The Irish Times 03.02

The Irish Times
18th March 2002


How to take the trauma out...

Property transactions are often fraught, and negotiating with builders can be hard in any language. Unsurprising, therefore, that the prospect of buying abroad can seem daunting to the uninitiated. However, with a little bit of homework and a lot of professional advice it's easier than you might expect.

When purchasing property abroad, one fundamental principle applies: each party should be independently advised. Says Dublin lawyer Tom McGrath of Tom McGrath and Associates: "If one lawyer represents both parties to a transaction, there is a risk that a conflict of interest might arise. Therefore, it is essential that the purchaser or property in Spain should seek independent legal advice."

McGrath specialises in Spanish property transactions. Conveyancing practice in Spain is quite different to that in Ireland; he points out. Proof of ownership -the Escritura Publica -is the registered title deed of the property and all deeds should be registered in the Registro de la Propiedad: the Property Registry. Such registration is not compulsory, but the deed is signed before a Notary Public, who ensures that the transaction is legal.

McGrath continues: "The notary keeps the original document in his files. He or she is a public official, not a private lawyer. The notary's duty is to certify that the deed has been signed, the money paid and that the purchaser has been advised of their tax obligations. For this reason alone, it is important that each party should have their own lawyer."

It is also worth noting that, in Spain, some taxes attach to the property and not to owner. "It is imperative, therefore, that not only does the purchaser's lawyer check the title of the vendor, but also carries out searches to see what tax liabilities attach to the property."

A potential purchaser of Spanish property should obtain as much information and advice as possible on the tax implications involved: "Not least they should be aware that on the sale of their investment there is a potential Capital Gains Tax liability of 35 per cent for non-residents. It is essential that the advice of an accountant is obtained in this regard."'

There are several other tax implications to consider. The property is subject to either VAT, as in the case of newly built property, or a form of stamp duty in the case of a second hand property.

The rate of VAT on a new house is 7 per cent, but VAT payable on new parking or storage space could be as high as 16 per cent, especially if sold separately from the new house or apartment. For a second hand property, the stamp duty is generally 6 per cent.

Once the purchase has been completed, the new owner will be liable for a number of different taxes to the local authorities including rates, water and refuse charges.

“A vendor should not forget that on the sale of a property, a further tax will be paid to the local authority and taxes may also be payable to the state. It is important to realise that, within the Spanish autonomous system, the local governments are their own tax collectors, and rates and relegations vary from region to region,” concludes Tom McGrath. As a major investment decision, the best advice is to take advice.