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Tag: Andalusia

Mental incapacity

TIPS TO PLAN FOR OLD AGE, MENTAL INCAPACITY AND INHERITANCE IN SPAIN

Written by Gustavo Calero Monereo on . Posted in Sin categoría.

Mental incapacity
Mental incapacity

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 buy or 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?

Spanish 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)

Property investment in Spain

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

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

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

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

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

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

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

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

Calculate the ROI-profitability of a property investment in Spain

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

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

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

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

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

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

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

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

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

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

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

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

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

Think about fixed property and rental expenses

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

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

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

Consider other options: profit from holiday lettings in rural homes

Renting our rural property
Renting out a rural property

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

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

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

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

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

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

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

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

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

RTA Licence through liability declaration

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

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

Can the Community of Owners prohibit holiday lettings?

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

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

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

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

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

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

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

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

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

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

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

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

Tax over rental investment Spain
Tax over rental investment Spain

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

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

Tax benefit on long-term letting

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

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

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

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

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

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

Legal advice on property investment in Spain

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

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

 

 

CONSTRUCTION ON RURAL LAND ANDALUCIA

Construction on rural land in Andalucia limitedly allowed for single-family homes

Written by Gustavo Calero Monereo on . Posted in Sin categoría.

CONSTRUCTION ON RURAL LAND ANDALUCIA
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?

  1. The plot may not be subject to any type of special protection, i.e. it must be regular rural land.
  2. The building must have a distance of at least 25 metres from the border of the plot.
  3. Also, the land must have a minimal surface which we explain in the next paragraph.
  4. 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)
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)

 

New tax value Spain (cadastre reference value)

NEW TAX VALUE IN THE PURCHASE, INHERITANCE OR GIFTING OF PROPERTY IN SPAIN

Written by Gustavo Calero Monereo on . Posted in Sin categoría.

New tax value Spain (cadastral reference value)
New tax value Spain (cadastral reference value)

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 inheritance or 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 Andalusia and 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

Tax over rental investment Spain

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

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

REDUCTION ITP AND AJD TAX
REDUCTION ITP AND AJD TAX

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

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

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

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

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

When do you pay the ITP Transfer Tax in Spain?

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

When do you pay the AJD Stamp Duty Tax?

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

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

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

 

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

 

SPANISH INHERITANCE TAX 2021: 10 THINGS YOU NEED TO KNOW

Written by Gustavo Calero Monereo on . Posted in Spanish Inheritance Tax, succession tax non resident, wills.

Spanish Inheritance tax (succession tax) in Andalusia
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
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
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

  1. 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.
  2. 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
  3. 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:

 

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

 

TAX CONSEQUENCES OF BREXIT FOR BRITISH PROPERTY OWNERS IN SPAIN

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

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

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

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

 

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

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

 

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

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

 

What will happen with the British driving licence?

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

 

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

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

 

Potential future Inheritance Tax when buying a home in Spain

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

 

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

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

 

Estate Tax or Wealth Tax on my properties located in Spain

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

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

 

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

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

 

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

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

 

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

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

 

Potential changes in the future for British house owners

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

 

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

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

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

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

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

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

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

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

 

What are the building and the contents in home insurance?

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

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

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

 

What would be an appropriate value for the contents?

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

 

And what is the right value for the building?

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

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

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

 

Valuing the building at the purchase price

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

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

 

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

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

 

What happens in case of under-insurance?

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

 

Special insurance: luxury homes

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

 

What is the insurance compensation consortium?

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

 

Rural homes and the building value in home insurance

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

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

 

Tips for a safe and well insured home

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

 

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

First occupation license for housing

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

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

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

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

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

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

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

What is a “responsibility declaration”? 

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

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

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

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

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

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

What obligations does the responsibility declaration establish?

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

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

How does this regulatory change affect tourist rental in Andalusia?

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

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

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

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

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

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

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

What happens with new construction promotions?

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

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

What happens if the developer has improperly filed the statement?

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

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

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

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

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

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

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

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

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

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

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

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

 

Lower taxes on gifts in andalusia

LOWER TAXES ON GIFTS IN ANDALUSIA

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

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

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

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

Example: A father gifts his son 200,000 euros

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

Who can benefit from this bonus on the gift tax?

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

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

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

What happens with the Capital Gain Tax and Plusvalia?

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

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

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

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

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

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

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

Example of a property being gifted

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

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

What happens to taxes where the recipient resides?

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

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

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

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