andalusia (LPO) and the RTA rental licences

Big news for Andalusian house owners that don´t have their First Occupation Licence (LPO) yet which is obliged to present when applying for the RTA rental licence of the Registro de Turismo de Andalucia. This was a problem because many houses don´t have this licence as it wasn´t a standard requirement for new build houses until the eighties.

On March 12, the Andalusian Government published in its Official bulletin (BOJA) a Law Decree which has as its main purpose to simplify the regulation of some procedures in Andalusia. This regulation has affected a multitude of procedures and among these the new article 169 bis of the Urban Planning Law of Andalusia (LOUA) of 2002 was approved, which affects the First Occupation Licence (Licencia de Primera Ocupacion or LPO in Spanish).

Likewise, article 169.3 of the LOUA has been modified with a second paragraph that establishes that those acts that are subject to a responsibility declaration do not require a licence. As a general statement, we can say that the new decree allows obtaining the right to occupy or use the majority of buildings located on consolidated urban land throughout Andalusia, by submitting the responsibility declaration together with the required legal documentation by the interested party.

In other words, it will no longer be necessary for these buildings to obtain the First Occupation Licence (LPO) from the city council since the new ´Declaration of occupation or use´ replaces the Occupation Licence. The responsibility declaration of occupation grants the owner the same rights that the First Occupation Licence granted from the day of its presentation.

What is a “responsibility declaration”? 

The responsibility declaration is a document signed by the interested party in which he declares that he meets a series of requirements according to specific regulations and therefore allows him to acquire a right. From the date of presentation (also by a certified architect) the right that is intended to the interested party is recognized, so from the legal point of view it is equal and replaces the earlier First Occupation Licence (LPO) granted by the City Council.

This type of procedure is becoming more common in the Spanish administration. This is because from the presentation of said responsibility declaration the right is recognized and, therefore, it is possible to avoid the waiting time and delay of the administration which in the case of the First Occupation Licence was months.

Which buildings can present a responsibility declaration for their right of occupation?

Article 169 bis commented above, establishes in its section c that it can be obtained by responsibility declaration “the occupation or use of the works of the previous section, provided that the buildings and facilities are finished and their destination is in accordance with the regulations of application”. These works in section b) of article 169, whose occupancy rights would be obtained by means of a responsibility declaration, are: “Works in existing buildings and facilities, on consolidated urban land and in accordance with urban planning, that do not alter the occupation and height parameters, nor involve increases in buildability or the number of homes ”.

Therefore, in section c, existing buildings that have never had a First Occupation Licence are enabled so that they now can obtain their right of occupation, by filing a responsibility declaration. Section d includes the possibility of obtaining the first occupation or use, through a responsibility declaration for new buildings: “d) The first occupation and use of new buildings, provided they are finished and their destination is in accordance with the application regulations and with the works licence granted”.

It is important to say that this change does not affect dwellings on undeveloped land, rustic dwellings, since they cannot obtain the First Occupation Licence as they officially are not part of the urban planning.

What obligations does the responsibility declaration establish?

The interested party who signs a responsibility declaration to acquire the right to occupy a property is responsible for the fulfilment of the established requirements to be able to enjoy said right. Along with the aforementioned declaration, he must present the required technical and legal documentation that certifies compliance with the requirements. Likewise, it will undertake to maintain compliance with said requirements once the declaration is presented.

Therefore, it is evident that responsibility declarations for the occupation or use of a building should not be presented when the requirements demanded by the norm for their presentation are not complied with. It must previously be analysed whether the house in question can obtain this right. It should not be forgotten that the presentation of the responsible declaration supposes assuming a legal responsibility. Presenting said declaration with falsification of the data or documents provided or not attaching all the required legal documentation may suppose legal responsibility for the interested party by the administration.

How does this regulatory change affect tourist rental in Andalusia?

This regulatory change is evident that it will allow many homes, which up to this date do not have a First Occupation Licence for various reasons but still complied with the requirements. These can now obtain this legal recognition with the presentation of the responsibility declaration and required documentation. Since the Andalusian Government legislated tourist homes and forced their registration in the Andalusian Tourism Registry (RTA), requiring the First Occupation Licence, there are many homeowners in Andalusia: Malaga, Costa del Sol or Costa Tropical for example, who have applied for such a licence for their homes. Due to the slowness of the municipalities in granting the First Occupation Licences, many of the owners that have applied for said licence are still waiting for this to be resolved.

Many owners from towns such as Nerja, Málaga, Marbella, Vélez-Málaga, Benalmádena, Fuengirola, Almuñécar, Torrox … etc, and many other municipalities on the Costa del Sol and Costa Tropical will now be able to obtain their right of occupation through a responsibility declaration and hence comply with the requirement of the LPO. This way they can carry out the registration of their home in the RTA for the tourist rental of the property.

There are more than a few foreign clients of our office who have spent months or years “fighting” with their City Council to obtain their First Occupation Licence and now they will be able to obtain said right with the responsibility declaration, easily and quickly. Of course, for these homes, this regulatory change has meant a very important and positive change since one of the main attractions for a foreigner who wants to buy a property in Andalusia is its profitability through tourist rental. With the current crisis of the coronavirus COVID-19, these types of changes help the economic activity.

How does this change affect the sale of second-hand properties?

Most of property purchases by foreigners in Andalusia are existing homes and some of these do not currently have an LPO. It is evident that the responsibility declaration will, from now on, facilitate the process of obtaining the right to occupy a property. This due to the fact that it is understood that the right of occupation or use has been acquired since the presentation of the responsible declaration. Well, from the buyer’s point of view it is very important that, when buying on urban land, carefully check whether the property can obtain said right of occupation or not if the occupancy rights have been acquired by the seller through the presentation of the responsibility declaration.

The potential buyer must request a copy of the technical documentation presented together with the declaration from the seller, so that his lawyer and / or architect can review it and confirm that said property meets the requirements to obtain the right of occupation or use. If the future buyer does not make this verification, there is a risk that the seller of the property, in order to make it appear that his home has the right of occupancy, presents or is going to present the responsibility declaration despite the fact that the property cannot obtain said right for not complying with the requirements.

In this scenario, the buyer and new owner of the property may encounter a problem. Obviously, the seller could be held responsible for this situation but in most cases of foreign sales, the sellers are non-resident, it would be expensive and complicated to initiate legal proceedings. Always check with your lawyer about the situation of the property you are going to buy.

What happens with new construction promotions?

As we have previously mentioned, also for this type of housing it is possible for the developer to obtain what was previously the First Occupation Licence (LPO), through the declaration of occupation or use. The Urban Planning Law of Andalusia (LOUA) with this regulatory change, establishes that an occupancy licence for new homes is not required in Andalusia, it is possible to present the responsibility declaration of occupation.

In other words, even if the developer wanted to he or she could no longer obtain the LPO from the City Council as a result of this regulatory change. This means that, even if it is stated in the signed private purchase contract that the developer is required to obtain the LPO it would now be sufficient for the developer with the responsibility declaration as it would prove that the new house has the right of first occupation. The promoter by means of the declaration fulfils the private contract of sale.

What happens if the developer has improperly filed the statement?

The City Councils have an obligation to review whether or not the responsible statement meets the requirements to obtain the right of occupation or use, and may declare the cessation of occupation in the event that the requirements are not met and may also demand legal responsibility from the promoter for said actions.

If within the first six months from the presentation of the declaration, the City Council has not adopted the necessary measures for the cessation of the act or use, in the event that the requirements for that occupation are not met, the City Council would be liable for damages caused to third parties in good faith. In other words, the City Councils would answer to the people who bought these homes with the conviction that the sale could be carried out, since these the day they signed the Deed of Sale, they had the declaration responsible for the promoter of occupation or use (former LPO) .

The foregoing gives leaves us to understand that if the Town Hall reviews said declaration in those first six months and understands that the cessation of the occupation must be decreed, the developer would be responsible for the damages to the buyers. However, I understand that in most cases there should be no damage to the buyers, since the optional management of the works (mainly architects and surveyors) will ensure that their final works certificate is in accordance with the law since they would be the main responsible along with the promoter if this was not the case. The final works certificate is the most important technical document to obtain the right of occupation in a new home.

Can the declaration of occupation or use be presented in all Town Halls?

It is true that to this date few municipalities have approved specific procedures for this process such as Malaga, Marbella, Seville or Córdoba. The Andalusian Government has published a practical guide to this decree, along with the models for the responsibility declaration and the necessary documentation, so that the Town Councils can use it. In our opinion, such models can also be used by citizens since the right of occupation can only be obtained through a responsibility declaration, and not through a licence granted by the City Councils as of March 13th 2020.

It is true that since most of the municipalities have not approved this new procedure through their municipal ordinance, it is likely that they do not agree with obtaining said right of occupation by presenting the responsibility declaration, unless that City Council has previously approved that specific procedure.

Notwithstanding this Decree in the tenth transitory provision, allows those interested who prior to March 13 have initiated a procedure to obtain a first occupation license, can request the application of this new procedure and therefore may obtain the right of occupation through the responsibility declaration.

If the new regulation provides for the possibility of changing the procedure already initiated, we understand that since it entered into force it allows obtaining the right of occupation by means of a responsibility declarations, even though the City Council has not published its municipal ordinance.

Can supplies be contracted with this responsibility statement instead of the LPO?

The answer is categorically YES. Although it is very likely that it will be necessary to explain and discuss, at least during these first months since probably several of the supply companies for electricity and water will not have obtained this information or guidelines of said legal modification and will continue to demand the LPO. As you can understand, the best thing to do if you are an owner is to consult with your lawyer or architect about the specific situation of your property.

Of course, if you are in the process of buying a home or thinking about it, it is very important to contact a specialized lawyer who can advise you in the process of buying and selling the property and who knows these urban issues well.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, (Málaga, Andalusia)

 

malaga, costa del sol, sewage, properties

MALAGA AND COSTA DEL SOL: GREAT TOURIST AREA, WORRYING WASTEWATER PURIFICATION

Written by Gustavo Calero Monereo on . Posted in AFO, Andalucia, andalusia, asimilado fuera de ordenación, assimilated out of ordination, conveyancing, costa del sol, lawyer, legal advice, malaga, malaga, nerja, non developable land, NON RESIDENT, solicitor.

malaga, costa del sol, sewage, properties
The wastewater purification in Malaga, financial and environmental consequences

With this article, I am detracting from the usual ones of a more legal nature, aimed at foreigners, resident or non-resident, who own a home in Malaga. In this post, I attempt to analyse the situation of wastewater purification in terms of the most significant tourist municipalities in Costa del Sol, as well as the financial and environmental consequences that lack of purification entails for municipalities like Nerja and Coín. I also focus on properties on rural land and the purification required for homes wishing to obtain a DAFO.

Introduction wastewater purification

With environmental sustainability or the environmental impact of our lifestyles being such an important issue in our times, I would like to speak my mind about the great problem of faecal water purification in the province of Malaga in general, even through it is sadly extensible to most regions in Spain, in population centres both large and small. However, Malaga, as a top tourist destination and due to its population density, especially along the coastline, should have an infrastructure that mitigates the environmental impact caused by all of us who live on the shore.

Many of our clients, both resident and non-resident, who are thinking about purchasing a home in Andalusia and that we provide advice to, are attracted by the Mediterranean Sea that bathes our shores but on which we indiscriminately dump millions of litres of unpurified wastewater. A recent article in La Opinión de Málaga on 5 January stated that Malaga dumps 123 million cubic metres of wastewater into the sea every year, a real atrocity.

National problem, million-euro fine 

On 15 February, El País national newspaper published an article informing that, until that date, Spain had paid about 32.70 million euros in fines due to not complying with the wastewater treatment directive in municipalities with over 15,000 inhabitants. This has been the highest fine paid by Spain to the EU in history.

This breach of the directive led to a conviction from the European Court of Justice and the resulting fine being imposed by the European Commission. This fine continues to grow for as long as those 17 municipalities fail to treat their wastewater, an obligation that came into force in 2001, which means almost 19 years have passed since that directive was enacted.

Nerja, beautiful beaches with faecal waters

One of the many municipalities that have been fined and do not have a sewage treatment plant is Nerja. It is striking that this municipality, which such beauty  and such great beaches and cliffs, in 2020, is still dumping the sewage it generates directly into the ocean, through a collector located 1,200 metres from the coast.

Nerja has spent over 20 years on the project for its sewage treatment plant and even though it seems that this year may finally mark the end of the works, according to an article in Diario Sur on 6 January (fingers crossed), this does not detract from the sloppiness and lack of interest of the local and regional government have displayed about this project.

The situation is so obvious from an environmental standpoint that, following several complaints, the prosecutor’s office brought judicial proceedings against senior officials of the Nerja City Council for the illegal dumping of this untreated wastewater. One of the toxicology reports certified that all samples taken from five beaches in Nerja contained faecal organisms according to their tests.

Construction of the Nerja treatment plant was declared to be of public interest by the Government in 1996 but, 23 years later, it has not yet been completed. If you visited Nerja and the surrounding areas in 1996, you could see the large number of works that did get started and completed because there were many years with large capital movements but the faecal water purification plant was not so lucky. Other municipalities on the eastern coast, such as Torrox, Vélez Málaga and Rincón de la Victoria, do have a sewage treatment plant in operation.

Mouth of the Guadalhorce, a natural site with a “faecal” river

Another area that also presents a high degree of pollution due to illegal dumping is the mouth of the Guadalhorce river in the city of Malaga. This enclave is the last unspoiled beach in the city of Malaga and is home to a very significant ecosystem of flora and fauna, with a network of trails to move through it. However, in this river, municipalities as large as Alhaurín el Grande and Coín dump their untreated faecal waters, which also led to a fine being paid by the government of Spain.

The city of Malaga has reinvented itself as a multicultural European city, currently highly appreciated by foreign tourists due to its many urban development projects, mostly in real estate. But Malaga is unable to commit to a project in the mouth of the Guadalhorce, which could affect this unique space –as it is the last unspoiled one– to preserve its environmental value.

It is non-profit associations that are reforesting and trying to preserve this space altruistically, as our firm was able to witness during the conference we held with some of them last November.

The municipality of Coín, a peculiar case

For the town of Coín to be able to connect to the treatment plant in the lower Guadalhorce, it is necessary to build the 3 kilometres of collectors that were destroyed by the torrential rains in autumn 2018 but the Andalusia Council, along with the contracting company, continue to fight to decide who will pay for these repairs. Coín is also immersed in legal proceedings due to its failure to treat its wastewater. While the administrations argue, this collector continues broken and the faecal water from Coín is dumped directly into the Guadalhorce river.

Isolated homes and their regularisation through DAFO, a bad focus of faecal waters

Even though compared to large population centres, the impact of these homes is lower, it should be noted that there are many isolated homes existing in Malaga. In La Axarquía, municipalities such as Alcaucín, Viñuela, Competa, Periana and Torrox have thousands of rural homes, as well as towns in the Guadalhorce valley, such as Coín, Alhaurín el Grande and Alhaurín de la Torre. Likewise, municipalities such as Mijas or Ronda also have many houses on non-urban land.

Among the positive aspects of the DAFO these homes are required to have an individual and autonomous treatment system. It should be noted that this procedure is important for foreigners who buy and sell homes in the province.

What is the problem?

I see that one of the negative aspects is the requirement from the Andalusia Council for properties subject to DAFO to have a watertight septic tank, forbidding septic tanks with a biological filter. This guideline is a serious mistake and its effect is contrary to what is intended, which is to prevent these homes from polluting the land on which they are located.

Properties with a watertight tank habitually require (monthly or more frequently, depending on their use) a tanker to visit the property and empty the contents of the tank, which are then transferred to an authorised waste facility.

What is the alternative?

Allowing the use of septic tanks with a biological filter as a treatment system, as it would not be necessary to empty the tank and water would come out clean and purified. It may be necessary to request authorisation for the discharge point of this clean, filtered water, which could even be used for irrigation but, with this treatment system, a company would only need to clean the tanks once a year, which represents significant savings for owners.

What is happening?

The problem that we find with watertight septic tanks is the economic cost of each emptying, which leads many homeowners to resort to other illegal methods, to avoid inconveniences and economic costs. In many cases, they choose to install a watertight septic tank and, once the technician certifies it, a small hole is drilled at the bottom, through which faecal water is poured into groundwater, thereby dispending with the need to have a truck empty it and making it very difficult for this to be sanctioned.

It is appalling that, in some cities, it has been accepted or assumed that owners will not empty their watertight septic tanks and will drill a small hole in them. I would even dare to say that owners are given such a “solution” to prevent the inconvenience of emptying, as the DAFO only requires having a technician certify the installation of the watertight septic tank and, if a hole is drilled later, no one will notice.

However, with thousands of homes in the countryside, thinking that a truck would need to go empty the septic tank in each of them on a frequent basis, requires being naive or means that the Andalusia Council cares little about these discharges (I lean more towards the latter). I am also not very sure of where these trucks discharge the faecal waters they do collect.

Do not pollute the environment if you process the DAFO for your property

To prevent the situation above, which is absolutely filthy, in some of the DAFO we have processed, we have found this problem and, to prevent faecal waters from being discharged directly into the ground, we have advised owners that, once the watertight tank is installed and certified to process the DAFO, they install one with a biological filter next to it. This way, at least, the water they dump will be clean and not pollute the ground, while the owner will avoid all the financial cost and disruption entailed by emptying the tank periodically.

At least, with the second option, despite not being accepted officially by the Junta of Andalusian and many municipalities, faecal discharge is prevented, which is the main goal when it comes to the environment.

Conclusion

As you probably understand, this issue goes a long way but I believe that, with these few brushstrokes, you can see the general lack of environmental awareness in the administration as well as among many citizens. This is the sad reality.

Tourism in Malaga and the entire Mediterranean area is also not viewed with a perspective for the future, as we live in the short term and do not care for essential things for investors and tourists to continue to come to Malaga, as well as foreigners wishing to purchase a home to enjoy a high quality of life or just spend their holidays in Span.

Meanwhile, those of us who reside and live here most of the time are unaware of the large amount of pollution we generate and the damage we cause to the sea, rivers and streams (which are increasingly polluted). I do not see many complaints or movements among citizens protesting this situation.

Some of the damage is already irreparable but there is some that can be fixed.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

 

 

Lower taxes on gifts in andalusia

LOWER TAXES ON GIFTS IN ANDALUSIA

Written by Gustavo Calero Monereo on . Posted in andalusia, Capital Gains, conveyancing, english speaking solicitor, gift tax, judgment, malaga, nerja, Property law, purchase process, tax liability.

Lower taxes on gifts in andalusia
Lower taxes on gifts in Andalusia

On 9 April, the Andalusia Council approved, through a Decree Law, an amendment of the tax on inheritance and gifts, which, in particular, entails great tax savings in terms of the tax on gifts. This legislative amendment introduced a bonus of 99% of the tax liability due in inheritance and gift tax, that is to say only 1% of what was previously paid would be due.

Needless to say, the Tax on inheritance and gifts is devolved to the different Autonomous Communities that make up Spain so this bonus is the one in force in Andalusia. But, depending on the location of the property or residence of the recipient (for movable assets) –the person receiving the asset–, legislation will be different on the matter of inheritance and gifts.

Example: A father gifts his son 200,000 euros

With the previous legislation, the tax liability on this gift would have been 31,621.21 euros, which meant that the son would have had to pay 31,621.21 euros in taxes after receiving this money from this father. With the new regulation, this tax liability of 31,621.21 euros can benefit from a bonus of 99%, which means that, now, the son would pay a tax of 316.21 euros. Without a doubt, it represents huge tax savings. When money or other moveable property is donated, the applicable regulation for this purpose will be that of the residence of the recipient.

Who can benefit from this bonus on the gift tax?

Those people included in groups I and II established in the regulation governing this tax can benefit. This means that the recipient must be the spouse, child, grandchild or parent of the grantor; the person who gives away the asset.

What other requirements need to be met for gifts in Andalusia?

Besides being included in groups I and II mentioned above, it will be necessary for the donation to be made effective in a Public Deed before a Notary and, if money is gifted, its source must be justified. In case of donating a property, this Deed will be used to inscribe the property in the new name of the new owner in the Land Registry.

What happens with the Capital Gain Tax and Plusvalia?

From the perspective of the tax on gifts, there is no problem with a parent donating a property in Andalusia for the child to apply the 99% bonus and pay a very small amount for the tax on gifts. The problem in the case of properties affects the grantor because, even if the property is gifted, the Tax Agency equates that transfer to the sale of the property –for the Treasury, there is no difference between donating and selling–. For this reason, the grantor must pay Capital Gains Tax calculated on the difference between the original value paid in the purchase of the property and the value of the property when gifted.

It is important to note that if the grantor is a tax resident in Spain, over the age of 65 and gifting their habitual residence, no capital gains tax would be paid for gifting or selling the property.

Lastly, as the city where the property is located also interprets a gift as a sale, it will ask for its piece of the pie in the form of capital gains tax – Plusvalia in Spanish-. This local tax is calculated according to the number of years that the grantor has owned the property, with a maximum of 20 years, and is paid on the increase in value experienced by the plot/land of the property.

What if I value the property at a low price to pay less tax?

You may be tempted to set a very low value for the property gifted and thus pay less Capital Gains tax when it is gifted. This is perfectly understandable but it is very important for this value not to be below the minimum taxable value, which is the taxable value that the Treasury deems properties in Spain to have. That is to say, the value of the property being gifted should not fall below the minimum taxable value to prevent an inspection by the Tax Agency. The minimum tax value in urban properties is based on the cadastre value of the property multiplied by a factor that varies from town to town.

Does this bonus apply to everyone, regardless of whether they are resident in Spain?

As explained in several previous articles, the most recent from March, different judgments have ruled that both residents of the European Union and residents of third countries must be treated the same as residents in Spain for the purposes of the Tax on Inheritance and Gifts. Based on this, anyone who meets the requirements explained in this article can benefit from the 99% bonus in Inheritance and Gift Tax introduced in Andalusia or any other regulation of the relevant Autonomous Community.

Example of a property being gifted

Let’s imagine a Swedish homeowner who bought a property in Almuñécar (Granada) for 200,000 euros and decides to gift it to his son who lives in China, with the current minimum taxable value being 300,000 euros. Since the home is in Andalusia, the son-recipient can benefit from the 99% bonus in the tax due and would only have to pay 554.68 euros for the tax on gifts, of the total tax amount of 55,466.81 euros.

Since the father-grantor obtained capital gains of 100,000 euros from the gift, he will have to pay capital gains tax on this 100,000-euro “profit”, which currently stands at 19% of net profit (after certain possible deductions). However, as the owner is 64 years old, resident in Spain and is gifting his habitual residence, we recommend that he waits until he turns 65 to avoid paying capital gains tax. The son will surely understand the reasons.

What happens to taxes where the recipient resides?

Before accepting a gift, it is important for the recipient to get information, from his or her country of residence, regarding which tax will have to be paid on this, if any. Lastly, it should be said that this amendment of the Tax on Gifts in Andalusia means that the construct of gifts may be attractive in situations where a couple wants one of the spouses to own 100% of the property –only for married couples under separation of assets– or if they want to leave the property to their children or grandchildren during their lifetimes. Previously, from the standpoint of tax savings in Andalusia, the only options were to terminate co-ownership or sell the property but now, with this new amendment, in many cases it will be better to gift it as more taxes will be saved on the transfer of the property.

Read more about the subject of selling your house in Andalusia in the video below:

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

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