Challenging the new reference value of the Spanish Cadastre when buying a property
We have clients who purchased a property in Malaga last year through our law firm. They were in disagreement about the reference value (valor de referencia catastral or new minimal tax value) of the Spanish Cadaster for their urban property. Therefore they decided to challenge this value for their tax application and their arguments were upheld.
This was without the need to start any administrative or judicial proceedings. We will explain what happened in this case in this article. Hopefully with this information buyers of a home in Spain in similar circumstances will therefore be able to decide whether to challenge this reference value.
In January 2022 the new minimum tax value in property conveyance, inheritance and gifting became effective in Spain. This tax value is called the cadastral reference value and can be obtained directly from the cadastre’s website. But to obtain this value, you will need the cadastral reference of the property and a Spanish NIF number. If there is no cadastral reference, there can be no reference value.
Why is the reference value important for your house purchase?
Even with the cadastral reference, some urban properties do not have a published reference value. Likewise, for most homes in undevelopable or rural lands, these reference values are not published. In these cases, when completing the deed of sale, inheritance or gift, the corresponding taxes will be paid based on the value in the deed. The administration may revise this declared value if it deems that the value in the deed is lower than the minimum tax value.
The reference value of a property makes it necessary to pay the Transfer Tax (ITP) in a purchase based on the said value when it is higher than the actual price paid by the buyer.
How high was the difference between the purchase price, mortgage valuation and reference value for our clients?
Our clients were purchasing a property in 2022, with a reference value 90% above the purchase price. For this reason, it was obvious that the value was excessive. This is an extreme case. These clients needed a mortgage and the mortgage valuation came up with an amount for the property about 25% higher than the purchase price. However, this appraisal value was still well below the cadastre reference value.
These clients deemed it unfair to pay ITP based on the reference value. We explained to them that they could pay ITP based on the appraisal value instead of the reference value. We did so by attaching the appraisal certificate to the deed of sale. The goal was to show that the mortgage appraisal value was appropriate to settle the corresponding taxes for the purchase.
What did our buyers decide?
Our clients decided to pay the ITP for their purchase based on the mortgage appraisal. In doing so, they took a risk since, by not paying the tax based on the reference value. They would be subject to penalty proceedings and the Tax Administration would then demand payment based on the reference value in addition to an overdue payment penalty. They assumed the risk and they were fortunate with the outcome.
The fact of paying the transfer tax based on the mortgage appraisal value has a legal foundation in the General Tax Law. The value of properties in such appraisals is one of the legal methods allowed when verifying the value of properties. The administration itself has often used these appraisals to its benefit. In sales with a mortgage where the appraisal value was higher than the purchase value of the property, it would demand tax payments based on the appraisal.
What happened after the ITP tax for the purchase was paid?
About 9 months after paying the Tax on Asset Transfers (ITP), the buyers received a notice from the Department of the Treasury of the Regional Government of Andalusia (Junta de Andalucia). In it, they were informed that value-verification proceedings had been started and they were notified of the payment proposal from the Department of the Treasury. This proposal demanded payment of the ITP based on the reference value plus a late payment penalty.
When they consulted the situation with our tax lawyer, he submitted allegations on behalf of our clients. The Department approved the allegations and considered it adequate and legal for ITP to be paid based on the mortgage appraisal value. The Treasury Department of Andalusia set aside the penalty proceedings.
Honestly, we did not expect any positive result from these initial allegations and we thought we’d have to “fight harder” on this matter. Therefore, it was a pleasant surprise that the Department directly decided to end the proceedings.
What should we take into account in future house purchases in Spain?
Valuation for your property purchase in Spain
If in a property purchase the reference value is significantlyabove the actual price to be paid for the property, we recommend obtaining a mortgage appraisal for the property. Whether you are using a mortgage to buy is irrelevant in this case. The important thing is that these valuations are one of the methods allowed by tax regulations to establish the value of properties.
What are the costs for a mortgage valuation?
The cost of a mortgage appraisal can be between 300 and 500 euros, depending on the type of property. If the appraisal value is similar to the reference value, it would be difficult to avoid paying ITP based on the reference value. As a buyer, your consolation would be that the purchase price you are paying for the property would be an attractive price, below the market value.
However, if the appraisal value is closer to the real price you will be paying, you can take certain risks and pay ITP for your purchase based on the appraisal value. You will surely receive a notice of the beginning of penalty proceedings for you to pay ITP based on the reference value. You will have to challenge it before the Department of the Treasury.
Do you have guarantees for future cases challenging the reference value of the Cadastre?
What happened with our client above does not mean that, in the future, the administration will accept the appraisal value in all cases. However, it does open the door for it to continue accepting the value of these mortgage appraisals. This in cases where the reference value is higher than these are.
Fiscal advice for your property transfer by C&D Solicitors
The important thing is for you as a buyer to be well aware of the financial consequences before you decide to “fight” with the administration over the reference value. In doing so, it is very important for you to obtain appropriate tax advice during a purchase, inheritance or gift/donation of your property in Spain.
C&D Solicitors is a law firm specializing in conveyancing, property law and inheritance, with experience since 2006. We provide advice on the purchase and sale of properties for foreign clients, whether resident or non-resident. Our colleagues speak English, Dutch, Swedish, German and French.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors (Málaga)
Life goes by very fast. We often fail to take enough time to think about what could happen if we would get a serious health problem like mental incapacity. In which practical and legal situation would our family or friends end up if something serious were to happen to us?
Throughout our years providing legal advice to foreign clients, our law firm has come across some less-than-pleasant experiences with clients and their loved ones. They have developed certain incapacitating conditions, such as dementia or Alzheimer’s. In these unprepared situations, both the patient and the family suffer even more.
These conditions can lead to situations where more financial resources are suddenly necessary. For example to pay for a nursing home. However, the person’s mental condition can entail serious problems in terms of materializing this person’s resources or assets into cash.
There are different helpful legal instruments if executed during life and with full capacity to act. They can help and facilitate decision-making for close family members or a trusted friend. This is about prevention, in the event that we develop a mentally disabling condition in the future. Or if we have an accident that affects our capacity to act.
In legal terms, what happens when there is a loss of legal capacity?
Through this article, we explain some of the tools that exist in the Spanish legal system. Instruments to facilitate decision-making for our loved ones, in the case of conditions that impair our mental capacity to act.
In the acute phase of certain health conditions, a person may lose the ability to make his or her own decisions. In other words, in case of mental incapacity. Incapacity does not only affect everyday decisions and actions but also asset management. Assets may become “blocked” because the person does not have sufficient legal capacity to sign a purchase contract or withdraw money from his or her bank account.
In other words, when it comes to significant and substantial asset decisions, a person affected by a disabling condition or serious accident is unable to make such decisions. For instance, when selling a property owned by this person. A Notary in Spain isn´t allowed to authorize the Deed of Sale, if he or she notices that one of the sellers is incapacitated.
What process needs to be followed to make decisions on behalf of an incapacitated person?
When a person becomes incapacitated and hasn´t anticipated this fact, the only way to make decisions on his or her behalf is through a judicial procedure. This procedure takes several months to obtain a resolution and this timeframe represents a significant handicap in these situations. A medical report confirming that official mental incapacity status is needed needs to be provided. In addition, the procedure has its financial cost. However, mostly there is a certain urgency in decision-making or in terms of the need for financial resources to care for the patient.
In cases where any decision needs to be made that affects a disabled family member, one needs to turn to this judicial procedure to obtain the necessary authorization. This procedure will lead to the court issuing authorization to sell a property on behalf of the disabled person. Even to manage his or her assets held in a bank, depending on the purpose of these actions.
What happens if the patient needs medical care and refuses to get it?
A person might need hospitalization at a healthcare facility or care home but refuses any help or treatment. In cases where safety is at stake, there are judicial procedures for involuntary hospitalization and urgent, forced admission. Resolutions are issued very quickly. In a few days, the judge will rule on such admission if recommended by medical reports.
Is a Power of Attorney valid to act on behalf of the patient?
A power of attorney is a document signed before a notary. In this document, the “principal”, with full capacity to act, confers powers to a person called a “proxy”. With this document, the proxy, on behalf of the principal, can engage in different legal acts and/or transactions.
This document is very common when foreigners buyor sell properties in Spain, as they often appoint a solicitor or law firm specializing in property law. This firm is able to carry out the process to buy or sell a property in Spain on behalf of a principal. During this process, the solicitor will sign various documents and represent the client. This makes it possible for a buyer to avoid having to travel to Spain during the process. Of course Power of Attorney can also be given to a family member or friend.
The problem is that a normal Power of Attorney will cease to be valid if the principal revokes it, has mental incapacity or loses his or he capacity to act for other reasons.
Can a Power of Attorney be valid if the principal has a mental incapacity?
In a normal or general Power of Attorney, a special clause may be included to stipulate this explicitly. The Power of Attorney will continue to be valid if, in the future, the principal becomes mentally incapacitated or incapacitated due to an accident. With this clause, the proxy may engage in asset disposal on behalf of the principal who became incapacitated. In this case, it would be possible to sell a property or withdraw money from a bank account/portfolio. Even to take decisions on civil matters, such as admission to a hospital or care home. Of course, this very wide clause normally is only valid for a relative or trusted friend.
It is important to be aware of the existence of such clauses, which make the Power of Attorney preventative in nature, in light of this complex situation. These clauses may be useful to anyone resident in Spain. Even when the person is not resident in Spain, if he or she has assets in Spain, it may be interesting. Through it, asset decisions can be made on behalf of the incapacitated person without the need to engage in judicial proceedings in Spain.
This is a very convenient power to grant to a spouse or partner when assets like houses are shared. They can make use of such assets and make decisions on your behalf if you lose your capacity to act. Without such a Power of Attorney, it would be necessary to resort to judicial proceedings to sell assets shared or held in common with the mentally incapacitated person.
Is it possible to grant a Power of Attorney that is only valid when the principal becomes incapacitated?
The answer is yes, even though this isn’t very frequent. It is possible to grant a Power of Attorney that becomes valid only if the principal becomes officially incapacitated and is unable to make decisions on his or her own. If the principal never becomes incapacitated, the Power of Attorney will never be used.
In such a preventative Power of Attorney, it is very important for the principal to state in writing, in the document, how the proxy can accredit incapacity. The principal should state expressly, if a medical report is needed or if it is enough for incapacity to be accredited only with this Power of Attorney.
Granting a Power of Attorney is an act of trust in a certain person or persons. It is very important to think carefully about whom will be granted such power and for which purpose. Once this has been decided, anything that facilitates the process and makes things easier for the proxy will always be welcome.
What is a living will?
A living will is an official document where you can decide which treatments you wish to receive and which ones you reject when your health deteriorates irreversibly and you have lost capacity. This is a written statement by a person of sound mind, with instructions on health matters. These instructions must be followed in the event that there are certain clinical circumstances preventing a person from expressing his or her will personally.
This is a document designed to avoid prolongation of suffering, in case your mental situation means you are unable to make any decisions. If you disagree with extending your life artificially, in situations in which it is not worth living, a living will allow you to “die with dignity”.
In Spain, this document depends on each Autonomous Community. In Andalusia, it’s called “Declaraciòn de Voluntad Vital Anticipada” and the document is registered in the Register of Anticipated Living Wills.
Through this document, you can also record if you want to receive euthanasia if your mental condition meets the requirements established by Law to apply this treatment.
What is the purpose of a notarial last will?
Do you already have a Spanish last will?
A notarial last will (testament) is a document through which a person decides how his or her assets will be distributed after death and to whom. If the deceased is not resident in Spain, the inheritance will be managed according to the law of his or her nationality.
On the other hand, if the deceased is resident of Spain, Spanish law will apply to the inheritance. However, under Spanish law it´s not possible to leave your assets to the longest living partner, which most people do wish for. This can be avoided if a person is a resident in Spain and a national of an EU country. This person can sign a last will in Spain stating the decision to apply national law to his or her estate.
What are the main ideas you should remember from this post?
If you live in Spain or you have a property in Spain, it is important for you to note the following:
1) PREVENTATIVE POWER OF ATTORNEY FOR MENTAL INCAPACITY
It is highly advisable to grant one to a person who would be able to decide on your assets when you´d suffer from mental incapacity or there is a serious accident that impairs your capacity to act. If you are going to grant a general Power of Attorney anyway, it may be interesting to include a preventative clause in this power. That Power of Attorney will remain valid in the event you become incapacitated.
2) LIVING WILL
In Andalusia, this official inscribed declaration is called “Declaraciòn de Voluntad Vital Anticipada”. It allows you to write down and record your decisions in terms of the palliative care you wish to receive. We are referring to situations of incapacity due to an illness or accident, as well as in terms of euthanasia. The living will you can activate by following the instructions on the website of the Junta de Andalucia in the link.
3) NOTARIAL WILL
It enables you to decide how your assets will be distributed after your death. As well as to benefit from your country’s inheritance law even if you reside in Spain.
Legal advice by C&D Solicitors
It is very important for matters as important as these to obtain advice from specialists in Spanish succession law. Our law firm, C&D Solicitors, is a specialist with experience since 2006 in providing legal advice in inheritance and property law in Andalusia. We provide our services to foreign clients resident and non-resident in Spain. Our staff speaks English, Dutch, Swedish, German and French. Please don’t hesitate to contact us, we’ll be glad to help you with your Power of Attorney, last will or inheritance in Andalusia.
Author: Gustavo Calero Monereo (lawyer at C&D Solicitors, Malaga/Andalusia)
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.
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.
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.
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.
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.
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.
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
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 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 Fuengirolaof 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
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)
Construction on rural land Andalucia: when are you allowed to build?
In December 2021, the Andalusian Parliament passed the new ´Land Law´ (Ley del Suelo) in Andalusia, commonly called LISTA, for the construction on rural land. One of the most important new features of this law is that under certain circumstances it allows for building permits to be issued for detached single-family homes in the countryside. This is big news for rural property owners as until now building in the countryside was not permitted and all buildings less than at least 6 years old could be sanctioned.
What is the implementation status of this new law for construction and renovation on rural land?
Following the approval of this new law, the Regional Government of Andalusia is working on regulations to implement it, with these being very important for the new law to start being applied. Currently, these regulations are in draft form pending approval and therefore they are still subject to change.
We’re also going to explain -in the last paragraph- the most important aspects of these draft regulations and the new land law, concerning plots on rural land and the possibility to obtain a building permit for detached homes. Here we´ll cover the new aspects affecting homes in the system of Declaration Assimilated out of Ordination, (DAFO/SAFO) as, for the first time, larger refurbishment works will also be allowed on these.
Was it allowed to build on rural land in the past?
The previous law in Andalusia -called LOUA and adopted in 2003- did not allow for the construction of homes for residential purposes on undevelopable/rustic land, the exception being the possibility to build homes related to agricultural, livestock or forestry operations.
However, despite this ban, many homes were built without a building permit, with incorrect permits or with permits later declared void/invalid. In the province of Málaga, in areas such as La Axarquía, the Guadalhorce Valley, the Mijas Sierra or the Ronda area, hundreds of thousands of rural homes were built due to strong demand from foreign buyers from Britain, Belgium, the Netherlands, Sweden, etc.
One of the reasons for this large demand for rural properties in the countryside of Andalucia is also that they were allowed to be inscribed in the Property Registry (Registro de la Propiedad), due to the time elapse and the neglect of the administration to act against these properties. This registration doesn´t make them legal but it does give them a better administrative status which -in combination with lower market prices – makes these homes more attractive to potential buyers.
What will be the future requirements to build on a rural plot?
The plot may not be subject to any type of special protection, i.e. it must be regular rural land.
The building must have a distance of at least 25 metres from the border of the plot.
Also, the land must have a minimal surface which we explain in the next paragraph.
There must be a minimum distance of 200 metres from other buildings used for residential purposes.
a. What is the minimum surface area for plots to obtain a permit for construction on rural land?
It will be possible to build on legally segregated plots, which may in no case be smaller than 2.5 hectares (25,000 m2) per property. In forest land, the minimum surface area must be 5 hectares. However, the regulations provide for the possibility of amending this minimum surface area through subregional planning regulations. This amendment must be based on the need to fight against the depopulation of rural areas, the promotion of rural development or the green and circular economy. It is certain that this minimum plot area to obtain a building permit will be amended in many municipalities in the medium term.
b. How many square metres am I allowed to build?
The maximum building area cannot exceed 1% of the rural plot or 0.5% in forestall area. However, it is possible for the general urban planning instrument of the municipality to allow constructions and installations that are additional to the home, provided that their total surface area does not exceed that of the home itself.
c. What is the maximum height allowed for construction on rural land?
The maximum height allowed for these homes in rural land is 7 metres.
d. No approval to build if an urban settlement is being formed
An urban settlement, ´asentamiento urbanístico´, is defined as the formation or existence of a group of buildings in a relatively small land area, which would require collective infrastructure or services unsuitable for rural land. The new land law and its regulations prohibit the formation of new urban settlements in rural land and, therefore, do not allow for issuing building permits for homes likely to form a settelement.
The law provides many definitions of what can be interpreted as an urban settlement, some of these being somewhat ambiguous and subject to interpretation with the passage of time. For instance, one of the clearest criteria that make it impossible to provide a permit for a home on rural land is the existence of another 6 buildings within a radius of 200 metres. (These 6 buildings would not include outbuildings in plots within that radius.)
What tax will be due from building in rural land in Andalusia?
The new law has established a compensation provision payable to allow constructions in rural land equivalent to 15% of the material execution budget for detached single-family homes. It is payable upon the building permit being granted to the owner or developer, whether an individual or a company. The regulations provide the possibility for each City Hall to reduce this amount through a municipal ordinance.
Need for prior authorisation to obtain the permit
It is mandatory to request prior authorisation from City Hall, to confirm that it is possible to obtain a building permit on the rustic plot. This prior authorisation procedure must include certain technical and legal documentation about the plot, as well as about the building intended to be built.
One of the most important points of this authorisation is notifying the cadastral and registry holders of neighbouring plots. The neighbouring holders may object to the building, claiming that it would prevent the performance or implementation of regular operations in their plots. This refers to livestock, forestry or agricultural operations since the construction of a home on rural land is considered exceptional.
Approval Town Hall in case of sale
If a period of 6 months has elapsed from the moment that the application was filed and the City Hall has not replied, it will be interpreted as denied. In case the City Hall grants prior authorisation, the owner or developer will have a period of one year to apply for a building permit. Otherwise, prior authorisation must be obtained again. This prior authorisation will allow owners of a plot seeking to sell it with a building permit to carry out this procedure and, once the City Hall approves it, the plot can be sold to a buyer with the guarantee that they will be able to build on it.
Ability to refurbish/renovate homes considered Assimilated out of Ordination (DAFO/SAFO)
Construction on rural land and the certificate for Assimilated out of Ordination (DAFO/SAFO)
The new land law has introduced a significant amendment regarding homes with the status of Assimilated out of Ordination (DAFO/SAFO). The new law allows for these homes to be refurbished and for their structures to be adapted. Previously, these homes were only allowed to engage in minimum maintenance and preservation works strictly necessary to guarantee habitability, health, safety and accessibility. The possibility of carrying out improvements and refurbishments in these rural homes legally opens the door to many owners who have bought a home in the countryside, who have not dared to execute these works to date or who have done so and assumed the risks of sanctions by the Town Hall.
In our daily work as lawyers, providing legal advice during the conveyancing process of rural homes, we see that most buyers wish to carry out refurbishment and improvement works and they will now be able to do so legally with a municipal permit. It is very important to note that, to obtain a refurbishment permit for homes on rural land, these must have a DAFO/SAFO resolution or this procedure should be underway. Without the recognition of Assimilated out of Ordination, it is not possible to obtain any permits for a rural property, either for refurbishment or preservation of the property.
In my opinion, since the type of work that may be carried out in an existing rural home has been extended, having a DAFO/SAFO resolution for this property may be more appealing, as it will enable owners to maintain and improve their homes legally.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors (Torrox, Malaga)
The newly introduced minimum tax value for real estate properties in Spain, introduced on the 1st of January 2022, is called “cadastral reference value” or in Spanish “valor de referencia catastral”. The old system was based on the cadastral value multiplied by a factor that varied per town hall and mostly lay significantly below the real market price. On the contrary, the new tax value approaches the real market price much more realistically, because -like an official price valuation for a mortgage- it´s based on actual selling prices in the area.
The new minimum tax value can be checked online through the website of the Cadastre by the cadastral number if you have a Spanish tax number and a digital certificate. Apart from the height of the value, the main consequence of this change is that -if available- it has become the new minimum tax value to always be declared in the purchase of real estate assets or its acquisition by inheritanceor gifting/donating, in case the value in the deeds would be lower.
What are the effects on the different kinds of properties?
In practice, this reference value has entailed a general increase in the old minimum tax values. For instance, in Andalusia, we’ve seen cases of value increases in some properties of over 30% after 1 January 2022.
Standard vs. luxury properties
However, this new tax value does not have a special impact on the market for luxury properties or luxury villas, for example on the Costa del Sol. We are talking about areas such as the Golden Mile, Puente Romano or Sierra Blanca in Marbella, as well as in other towns with luxury properties such as Benahavis, Benalmadena, Fuengirola or Mijas, since their current market prices are relatively high.
Rustic or rural properties
Also, this change won´t have an effect on rustic/rural properties, for the reason that these don´t have this new tax value defined. You can in the last paragraph of this article how the Spanish tax authorities treat properties without this minimum tax value.
New build declarations
For new build declarations of existing properties, for example for an extension of the house, this value applies to the AJD stamp duty tax (Actos Juridicos Documentados), which in Andalusia is lowered to 1,2% since October 2021.
New build properties
In the purchase of normal new build properties from a developer, like in off-plan projects, the construction normally isn´t inscribed yet in the cadastre and therefore can´t have this cadastre reference value either at the moment of the signing of the purchase deeds. It´s not legal for the tax office to send you an additional payment request for the AJD tax basic on a cadastre reference value published after the signing of the purchase title deed.
However, this could be the case if you buy an existing new build property that already has the value defined and is sold for a lower price. In this case, the minimum value is only used for the AJD tax, not for the 10% VAT which is always calculated over the purchase price in the deeds.
What are the practical consequences of the new fiscal value on properties?
The new reference value is the official market value of properties for tax purposes, for which reason it needs to be taken into account by taxpayers during property purchases, inheritance or gift/donation executed after 1 January 2022.
The new reference value requires taxpayers to use this value as a minimum for the payment of taxes incurred during this property transfer. Just like in the earlier system of the minimum fiscal tax value that depended on index factors of the different Town Hall, its objective is to require taxpayers to pay the tax using this value without having to initiate value-checking proceedings as there already is an approved and predetermined reference value.
Have your lawyer check the tax value in an early stage
Of course, in order to know your total acquisition costs, it´s best to have this matter checked, preferably by a specialized real estate lawyer, in an early stage to avoid potential unpleasant and expensive surprises later on in the process. To consult this information a tax number and digital certificate from the Spanish authorities are needed. A good lawyer always checks this during the process of conveyancing in Spain.
What are the main taxes affected by the new tax value?
The buyers of a second-hand home, the heirs of a property or the recipients of a donation are the most affected by the reference value when they purchase, inherit or receive a property as a gift. In these property transfers, if the reference value is greater than the purchase price or the value stated in the deed, the new owner, heir or gift recipient must pay the corresponding taxes based on this reference value.
ITP property tax
The reference value is the tax value that determines the minimum taxable amount for the Transfer Tax (ITP), which is paid by the buyer of second-hand homes in Spain. In Andalusia, this tax is currently 7% of the price or value of the property purchased.
Inheritance tax
Likewise, the reference value applies to Inheritance Tax, which is paid as a minimum by heirs of a property in Spain. In Andalusia, following several legislative changes, this tax currently enjoys large exemptions and bonuses for close family members.
Gift/donation tax
Lastly, this tax value also determines the taxable amount in property gifts, which are paid by gift recipients who receive a property during the donor’s lifetime. In Andalusia, gifts also often are subject to much-reduced taxes, depending on the relationship to the receiver.
The gift would be affected by these reference values, for which reason donor tax residents in Spain will need to take this into account in their personal income tax returns. Remember that tax residents in Spain, when they gift a property, have to declare it as a sale and pay taxes on “assumed” capital gains. This doesn’t apply to sellers who are not tax residents, and therefore do not pay income tax on property gifts in Spain.
What happens to taxes paid when selling a Spanish property?
For property sellers, whether or not they are residents in Spain for tax purposes, there are two main taxes when selling a Spanish property, which is Capital Gain Tax and municipal tax called plusvalia.
Capital Gain Tax
In terms of IRPF, the seller pays taxes on the capital gain tax obtained from the sale of the property, if any profit has been made from the transfer. In this case, if the transfer has been for consideration, i.e. subject to a price being paid, the reference tax value does not affect the seller and the tax office cannot require payment of capital gains tax based of this. The administration could only require the seller to apply a higher value if a value-verification procedure has been initiated before, but this procedure is different from cadastral reference values.
Plusvalue tax (Plusvalia)
The new tax value doesn´t have any relation to the Plusvalue tax of the Town Hall over the increased worth of the property either when it concerns a normal sale. However, in donations/gifts it does affect, so we advise you to consult your lawyer on this matter.
Is the local IBI property tax or the IRPF/IRNR income tax affected by the introduction of this new tax system?
No, neither the yearly IBI property tax of the Town Hall nor your IRPF or IRNR income tax will change as they are calculated over the cadastral value and not the new minimum tax value.
What would happen if I don’t apply the new minimal fiscal value to my purchase?
If the reference value is greater than that specified in the Deed during the purchase of a property, the buyer will receive a notification from the Tax Administration with a tax assessment. This assessment will be to pay the tax that was not paid, on the difference between the reference value and the deed value, including any interest.
Penalty procedure from the Spanish tax authorities
At the same time as this assessment notice, the Administration may start penalty procedures, as the taxpayer didn’t apply the established reference value in the appropriate tax return. The penalty would be equal to 50% of the unpaid tax and a reduction of 30% may be applied with the agreement of the taxpayer and timely payment, as established in the notice.
In the event that the reference value is greater than the actual or declared value, if taxpayers choose not to pay the tax based on the reference value, they must be willing to appeal it. Otherwise, the economic damage will be greater than if the tax had been paid based on the reference value. It is no longer advisable to wait and see what the administration does as this assessment will certainly arrive, along with a very likely financial penalty.
What if I disagree with the tax value and wish to appeal?
If you disagree with the reference value of the property, the main argument for a claim should be that it does not represent its real market value. For this purpose, it is essential to obtain an official appraisal/valuation of the property showing that the reference value is excessive and does not reflect market values. In other words, it is necessary to have an appraisal to prove an error in the reference value established by the administration.
What are the risks of an incorrect tax application?
The main risk to taxpayers making such a claim is for the value not to be upheld in this procedure and the reference value being confirmed for tax purposes. In this case, the penalty of 50% of the unpaid amount would be due in full, with no reduction possibilities, in addition to default interest over this amount, which would be higher, in particular because it would take several years for the procedure to be settled. It would be necessary to take into account the cost of an appraisal in this consideration plus the fees of the solicitor involved in this procedure.
What is the likelihood of obtaining a favorable resolution in this appeal procedure?
Since these are property values that entered into force on 1 January 2022, there is still no precedent for claims and it is not possible to know what the administrative authorities and courts will decide in these proceedings in the future.
New tax value versus the official valuation, for example in case of a mortgage
Our law firm C&D Solicitors currently has various foreign clients who have purchased properties in Marbella, Benalmadena and in Ronda, where the reference value is significantly higher than the purchase price. In one of the cases, the purchase was executed with a mortgage and it turned out that the mortgage appraisal while being higher than the purchase price, was significantly lower than the reference value of the property.
In this case, if buyers are willing to file a claim, our recommendation is to pay the Transfer Tax based on the property appraisal value, as we can understand that this is the real market value of the property (even if it is higher than the purchase price).
Advice for buyers who are willing to challenge this reference tax value is to have a property assessment (valuation) showing that the value is excessive and to pay the transfer tax based on this appraisal, attaching their Deed of Sale to it. This will not prevent the administration from requiring payment based on the reference value but it can be helpful during the subsequent appeal procedure. However, as this change is very new, the likeliness of success in an appeal procedure can´t be predicted yet and we recommend you seek advice from your lawyer in order to evaluate the costs versus potential benefits.
What happens to properties without the new tax value?
There are properties that (still) do not have this official reference value. For this reason, the value declared in the deed will be understood to be the market value of the property and, if the administration determines otherwise, it would have to start a value-verification procedure itself.
Minimum tax value for rustic or rural properties
Properties without an associated reference value include most of the rural properties, i.e. properties located in non-developable land, such as chalets, country houses, B&Bs, etc. Fortunately, this reference value does not apply to most of the purchase or inheritance of rural properties, which generate so many purchase transactions in Andalusiaand the Malaga province, in places such as la Axarquía, Valle del Guadalhorce or Mijas, where they are very usual, as well as in the provinces of Cádiz and Granada.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox, Malaga
On 30 April, we reported on the reduction in the ITP Transfer Tax and AJD Stamp DutyTax 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 propertyin 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)
Are you a non-EU citizen with an interest in investing in Spain to obtain a ´Golden Visa´? Spain is a place with enormous appeal for foreign investors looking to purchase a property. Cities like Madrid and Barcelona, as well as the Costa del Sol and the entire Mediterranean coast are the focus of many foreigners looking to buy a property to live in Spain or to operate it in the tourist holiday market. The investment appeal mentioned earlier is combined with the Golden Visa for non-EU citizens, introduced in 2013, consisting in a residence permit for citizens from outside the European Union interested in residing in Spain legally.
The Golden Visa is designed to encourage wealthy people to invest in Spain in exchange for obtaining a residence visa. This is a seamless process that has led to 24,534 golden visas being issued to these investors between 2013 and 2020, a figure that doesn’t include their relatives.
The residence process regulating the Golden Visa does not compete with any other residence procedure in Spain and offers enormous benefits and convenience in terms of being obtained. This has made it possible for non-EU citizens with significant assets to use this procedure to reside in Spain, under very beneficial conditions for themselves and their relatives. In this post, we’ll try to summarise the main benefits of the Golden Visa as well as the application requirements for foreign citizens investing in the purchase of a property in Spain.
What is the minimum investment amount when purchasing a property to obtain a Golden Visa?
The minimum investment amount when purchasing a property must be 500,000 euros per person, excluding taxes and without using a mortgage or any financing, i.e. these must be the buyer’s own funds. It’s possible to invest all this money by purchasing different properties but the important thing is for the total amount invested in such properties to add up to at least 500,000 euros.
Do you have to buy a single property or can you buy more than one?
The 500,000-euro investment amount may be reached by adding several properties together. This amount doesn’t need to be paid for a single property. For instance, our firm recently advised an American citizen during the process to purchase two properties, the first in Benalmádena in 2016 and the second in Torrox in 2019. When adding the money invested in both properties, our client exceeded a total investment of 500,000 euros so that, once he signed the Deed of Sale for the second property, he was able to apply for a Golden Visa based on the total investment made.
What if I’m married in joint assets?
Each applicant is required to invest 500,000 euros and, in the event of being married with joint assets, this means that the purchase amount must be 1,000,000 euros for both spouses to be able to apply. However, if you purchase, for instance, a 500,000-euro property in Malaga while married with joint assets, for the purposes of a Golden Visa, one of the spouses would be understood to be the investor and the other spouse may apply for residence as a relative of the main applicant. When married with separation of assets, the process is the same as that for joint assets.
Can I bring other relatives with a Golden Visa?
It’s possible to bring children under the age of 21 who are financially dependent on the main applicant. It’s also possible for applicants to bring their parents, provided they can prove that they are dependent on them.
What is the deadline to apply after a purchase?
There is no deadline. This means the application can be filed at any time after purchasing the property(-ies), the only requirement is that such properties must have been bought in 2014 or later.
Can I apply for a Golden Visa through a company purchasing a property?
Yes, this is possible, as long as the company is not registered in a tax haven and the applicant can prove that he or she holds a majority interest in it. In this case, it’s necessary to obtain a report from the Ministry of the Economy accrediting this situation.
Can I apply for it if I’ve purchased a plot of land and intend to build a home on it?
Yes, it’s possible to acquire a Golden Visa by building a home on land acquired through a purchase. In Spain, this type of purchase is classified as self-development and is very different from purchasing a property off-plan from a developer.
How long is this Visa valid?
A person obtaining a Golden Visa has 2 years to reside legally in Spain and, after these 2 years, a renewal may be requested. This renewal will be for 5 years, subject to proving that the applicant continues to own the investment property and that he or she has visited Spain at least once during those 2 years.
Do I have to pay taxes in Spain if I have a Golden Visa?
A Golden Visa allows you to reside legally in Spain but having it does not mean you need to pay taxes in Spain or become a tax resident in Spain automatically. The obligation to pay taxes in Spain depends on spending over 6 months within Spanish territory, at which point the tax authorities will consider that person tax resident in Spain automatically.
The Golden Visa allows the holder and relatives to leave Spain for over 6 months a year and they are only required to visit Spain at least once a year. Therefore, in this case, even if you have a Golden Visa, the tax authorities would consider you a non-resident in Spain for tax purposes and you’ll continue to pay taxesin your country.
What are the other benefits does it have?
You can move freely throughout the Schengen area to enter and leave Europe completely freely and with no need for a visa.
The spouse and family members mentioned above can apply for a residence permit at the same time. In other words, they don’t need to do it after the main applicant, which is not possible with other residence permits.
It allows for working in Spain automatically.
The processing time is fast as it needs to be decided within 20 days of submitting all documents and a non-response from the administration is considered to be an approval.
What other requirements are needed to obtain this document?
You need to have sufficient financial resources to live in Spain. In 2021, it’ll be necessary to prove that the applicant has at least 2,259.60 euros available per month, plus an additional 564.90 euros for each accompanying relative.
It’s necessary for the applicant and accompanying relatives to have health insurance with an insurer licensed to operate in Spain. This insurance must be valid at all times and be submitted to renew the residence permit.
Being a citizen of a non-EU country.
Being an adult.
Having no criminal records.
Furthermore, it’s necessary to prepare a series of duly legalized documents, pay certain fees and complete some application forms, which your lawyer or a law firm experienced in procedures of this type can do for you.
Can British citizens apply for a Golden Visa?
Of course they can. Once the Brexit process was completed, they became eligible to obtain a residence permit in Spain through this process. If they are financially capable of investing in a property valued at 500,000 euros or above, this is the easiest and quickest way to obtain residence in Spain.
The advantages of the residence permit obtained through a Golden Visa far exceed those of any other residence process, such as the non-lucrative visa.
Differences between the Golden Visa and the non-lucrative visa
Differences between the Golden Visa and the non-lucrative visa
A non-lucrative visa is a very interesting option to reside in Spain, there’s no question about it. Not all homebuyers in Spain are able to spend 500,000 euros on a property. Therefore, if a British citizen wishes to reside in Spain after purchasing a property or because they want to let a home in Spain, this procedure can be very useful to reside in Spain legally.
Since the main purpose of this article is to explain residence in Spain through a Golden Visa, we will just say that a non-lucrative visa is less beneficial than a Golden Visa, some of its drawbacks being:
The application must be filed within a period of 90 days prior to arriving in Spain, i.e. before moving to Spain, for which reason it must be obtained from the Spanish embassy or consulate of the applicant’s country of residence.
It lasts 1 year and can be renewed for a period of 2 years.
It’s not a work permit. It only allows for residing in Spain but does not authorize the holder to work.
It requires holders to live in Spain for at least 6 months and, therefore, they will be considered tax residents in Spain, being required to pay taxes in Spain as residents.
It’s possible to obtain family reunification with a non-lucrative visa but it’s necessary to wait several years before applying.
As with a Golden Visa, it’s necessary to prove a monthly income of 2,259.60 euros for 2021, as well as to obtain health insurance and have no criminal records.
What if I have questions or need a law firm to advise me on obtaining a Golden Visa?
In this case, it’s important for you to look for the company or firm that can give you the most confidence during this procedure.
C&D Solicitors is a law firm located in the Costa del Sol, which specializes in providing legal advice during the purchase of property by foreigners in Andalusia. Whether buying a new property (off-plan), self-development or purchasing a used home (secondhand home), we have extensive experience and can offer comprehensive advice, from A to Z.
We can support you throughout the process of buying a property in Spain and obtaining a Golden Vida. Don’t hesitate to contact us for a free initial consultation or a commitment-free estimate.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Malaga
If you buy a property in Andalusia in the remainder of 2021, you will pay less tax as a buyer. Those who are in the process of buying a property at the moment, will see that taxes for property purchases have reduced. On Tuesday 27 April, the Junta de Andalusia unexpectedly and urgently approved a decree that reduces the ITP transfer tax and stamp duty (AJD) for the rest of the year 2021.
The aim of the regulation is to stimulate the real estate market for the purchase of homes in 2021, by reducing the fiscal costs for homebuyers in Andalusia. And by doing so boost the real estate sector, which has also been greatly affected by the pandemic caused by COVID-19.
What is the saving on taxes for property purchases (second-hand real estate)?
A fixed ITP transfer tax rate of 7% will be introduced instead of 8%. Likewise, the tax brackets of 9% and 10% will be abolished. These were applicable to purchases that exceeded EUR 400,000 and EUR 700,000 respectively. The 7% ITP becomes the fixed and only tax rate regardless of the purchase price.
In other words, purchases with a high price will have a larger tax saving, as the market of second-hand luxury homes benefits the most from this tax reduction in 2021.
What are the tax savings for new or off-plan purchases?
For these purchases, the reduction is much lower, as the purchase of a property off-plan is taxed through VAT (IVA) of 10% and through the stamp duty tax (AJD), with a tax rate of 1.5%. With the reform, the AJD goes from 1.5% to 1.2%, with buyers or investors of new homes benefiting the least from this reform.
This is important, as in areas of Andalusia such as Malaga and in general along the Costa del Sol, off-plan or new build property sales represent a very important part of the property market, especially amongst buyers from countries such as England, France, Belgium, Holland, Sweden…etc.
When does it come into effect and until when does it apply?
This reduction came into effect on Wednesday the 28th of April and all purchases made after this date will benefit from this tax reduction. But pay attention when buying, because this rule will only be in force until the 31st of December 2021. This means that on the 1st of January 2022 buyers will pay the same taxes as they paid before.
Recommendation for saving on taxes for property purchases in Andalusia
If you look for a property to buy in Andalusia or are in the process of buying a property in Andalusia, make sure to discuss the tax savings that can be made by completing the sale in 2021 with your lawyer or solicitor, in case you are interested in speeding up the process.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Torrox (Malaga)
Spanish Inheritance tax (succession tax) in Andalusia
Are you a resident or homeowner in Spain and did you ever wonder about Spanish Inheritance Tax? Whether you maybe own a house and other assets or are thinking about buying property in Spain as an investment, this information could be useful to you.
I’m going to try to clear up some common doubts and make several example calculations so that you understand how this tax works in Spain and its current rates in Andalusia.
As a law firm specializing in providing legal and fiscal advice to foreigners in Andalusia, we’ve encountered certain unpleasant situations in inheritance processes with clients. These cases had a large financial impact from inheritance tax (succession rights) and some of them could have been avoided with the right fiscal advice and preparation.
1. Be careful with Spain! Every region has a different Spanish inheritance tax
The big difference in terms of paying more or less inheritance tax in Spain depends on the autonomous community where you reside, as they each have different regulations, with very different tax rates.
If you’re worried about how much inheritance tax an heir will pay, you need to know the benefits available in the autonomous community where you have your assets or where you’re thinking of buying a home.
2. Yes, that’s right. Non-residents in Spain pay the same Inheritance Tax as residents
There is an obligation to pay Inheritance Tax in Spain when a person inherits any asset located within Spanish territory, irrespective of whether they are resident in Spain. Since the judgments rendered in Spain in 2018, residents and non-residents, whether they are EU citizens or not, are subject to the same regulations in terms of Inheritance Tax in Spain.
In other words, if you’re an expat or reside in your country of origin, this will make no difference in terms of the tax to be paid compared to what someone resident in Spain would pay.
Be careful! You should not confuse Inheritance Tax payable in Spain with the law governing the Spanish inheritance process and the law of obligatory heirs in the Spanish Succession Law. If you want to know what this means, please watch C&D Solicitors´ video:
3. Who collects the Spanish Inheritance Tax for non-residents?
The only difference between residents and non-residents is the administrative body in charge of collecting the tax. If you’re resident in Spain, the administrative authority to collect this tax will be the autonomous community where you reside but, if you’re a non-resident, this will be the non-resident department of the central administrative Tax Office in Madrid.
However, even if you’re non-resident and inherit a property in Malaga, for instance, and you declare this tax to the Treasury in Madrid, you can still benefit from Andalusian tax regulations, which is why non-resident heirs in Spain pay the same as residents.
4. What is the most expensive Inheritance Tax region in Spain?
Andalusia is currently one of the regions in Spain where the lowest inheritance and gift tax rates for direct relatives of the deceased are applied, due to the tax bonuses and exemptions introduced in the last few years. Cantabria and Galicia are two other communities with the lowest Inheritance Tax rates in Spain, along with Madrid, Extremadura and Murcia. However, communities such as Asturias, Castilla y Leon and Valencia have very high rates of Succession Tax.
Nevertheless, these changes haven’t affected all groups of heirs and it continues to be a very expensive tax for some distant relatives, as well as for heirs with no official family relationship to the deceased.
So, if you for example are thinking of investing your money in buying a house for a tourist rental in Spain, in terms of succession tax the Costa del Sol (Andalusia) is much more attractive than the Costa Blanca (Alicante).
5. How is the succession tax calculated for a Spanish estate?
The rate of this tax is progressive, according to the value of the estate, i.e. the higher the value of the assets, the higher Inheritance Tax becomes.
Rate in force for Inheritance and Gift Taxes in all Spanish territory
Likewise, to the result obtained when applying the scale for this tax, multiplication coefficients are applied, which may increase the amount due under this tax. According to the degree of relationship and the pre-existing assets of the heirs, this coefficient may be higher or lower.
The lower the degree of relationship to the deceased and the greater the assets of the heir, the higher Inheritance Tax becomes.
Multiplication coefficients for Inheritance Tax in Andalusia
6. Which heirs pay the least tax?
Descendants or (adopted) children, as well as spouses and ascendants. This means that children, husbands/wives, grandchildren and parents pay the least inheritance tax in Spain. These are relatives classified into groups I and II under the Tax.
It should be noted that the tax benefits existing for direct relatives are very different depending on the autonomous community where the assets are located or where they live and reside, as each autonomous community has its own regulations. Differences in Inheritance Tax rates in Spain are enormous!
7. How much Spanish inheritance Tax is paid by close relatives in Andalusia?
This group of heirs is included in groups I and II and they can apply a reduction due to kinship of up to 1,000,000 euros per heir in Inheritance Tax. If each of them inherits less than that amount, no Inheritance Tax will be due.
For heirs to apply this reduction in Andalusia, their own assets prior to inheriting cannot exceed 1,000,000 euros either. Without a doubt, in Andalusia, widowed spouses and children pay much less Inheritance Tax than in other autonomous communities in Spain, which has resulted in an appreciable drop in tax collection from this tax in Andalusia.
8. Which heirs pay the most Succession Tax in Spain?
Persons related collaterally in the 2nd and 3rd-degree family, such as siblings, nephews, nieces and brothers– and sisters-in-law, as well as other more distant relatives such as cousins, great-uncles, great-aunts and strangers.
Without a doubt, these are the heirs that pay the highest Inheritance Tax rates in Spain and they’re classified under groups III and IV of the Tax. In Andalusia and other Autonomous Communities, this group of heirs aren’t the exception and pay a very high rate of inheritance tax.
9. How much tax is due for inheriting the usual property in Andalusia?
If you’re in groups I and II, unless the home is worth over 1,000,000 euros, you would pay nothing. But if the heir is in group III, such as a sibling, uncle, aunt, nephew, niece, or in-law, living with the deceased for at least the two years prior to the death occurring, a bonus worth 95% to 100% of the value of the home is applied. In the latter case, the home must be kept for 3 years following the death.
There are other discounts in Andalusia, such as heirs with disabilities, the acquisition of a sole proprietorship and farms.
10. What is the deadline to pay Inheritance Tax?
The deadline is 6 months after the date of death and, if it remains unpaid, the tax administration may initiate proceedings to claim payment of the tax, with the ability to impose penalties. However, if there are justifiable reasons, it is possible to request an extension of 6 additional months and this application must be filed within 5 months of the death.
After four and a half years from the date of death, the government cannot require payment of this tax. In this case, the tax would be zero due to it being time-barred.
EXAMPLES: Spanish Inheritance tax calculator in Andalusia
Dutch siblings Frank and Mark inherit their father’s property in Almuñécar, appraised at 300,000 euros. In this case, the answer is clear, each of them would pay zero in Inheritance Tax.
Now siblings Frank and Mark inherit their older brother Jan’s property in Fuengirola, appraised at 300,000 euros. In this case, each would inherit 50% of the property, appraised at 150,000 euros. The only bonus that they may apply is for the first 7,993.46 euros, for which reason each of them would pay the Treasury an amount of €31,393.56
Lastly, siblings Frank and Mark inherit their friend Martin’s property in Marbella, appraised at 300,000 euros. In this case, each would inherit 50% of the property, appraised at 150,000 euros. No reduction can be applied in this case, for which reason they would pay taxes on the entire amount received, resulting in a payment of €42,523.07 from each.
Final note: How does the Spanish Inheritance and Gift Tax affect the property market?
If you’re thinking about buying a home in Spain and you’ve read everything we’ve explained above, you’ve probably realized that Inheritance and Gift Tax have a significant influence on the property market in Spain and the choice of the autonomous community to settle in.
Excessively high rates in some regions and extremely low rates in others condition the investment decisions of potential home buyers to these trends. Inheritance Tax (succession rights) in Spain has a direct impact on the financial behavior of buyers and the decision regarding where in Spain they wish to live or buy a property.
You can read interesting information about this subject on our webpage Inheritance Tax Andalusia. If you need a lawyer specializing in Inheritance and Gift Tax, just send us a message through the contact form below.
If you are interested in the subject of Spanish inheritances, you might also want to read our pages on:
The European Certificate of Succession is a ´new´ standard for international inheritance procedures within the European Union (EU regulation number 650/2012 of the European Parliament). It is applicable to successions of persons who die with assets in different countries of the European Union from 17 August 2015. The European Certificate of Succession is a public document of a voluntary nature, which contains the essential information about inheritance, such as the details of the deceased, information about the last will, applicable inheritance law, details of the heirs and the assets allocated to each legal heir.
In certain cases the certificate can save the heirs costs because they f.e. can avoid the Spanish inheritance deeds. However, the regulation of the European Certificate of Succession does not apply to citizens of the United Kingdom (due to Brexit) and neither to Ireland and Denmark.
Increasement in international inheritances in Andalusia, Spain
This European Regulation is very important in some parts of Spain, such as Andalusia, Malaga and in particular in the Costa del Sol. The reason for this is that here are many foreign owners of assets and homes, both resident and non-resident in Spain. They normally bequeath their assets to their spouse or children through a will (testament), who usually live in the country of their nationality, such as the Netherlands, Belgium, Germany, England, Sweden, etc.
Unfortunately, with the coronavirus pandemic, many hereditary procedures are being highlighted in Spain, due to the unfortunate number of death, which has led to more succession procedures taking place than usual. This also results in longer waiting times at the central last will registry in Madrid (Registro de Ultimos Voluntades).
What is the main purpose of the European Certificate of Succession?
This certificate is an official document that allows for accrediting, in any country in the European Union, all the information about an inheritance distribution. This must be in accordance with the national law of the member state and is meant to make the international process easier and cheaper.
Who can request and who may issue this certificate?
FORM EUROPEAN CERTIFICATE OF SUCCESSION
The heirs, legatees having rights in the succession and executors of wills or administrators of the estate may request the issue of a European Certificate of Succession. This needs to happen by submitting form IV, included in annex 4 of Regulation (EU) no. 1329/2014, of 9 December, of the Commission.
This certificate by law may be issued by the court or notary of the country of which the inheritance law applies. This is either the country of residency or the country of which the law has been chosen in the Last Will.
This new international standard is intended for succession processes of European Union citizens, whose heirs have distributed the inheritance in their country of nationality, with the testator owning property in Spain or another country in the European Union. As said before, this regulation of the European Certificate of Succession does not apply to citizens of the United Kingdom, Ireland and Denmark.
For example: Let’s imagine that there are Belgian heirs, whose father signed a last will. In this Belgian or Spanish will or testament he chose the law of his nationality to apply and the heirs distribute their father’s estate in the city of Ghent. The deceased had purchased a homein Malaga and also had money in a Spanish bank. They can directly request a European Certificate of Succession from this Belgian notary, in order to submit it in Spain. This to be able to inscribe the assets owned by their father in Malaga according to the applicable rules in name of the legal heirs.
What are the benefits of this European Certificate of Succession?
The main advantage of this certificate is that it´s a standard document in English valid in every European country. This makes the inheritance process in Spain or other countries easier and avoids certain costs.
Firstly, the European Certificate of law doesn´t require (possible multiple) legal translations anymore, nor the international ´Apostille of The Hague´. (The Apostille or Apostle of The Hague is a small certificate from the court to proof to the foreign notary that it is an official notorial document). This doesn´t only save costs but also a good amount of time. The legal translation and Apostille until now were always needed for the national Declaration of Law that of course still exists.
Secondly, the European Certificate of Succession in certain, simple cases can be directly used to distribute the assets owned by the deceased. In these specific cases the considerable cost for the Spanish inheritance deeds can be spared.
What are the drawbacks?
One of the main drawbacks is that the certificate is only valid for six months from its date of issue. However, it is possible to request an extension.
Also, as said before, the certificate is not automatically valid for heirs to register the property purchased by their father, which they have inherited. This needs to be done in the Spanish Land Registry (Registro de la Propiedad) and this authority depending on the exact situation can still require the Spanish Inheritance Deeds of the notary. This is explained in more detail at the end of the article.
In any case it´s important that the heirs sign a wide notarial Power of Attorney to their Spanish lawyer. This always needs to include a clause for the potential signing of the Inheritance Deeds, in case still needed after all. Also the normal procedures as the tax declaration or representation before the bank need to be included.
Does this certificate have any impact on Inheritance Tax?
There is no impact onInheritance Tax or on the declaration procedure of this tax. Once the European Certificate of Succession is received in Spain, the tax form to pay the corresponding Inheritance Tax must be submitted to the Spanish tax office. This even if the payable amount is cero like in most cases in Andalusia for close family members as spouses, children, parents and grandchildren. The tax declaration needs to be done before being able to take the paperwork to the banking institution or the Land Registry, the Oficina de Liquidadora.
The height of inheritance tax depends on the:
relation to the deceased
(fiscal) value of the assets inherited in Spain
balance of the bank account(s) on the moment of death
official worth of a vehicle
It is important to know that inheritance tax must be declared within six months following the date of death. Likewise, if an urban property is inherited Plusvaliatax must be paid. The Plusvalia is local profit tax counted by years of ownership of a property.
Effects on the Land Registry record in Spain
As said, the Land Registry in Spain in certain cases does directly admit the European Certificate of Succession as a title of the hereditary succession. This exemption to register a property in the name of legal heir without the need for a notary inheritance deed or judgment is only possible in the following situation. Also, the Land Registry at all times preserves the right to require Spanish inheritance deeds or other additional legal documentation after all.
Requirements for (potentially) avoiding Spanish inheritance deeds:
Only one single heir
No interested parties, with the right to a reserved share (like or example children under Dutch or Belgian inheritance law)
No curator or authorized person to conduct the inheritance process
Required documentation for the Land Registry when inheritances deeds are not required:
International Death Certificate
Last will or testament (if not signed in Spain, then with legal translation and Apostille)
Certificate of the Spanish Last Will registry (Registro de Ultimos Voluntades)
Notary document signed by the sole heir explicitly requesting the inscription of the property in their name in the Land Registry. This document can be signed by the notary in their own country (in this case the legal translation and Apostille of The Hague are required). However, it can also be done by a Spanish notary.
Conclusion: legal advice for your Spanish inheritance process
The Spanish inheritance process unfortunately is complex, costly and surrounded by lots of bureaucracy, as you surely understand from this article. Are you involved in an inheritance process where the deceased owns a property in Andalusia? And are you in need of legal advice to save time and costs? Do not hesitate to contact C&D Solicitors and our lawyers will be happy to guide you. We are a law firm specializing in providing legal and tax advice to foreigners in Andalusia and we know how to help to make this process as easy as possible for heirs. You can contact us so we can provide the first free consultation or offer.
More information: You can read more about inheritance law and Spanish willsunder ´legal services´ where you can also watch our video of the overall process.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Málaga (Andalusia)
ENGLISH-SPEAKING LAWYERS IN MALAGA FOR LEGAL ADVICE ON BUYING, SELLING OR INHERITING IN ANDALUSIA
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Strictly Necessary Cookies
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.
3rd Party Cookies
This website uses Google Analytics to collect anonymous information such as the number of visitors to the site, and the most popular pages.
Keeping this cookie enabled helps us to improve our website.
Please enable Strictly Necessary Cookies first so that we can save your preferences!
