The Irish Independent 05.03

Irish Independent,
23rd May 2003

Supplement Spain – Legal Issues

When purchasing property whether in Ireland or Spain, there is a fundamental principle that applies, and that is that each party should be independently advised. If one lawyer represents both parties to a transaction, there is a risk that a conflict of interest might arise in which the lawyer is incapable of adequately protecting the interests of both of his clients simultaneously. Therefore, it is essential that the purchaser or property in Spain should seek independent legal advice.

So says lawyer Tom McGrath of Tom McGrath & Associates. Tom is fluent in Spanish and has a long standing relationship with Spain, he is a former President of the Ireland Spain Economic Association (ISEA). He has associate offices in Bilbao, Madrid and Marbella, and shortly in Barcelona.

Because we are dealing with a different legal system, the conveyancing practice in Spain is entirely different to that of Ireland. For example, proof of ownership is the “Escritura Publica” which is the registered title deed of the property. All such deeds must be registered in the Registro de la Propiedad, which is the Property Registry. The registration is done through a Notary Public, who is an official of the state assuring that all contracts are legal. The Notary keeps the original document in his files, and he or she, is a public official, and not a private lawyer. The Notary’s duty is to certify that the contract has been signed, the money paid and that the purchasers have been advised of their tax obligations. For this reason alone, it is important that each party should have their own lawyer and remember that, in Spain, some taxes attach to the property and not to the owner. Therefore, it is imperative that, not only does the purchasers’ 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% for non residents.

There are several tax implications arising from buying a property in Spain. The property would be 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% and VAT payable on new parking or storage space, could be as high as 16%, especially if sold separately from the new house or apartment. For a secondhand property, the stamp duty is generally 6%.

Once the purchase has been completed, the new owner will be liable for a number of different taxes to the local authorities, for example, rates, water and refuse charges. A vendor should not forget that on the sale of 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.

Buying property in Spain can be a rewarding experience, both from the benefit and investment point of view. However, in order to achieve peace of mind and obtain a satisfactory title, the purchaser has to traverse a legal minefield. Tom McGrath & Associates provide a full Spanish conveyancing and legal service from their Dublin office, and in many cases, avoiding the necessity for the client having to travel to Spain to complete the many formalities to ensure proper title.