I would like to update you about some new measures carried out by the Junta de Andalucía, containing many reforms in the different existing taxes (not exactly to re-boost the current market situation…).
Concerning those interesting, we will focus on the Stamp Duty (A.J.D.), a tax applied to those public acts formalized on public documents to be registered in the different Public Registry offices with an economic amount (e.g. new property sales, new building declarations, or a mortgage deeds, among any others).
So, last week, the 19th of June, the Junta of Andalucía approved the new Decree-Law 1/2012, of 19th of June, which contains a series of tax, administrative and labor measures, published in the B.O.J.A. (Official Journal of the Government of Andalusia)last 22th of June 2012. You can find it by clicking: http://www.juntadeandalucia.es/eboja/2012/122/BOJA12-122-00014-11216-01_00009593.pdf
Within these measures, regarding the tax ones, we can find an increase of the general rate on the Stamp Duty, going from 1.2% to 1.5% of the declared value.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)
Regarding the current financial situation, which is reflected in the drop of property sales in Spain every three months, the Spanish Government has passed a new tax exemption. This exemption tries to promote the sale of properties and may become very interesting for both individuals and bodies corporate considering buying a real estate property in Spain in the short term, whether they purchase commercial premises, homes, offices, garages, plots, storage rooms, etc.
On the 12th of May 2012, the Central Government passed the Spanish Royal Decree-Law 18/2012 of 11th of May on the restructuring and sale of the property assets of the financial sector. This regulation included in its First, Second and Third Final Provisions the tax exemption for bodies corporate and individuals, whether resident or non-resident in Spain. This reform law allows all those buying a property from the 12th of May 2012 till the 31st of December 2012 to pay taxes only on the 50% of the capital gains taxwhen selling the property subsequently, whether in 1, 5, 10…etc years, while the remaining 50% is free of charges.
This exemption may save an important amount of money, because if a property is currently sold in Spain, capital gains are taxed at 21% for non-residents (19% from 2014), at 27% for resident taxpayers in Spain (21% from 2014) and at 30% for bodies corporate.
Here we present an example: imagine you are thinking about buying a property in Spain considering the current market opportunities; the price for this property may be EUR 200,000; the following eventual scenarios may occur according to the date of purchase when selling this property, for example, in 2017 for a sale price of EUR 270,000:
1) Non-resident taxpayers: EUR 70,000 of capital gains at 19% makes a total payment of EUR 13,000; if the purchase is performed before the 31/12/2012, the total payment would be EUR 6,650.
2) Resident taxpayers: EUR 70,000 of capital gains at 21% makes a total payment of EUR 14,700. If the purchase is performed before the 31/12/2012, the total payment would be EUR 7,350.
3) Corporate: EUR 70,000 of capital gains at 30% makes a total payment of EUR 21,000. If the purchase is performed before the 31/12/2012, the total payment would be EUR 10,500.
Obviously, this tax saving is not definitive in order to decide whether to buy a property or not in Spain, as it is not possible to know whether prices may go down much more nor the gains resulting from the eventual property sale. However, this fact may be a helpful factor to take a decision for those considering buying a property, especially for those non-speculative potential buyers whose main purpose is to enjoy this property for many years; thus, the longer they own the property, the greater the capital gains may be when selling it. Look at the figures and draw your own conclusions.
The Spanish Constitution and the regulations (tax and social) developed thereof, regarding the protection of the elderly, guarantee that the elderly will receive a comprehensive system of care and protection that promotes and enhances the wellbeing of this section of the population, within which this article highlights the area of economic protection.
The purpose of this type of protection is to formulate a system of regulations that provide the elderly with the necessary economic resources, which will contribute towards their independence and improve their quality of life.
As principle provisions or benefits within this economic protection of the elderly, we can highlight, among other things: retirement pensions (contributory and non-contributory), supplementary economic provisions, various subsidies and aid, which is granted within the scope of Social Services, as well as certain tax benefits.
In relation to this matter, this article will focus on the exemption from capital gains tax, which, for those over 65, occurs at the time that their habitual residence is sold.
Gains derived from the transfer of immovable property are taxed, for non-residents, at a fixed rate of 19%. For residents, the first €6,000 is taxed at 19% and the rest is taxed at 21%.
Moreover, in the case of the transfer of property by a non-resident, the purchaser shall be obliged to withhold and pay 3% of the sale price as payment on account of taxes which should meet the requirements of capital gains for non-residents and that should be paid directly to the Tax Authorities. Said retention from the sale price is not incurred if the seller has the right to tax reduction for the transfer of property that is their habitual residence, for those over the age of 65.
Article 31.4 b) of Law 40/1998, which regulates personal income tax, establishes that those over the age of 65 shall be exempt from capital gains in the event that the property transferred is their habitual residence.
The only two requirements for eligibility for this tax exemption are the following:
The taxpayer must be over 65 at the time that the transfer takes place.
The transferred property must be their habitual residence. In order that the property be considered a place of habitual residence for the purpose of this tax, two temporal limits are established: 1) it must be effectively occupied by the taxpayer within a period of 12 months from the date of acquisition or from the termination of any building work; 2) it must constitute their place of habitual residence for an on-going period of at least three years prior to the date of sale.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)
We have recently known, through our clients’ consultations, of the situation that most of the owners of La Axarquía area suffer, which comes from the lack of a License of First Occupation on their properties, particularly, regarding those problems with contract the supplies, such as the electricity supply for their first time or for its restoration, after being cut off by the electricity company (i.e. end of construction site temporary power).
The License of First Occupation is a certificate issued by the town hall that confirms that a newly-built property fully complies with all planning and building regulations, and is ready to be used as a dwelling. It also confirms the compliance with all Health, Safety, Planning and Construction laws, and that the property has been fully completed, with no outstanding works. Each newly built dwelling will have an individual License of First Occupation. License of First Occupation only applies to newly-built properties as the L.F.O. is the original authorization to use them as a dwelling.
Granting a License of First Occupation certifies that the developer has built the dwelling fully complying with the original Town Hall’s Building License, as well as complying with all Planning laws.
The first occupation licence wasn’t required before 1978, this means all the properties with more than 37 years won’t have it.
The License of First Occupation is required to have access to the official supplies (water, electricity, gas,…).
The Spanish law requires the granting of the License of First Occupation to set up any utility contract for the property. Nevertheless, the most of the properties without the first occupation licence have electricity supply and water supply. Many of these properties haven’t a first occupation licence due to the works in the urbanization aren’t finished yet but the owners are living there. We can say that in many cases the real situation of these properties haven’t anything to do with the content of the law.
It is always advisable to complete the purchase with a valid License of First Occupation (LFO) in place, even if it is not illegal to complete at the Notary office without a License of First Occupation. In other words, the property purchase completion before a Spanish Notary public without a LFO is legal in Spain, and the property can be lodged under your name at the Land Registry records. However, it is not legal to “live” in a property without the License of First Occupation. This is the reason because not having it in the new homes will prevent you from having access to water and electricity supplies for the property in order to get them connected.
Properties without LFO can be bought, sold and registered at the Land Registry. So it is not illegal to sell a property without LFO. If you own a newly-built property that was not issued with the License of First Occupation you might have trouble selling it as the potential buyers may seek for a steep discount because of this matter.
The information concerning the LFO given in this post may have to be understood as a benchmark to all those new built properties according to a building license previously obtained and complying with all Planning laws. If this building license was not given, if it was not according with Planning laws, or, in the event that the works carried out did not adhere to the building plan, we will be in another different situation, and the way to get access to these supplies would be different as well. But this is an issue which will be analyzed in a further post, taking into consideration the new measures introduced by the called new “Decree of legalization”, approved by the Andalusian Parliament last 10th of January, in this sense, which is not in force yet.
New building declaration and Land Registry records
The possibility of registration in the Land Registry of constructions without building permits after four years of completion, is provided by a State regulation – Spanish Royal Decree Real Decreto 1093/1997 of 7th of July, Section 52 provides this possibility, as well as the following requirements for this registration: 1) proceedings of town planning discipline shall not appear in the Land Registry against the construction; 2) the time fixed by law shall have been elapsed in order to “tackle” this infraction through the administrative procedure and 3) certification of the year of completion of the construction.
Thanks to the above mentioned Section of the Royal Decree, thousands of constructions have been registered in the Land Registry, although they did not have the building permits or the constructions did not comply with the conditions of the building permits.
This Section has not been modified and is still in force, however some elements has been incorporated to increase the requirements demanded by the Land Registry offices and to “toughen” the requirements for the admission of this registration, as for example:
1) Amendment of Section 20.4 of the Spanish Land Law which refers to the declarations of new buildings and incorporates a new requirement for its registration in the Land Registry—the submission of a certificate from the city council stating the fuera de ordenación (out of ordination) condition for this construction.
2) As a result of the approval of the new regulation Reglamento de Disciplina Urbanística (town planning discipline regulation) by the Junta de Andalucía Regional Government in May 2010, pressure and control have been increased above these constructions located in non-developable (non-urbanizable) lands. The Junta de Andalucía have notified the Directorate General for Registries and Public Notaries, so that they demand new obligations for the registration of declarations of new buildings, as for example, the submission of a certificate from the city council, so that the Registry record the “fuera de ordenación” condition (out of ordination) or the “asimilado a fuera de ordination” condition (assimilated to out of ordination).
3) Some Land Registry offices have begun to demand the submission of this certificate from the city council as an essential requirement for the registration of the declarations of new buildings.
What do all these changes mean for owners who want to register their home?
In the event that in the future the Land Registry requires owners the submission of this certificate from the city council to register their home, swimming-pool, garage or any other construction in their property, these below may be the consequences:
1) Increase of the economic costs for the declaration of the new building, because some city councils are approving ordinances for the payment of fees for obtaining it, as they need financial resources; in some cases, these costs may range between EUR 2,000-5,000, depending on the square meters of the property.
2) As any other application to city councils, this procedure would be slow and may imply several months until obtaining the certificate; in case owners need to obtain the declaration of new building urgently because of a sale, this period of time may become an important handicap.
3) The fact of recording in the Land Registry the “fuera de ordenación” (out of ordination) condition or “asimilado a fuera de ordenación” (assimilated to out of ordination) condition on their property, implies the documentary evidence of some limitations, which may affect the sale price when transferring the property to a prospective buyer. It is also worth mentioning that the prospective buyer may demand a discount in a possible transaction regarding this fact.
To sum up, in the event that the Registry offices toughen in the future the requirements to register any construction in the Land Registry and the resulting increase of the costs and period of time for the procedure completion, we advise you to take advantage of the current situation and execute the Public Deed of Declaration of New Building of your home as soon as possible and submit it to the Land Registry to avoid any problem in the future.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)
Some months ago, a foreign prospect client, who we have come to know as “Mr. X”, came in our offices. He requested some information regarding sale procedures, legal work and our professionalfees.
After the first free appointment, in all honesty he commented to us that he had contacted a professional offering a 40% cheaper fee than ours. However, he would be interested in contracting our services provided that we could offer him a discount.
At that moment, we considered which option to adopt; naturally, we wanted to win this client, but we also knew that the rural property, which he wanted to buy, required a quite complex searching process.
At the end, Mr. X was offered a “courtesy” discount in our fees, which was not close to the low price offered by the former professional. Finally, Mr. X decided to contract the other professional’s cheaper services.
Regarding the current market and low circulation of clients, some solicitors offer great discounts to stand out from competitors and then win a client. Then, considering the aforesaid, why our legal firm did not offer a higher discount to win Mr. X as a client?
The answer is obvious; because such low fees proposed by Mr. X could not pay for the time of commitment for the searching process to buy the above mentioned property in a rural land and then providing full legal certainty to the client.
Within our professional environment of legal services, you may and shall be flexible and capable for adapting to win a client, considering the current situation of financial difficulties and increase of competitors in our sector. However, you should NEVER compete with lower fees, because if the fees for your services are reduced so much, then the quality of your services becomes also poorer.
Furthermore, if we are realistic, no professional may work with the same intensity neither commit the same time when their fees are so low, because production costs and ideal profits would require much more cases which may not be properly and professionally handled, and as a result, a poorer quality counseling service may be provided.
Later on, we knew that Mr. X hired an agent’s services for the legal counseling instead of a solicitor’s. We do not know how his case finished or whether he received a good counseling service. Similarly, if I do not feel physically well or fell pain, I would contact a doctor for a diagnosis and the prescription of a solution, instead of contacting a person who is not a doctor and claims to know a lot about medicine. As a qualified general practitioner, the doctor is better trained and has a legal responsibility. As a result, the patient-client receives more security and reliability, although he or she may pay more for these services.
In all honesty, an agent will never provide the same legal service as a solicitor will, because a solicitor has been exclusively trained by and for law. Solicitors’ training is eminently juridical; this full time commitment and the responsibility of the practice of law—because of the rules and the professional ethics code and good practice; shall always result in a higher quality legal counseling and greater commitment to the client. But I do not go against agents, as I personally know some of them and I am aware of their worth. However, they are not solicitors.
In short, although we were really looking forward to winning Mr. X as a client, we could not afford to reduce our fees so much in order to avoid a poorer quality service. The fact of highlighting our professionalism and tailor-made customer service in our law firm implies a commitment of time and this commitment implies some costs that the client should pay.
Three weeks ago, we received in our offices a copy of the draft implementing Decree of 20th of June 2011, which regulates building and scattered rural settlements on non-developable (non-urbanizable) land in Andalusia.
This draft is supposed to be created as an attempt to regulate the situation of a large number of properties located on non-developable (non-urbanizable) land in Andalusia, where criminal or administrative proceedings cannot be filed against them for land development liability, because the offense or infringement is extinguished by prescription. The Andalusian Regional Government is partially responsible for this situation, as they have not protected or controlled the legality regarding land developments of municipalities for many years. Meanwhile, they have collected the profits from the transfers of title ownership by means of the transfer tax.
Regarding the draft of the Decree, the concept of constructions assimilated out of ordination is not understood. The use and enjoyment of these constructions can be exercised, but a complex administrative procedure is established, so that the city councils certify the security and necessary facilities for the use and enjoyment of these properties. However, the resolution to this procedure shall never mean the grant of the First Occupancy License, neither the owner’s rights shall be recognized to be exercised before any administrative or criminal proceedings (article 7, section 6 of the Decree).
If the use of housing is recognized and regulated to preserve the rural area, the environment and the scenic value where the construction is located, then, why the First Occupancy License is not granted when the owner is enjoying the property? What does “non-recognition” mean before any court proceedings? As a result, it could be understood that in the event of court proceedings, this recognition of assimilated housing shall not have any legal “value” for these proceedings, that is to say, legalization or regulation does not exist.
Maybe, the problem is based in the creation of the concept “assimilated to out of ordination”, which was incorporated by the Decree on Urban Discipline of Andalusian of 2010 and its implementation.
Furthermore, an additional problem arises, as the Land Registry jurisdiction belongs to the Spanish Government. As a result, the State legislation should firstly include this legal concept of “assimilated out of ordination” within its rules in order to authorize the registration in the Land Registry of any administrative action which establishes a construction under the consideration of this concept. Nowadays, the only existing concept is “out of ordination”, but nothing is referred to constructions “assimilated” to these ones. Then, the Regional Government is not authorized to establish the access or registration in the Land Registry, as this jurisdiction belongs to the Spanish Government.
Lastly, in many Andalusian municipalities as the Axarquía region, thousands of isolated houses have been built on non-developable land under the corresponding construction permits. Then, it does not seem coherent that differences in treatment are not considered for these owners acting in good faith, regarding these municipal permits they were granted. This draft of the Decree does not include any reference to them; therefore, the legal situation of the constructions with permits equates with these other constructions without permits.
In conclusion, regarding the content of the draft, legalization or regulation of properties located on rural land is not incorporated; no legal novelty is provided to solve out the problem resulting from the lack of control of Public Administrations regarding the use of land; this law only complicates even further the current situation of this issue.
Complex urban planning in Andalucia: PGOU, LOUA & POT
Due to the urban complexity that most of the municipalities of La Axarquía are immersed because of the Spanish local elections held in May, the changes in the local governments could mean changes in the way of managing each municipality and in the solutions that such local governments could propose in view of the complex urban development in this area.
We have to take into account that, nowadays, most of the municipalities are working in the production and approval of their new General Plans for Urban Zoning (PGOU) to adapt them to the Urban Zoning Code of La Axarquía (LOUA) and to the Plan for Town Planning in La Axarquía (POT), and so as to offer a final solution to all those housing developments built upon non-urban areas as well as to the thousands of isolated buildings within each municipality.
Apart from the several actions carried out by the town halls, it is worth mentioning the announcement made by the Junta de Andalucía about the approval of a Decree to legalize the large number of houses in La Axarquía. Besides, the Junta de Andalucía has made an inventory about houses built upon non-urban areas and which is being sent to each of the town halls so that they could know the situation of all those mentioned houses.
The PGOU is the main instrument in the planning of each municipality and it provides the characteristics and nature of the area that comprises such municipal district. So, it is very important that those owners with properties built upon non-urban areas, whether it is an isolated house or a house within a development, appear before the municipal offices as soon as possible, preferably with a specialized lawyer, in order to study the situation of the houses and the possibilities of legalizing them or declaring them houses out of regulation.
It is worth mentioning all those housing developments partly or totally built upon non-urban areas, but with different situations in their basic infrastructures (lighting, roads, sewer systems, water, etc). In those cases, it is necessary that each Community of Owners or, if it is not established, one of their representatives, enquires in the town hall about the situation of the housing development and its possible inclusion in the new PGOU.
If we take into account that it seems that possible mid-term solutions and measures may arrive, it is important that owners ask and take part in such “regularization” process that will be born within each town hall, so as their property or housing development could be part of this new plan, or in order to find a solution for each conflict or situation.
Obviously, regularizing each house will have a charge for the owners, depending on their situation, but we think it is a “minor wrong” if this situation of legal insecurity upon many rustic properties comes to an end.
Nowadays, our legal firm, which represents some clients that have houses or are part of a housing development built upon non-urban areas, has already started to deal with several town halls about the situation and regularization proposals of their properties. It is important that the owners are the ones who look for solutions with the town halls.
According to the report published by “Optima Mayores” Advisers, the demand of lifetime mortgages has increased to 17% (19,900 applications) until April in comparison to last year same four-month period.
This increase in the lifetime mortgage demand matches the senior citizens’ growing needs to obtain an income and the better knowledge of this product in Spain, where it was first launched in 2004. Spanish Senior citizens’ pensions are at 40% below the European average, what indicates their necessity to face their retirement financing with a peace of mind. Regarding British senior citizens, the Euro and Pound Sterling exchange rate fluctuation has also reduce their earnings.
What is a lifetime mortgage?
A lifetime mortgage is a financial product that consists of a loan for seniors aged 65 or older or dependents, secured against the home where they live. They retain ownership of their home until they die, when their inheritors shall repay the loan or sale the property.
The maximum loan to be granted is based on a percentage of the property appraisal value. Then, the homeowner may receive a regular fixed amount or a lump sum payment.
Who qualifies for a lifetime mortgage?
The following requirements shall be fulfilled to qualify for a lifetime mortgage:
– The applicant or the selected beneficiaries shall be aged 65 or older; or otherwise, they shall be individuals with high to severe dependency levels.
– The borrower shall receive the money from the loan in regular fixed amounts or a lump sum payment (incomes).
– Only the creditor (banks or savings banks) is entitled to demand the repayment of the debt and the mortgage foreclosure when the borrower dies, or if provided in the agreement conditions—when the last of the borrower’s beneficiaries die. The mortgaged property shall be valued and insured according to the Spanish legislation in force.
These are the official requirements to be protected by the Spanish legislation regulating this type of loans and to be entitled to the tax advantages established by this legislation.
Clients and banks may freely agree about lifetime mortgage transactions which include a varied set of terms and conditions; consequently, a professional advisor’s counselling in this proceeding is a determining factor for the good end of the agreement to enjoy the best advantages and conditions available.
Spanish legislation regulating lifetime mortgages
In Spain, this type of mortgages are regulated by Law 41 of 7th of December 2007—Mortgage Market Reform legislation. This Law provides that the lending institution is obliged to offer an independent advice to individuals, so that the consumers’ rights are preserved and the economic and financial conditions suit their needs. This counselling and negotiation tasks are normally provided by specialised lawyers and companies offering this service to private customers.
If you are thinking about a mortgage which best suits your economic needs, take your time and ask for advice to specialised lawyers. They will ensure the best deal for you.
Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Presently, by the fall of prices on the property market, many owners sell their homes for a similar or lower price than the purchase price when they originally bought them, which the main result is that there is no capital gains or this is not that high on the sale of the property.
However, if these owners are non-resident tax in Spain, that is, if they pay taxes in another country, then the buyer has the legal obligation to withhold 3% of the purchase price and to pay it to the Tax Office, on account of the capital gain taxthat the seller must pay for the gain on sale of his property. 18% is the tax rate that the Spanish Tax Authorities apply on the capital gain from the sale of a property.
If the seller has not obtained any capital gain or if the tax that he should pay for the gain is less than 3% retained by the buyer, the seller may request a refund of the whole amount or part of it
Well, in the moment that the Tax Office receives the request of the seller for the reimbursement of the income of 3% from the property sale, they firstly check whether the owner has submitted the form 210 –Income Tax Declaration for Non-residents when owning a property in Spain– (before 2008 it was the form 214), for the last 4 years prior to the sale of the property; in case he has not submitted it or he has not submitted any during these obligatory periods, the Tax Office demands the vendor to regularize the situation before returning anything.
In view of this requirement, the seller must submit and pay the corresponding tax due for every year that he has not submitted the form 210, with late payment interest and a financial penalty from the Tax Office for not fulfilling the obligation of submitting the form on time.
Because our experience tells us that many non-resident tax owners do not undertake the obligation of submitting the Form 210, we would recommend you to do it from this year. In case you would decide not do it now, you will probably have to do it later, paying a penalty as extra cost, and if it was your situation, an extra deadline in order the Tax Office to return the amount that the buyer withheld in the purchase of the property.
If you are trying to sell your property, and you have not submitted this tax during the last four years, we do recommend you to regularize the situation and submit the tax. This will prevent you a possible financial penalty from the Tax Office, because if you submit this form with no requirement from the Tax Office, that is voluntarily, you will not be sanctioned by the Tax Authorities.
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