House Hunters 09.05

House Hunters in the Sun Magazine
September 2005

Buying a property in Spain doesn¹t have to be a tricky business. Over the last number of years it has been estimated that some 200,000 Irish people have bought Spanish homes which they can visit with increased ease due to new, direct airline routes at cheaper prices. Despite negative media coverage highlighting corrupt practices in certain parts of Spain potential property buyers and investors have nothing to fear if they act with common sense and caution. In fact, my advice to any potential property buyer or investor is simple: when buying a property, act as you would in Ireland and seek independent legal advice.

It is surprising how many holiday makers and investors throw caution to the wind when overseas, handing over cash deposits without asking for a receipt or committing to purchases without consulting a solicitor, practices they would never do in Ireland. A client came to me some years ago, having paid E50,000 in cash and another E50,000 in the form of a bank transfer to an estate agent and the vendor of a property in the south of the Spain. He received no acknowledgement of his payment. Some months later, the vendor telephoned him to say that he had changed his mind about the sale. When he asked for his money back he told him he didn¹t have it. The estate agent said that they had passed the money over to him - as they are required to do. Since then, the vendor has disappeared. We are trying to locate him and have discovered that he owns land in another part of Spain. Hopefully we can bring the incident to a happy conclusion for our client.

Estate agents in Spain are not regulated and anyone can act as an intermediary in property transactions. Estate agents or developers often recommend lawyers to buyers who are also acting for the developer which is, in my view, a direct conflict of interest. There are many reputable lawyers and developers throughout Spain. An independent lawyer acting on behalf of a potential buyer will investigate the legitimacy of the development, villa or apartment before any sums of money are handed over. He or she will check that the construction company or developer owns the land, also that they have the proper licence and that planning permission has been complied with. They will also make sure that any unfavourable or biased conditions in the contract are amended and that any clauses that should be contained are included. Bank guarantees will be put in place so that any sums of money paid are refundable. Solicitors can assist clients in other ways, helping them obtain the NIE a document for non-residents that enables clients to open bank accounts, connect to utilities and pay local taxes - and can, through powers of attorney, close the deal on behalf of the client so they do not have to travel to Spain.

In Spain it is not compulsory to register the title of the property, but any reputable lawyer will advise you to do so, as the vendor could resell the property to another buyer whose purchase would take precedence over yours if they registered the property first. The registered title, known as the Escritura, is the only document that guarantees the proof of ownership of property in Spain. It is signed by the parties before a Public Notary who ensures that both parties have fulfilled their obligations under the contract. It contains a description of the property, the details of the owners and any charges or mortgages. It is not the Notary¹s responsibility to check the details of the Escritura so again, it is important that you have a lawyer to do that for you.

Reputable lawyers searching a property registry can discover that the vendor doesn¹t have the property in his name; that it has never been registered; that the property appears on the title but has not been properly completed; that there are unpaid mortgages, charges or taxes on the property; that there are rights of way attached to the property; that the property has been built on land that is zoned rustic not urban making planning permission defective; that work has not been signed off because the developer hasn¹t the obligatory 10 year guarantee or has not been granted a licence by the local Government indicating they are satisfied with the building’s standards or finally, that the building being sold by one company, is in fact, owned by several different companies or that the company is not registered as the owner.

A client came to me having paid a substantial deposit for a property which he later discovered was on land which was the subject of a compulsory purchase order. It had a huge effect on the property as a motorway was being built beside it in what had been a peaceful area. Had the property been properly investigated the client would have been aware of this before he agreed to the sale and parted with his deposit.

Irish purchasers should also be aware of the tax implications involved in owning a Spanish property. There is a 7 % VAT rate plus 1% Stamp Duty on all new properties, while second hand properties carry a stamp duty charge of 7%. If an Irish person is buying or selling a Spanish property from a non resident, 5% of the purchase price must be paid direct to the Spanish Treasury on account of the vendor’s Capital Gains Tax. This enables the vendor, who is a non-resident, to clear his tax liabilities under Capital Gains Tax which is at 35% for non-residents and 15% for Spanish residents. While this doesn’t affect the purchase price, Irish purchasers should be aware that, if they do not pay the 5% to the Spanish Revenue, the property will carry a charge attached to it for the lower of both amounts, either the 5% or the Capital Gains Tax amount.

Other charges include the local town hall Plusvalia, which is paid on the increase in value of the property, as set by each town hall. This is based on the official value of the land which is always lower than the market value and it will depend on the period of time that it has been under the same ownership, the longer time, the higher it will be due. While not substantial, this tax can be charged to the property, so if it has not been paid by the vendor it should be discounted from the purchase price. Other annual charges include the IBI, which can be as low as €125 for a small apartment and €1,000 for a villa. Again this tax is attached to the property and must be paid when the property is sold.

Non-residents are subject to wealth tax - which must be presented annually in a tax return by the owner to the Spanish Revenue, on the net value of any assets in Spain - and inheritance and gift tax which is an acquisition tax rather than transfer tax. Also they can be subject to income tax in certain cases. Irish owners of Spanish property are advised to make a separate Spanish will as it is simpler and cheaper to execute. Irish property holders are deemed to be residents for tax purposes in Spain if they reside there for more than 183 days each year.

Inevitably there will be purchasers who want to deal directly with an estate agent. If this is the case, they should always ask the estate agent if they are bonded or have insurance and they should also insist that any money paid is lodged into a Escrow account so that neither party can access the account until the sale is closed.

More and more Irish people are enjoying homes overseas in the last four years the number of Irish people travelling to second and third homes in Europe has tripled. In the current economic climate it makes sense to look overseas for investment opportunities: in Ireland, despite high soaring property prices, rental income yields returns of only 2%-3%. Thousands of Irish people have successfully bought homes in Spain - of the 25.5% of our clients that have bought in Alicante, only 0.7% have encountered any difficulties with the sale, while in Malaga, where 23.4% of our clients purchased their houses, the percentage of clients in dispute is the same. For many of these property buyers, Spain has become a second home.


Tom McGrath, of Tom McGrath and Associates is an Irish solicitor who represents many Irish investors and buyers in Spain. He is a fluent Spanish speaker with associate offices in Marbella, Bilbao, Madrid, Barcelona, Alicante, Murcia, Cadiz, Valencia and Gran Canaria. He is also the former President of the Ireland Spain Economic Association (ISEA). Last year he founded Tom McGrath Overseas Properties which has the agency for a number of reputable developments in Spain