At the time of selling property in Spain, some clients come to us when they have already exchanged contracts. Thinking that because they are not buying, it is all simple, straightforward and that they simply have to ensure they get the money they have agreed which will be all dealt by an estate agent who will find the perfect buyer and will ensure all goes well…so we find quite a few clients who thought they did not need to seek legal advice before selling. They might think that as no due diligence is needed, is only receiving the agreed price, but it is not.
The truth is that although, obviously, there are much more checks to do and steps to follow when buying, at the time of selling there are also important aspects to take into account to avoid surprises and more importantly, to avoid finding that part of the money will be withheld without understanding why.
Is likely that you will be using an estate agent who will get a commission over the price. The usual commissions are around 5% and the fees will be vatable AT 21%. It is important that your legal advisor carries out a quick check to the agent’s fee agreement before you sign.
When signing a private contract (contrato de arras) you are committing yourself to sell the property to the buyer. You should receive 10% deposit which is non-refundable. Should the buyer decide not to go ahead with this purchase or fail to complete the most likely consequence is that he/she will lose the amount paid which will be kept by the seller.
On the other hand, if it is the seller i.e. you/your client who does not honor the contract, you/your client will have to refund the 10% deposit plus its double, as compensation to the buyer. Therefore, it is important that before the seller signs the private contract, he/she is 100% sure that he/she will be able to honor the contract and make sure that all the necessary documents that are required at completion are in place, to avoid the buyer alleging a breach of contract, as explained below.
Unfortunately, there is not only providing your passport and title deed to the buyer. A few other documents shall be gathered before completion, and some of them, might take some time to be obtained.
You will need to have an NIE number (Spanish Tax Number). If you bought/inherited your property long time ago it might be the case that you do not have an NIE number and without it you will not be able to complete.
The property shall have an Energy Efficiency certificate in place and a habitation licence. These two documents should be obtained by an architect that your Spanish lawyer shall engage.
Finally, you will need to provide the buyer with the title, IBI receipt and also, a certificate from the Community of Owners of being up to date of payments.
Your Spanish lawyer will check the Minimum Taxable Value of your property, which is not the same than the selling price. In case the price you have agreed is lower than the MTV, there is a risk for the Spanish Tax Authorities considering that you are selling undervalue and after paying the capital gain tax (explained below) receiving an complementary tax return requesting you to pay the excess up to the 3% of the MTV. This is something that you should discuss with your Spanish lawyer. They will guide you on the best way to avoid unpleasant tax inspections later on.
When selling in Spain is the buyer who pays the majority of costs. Such as Notary and Land Registry fees, and the main taxes i.e. Stamp Duty which is around 10% but it is also for the seller to consider some costs and taxes. Again, engaging a Spanish lawyer before accepting an offer for your loved property in the sun will avoid disappointments before completion when you see that the price you have accepted does not go in full to your bank account.
You can also get the above information in this video
Apart from the above information, also be aware of the two taxes applying when selling in Spain.
Watch our video here or see below:
When selling property in Spain, being non-resident the buyer has a legal obligation to withhold 3% of the price. This is done at the time of completion and they must pay it to the tax authorities on the seller’s behalf.
In case there is no capital gain you should be able to claim this amount back.
If there is capital gain and with the 3% withheld the correspondent taxes are not covered. I.e. which are 19% of the gain, you will need to pay the excess.
It is important to engage a Spanish lawyer to deal with this tax return. This is because there are some amounts like the costs involved on the purchase of the property you are now selling. These costs can be taken into account to reduce this amount.
This is a local tax that applies every time that a property is transferred in Spain. This is whether it is by death or by a sale. It taxes the increase of value of the land where the property is located. It is not mandatory for the buyer to withhold the plusvalia, but since he/she will not be able to register the property in his/her name if that local tax is not paid, it is common practice when buying in Spain to make a retention from the price for the amount of the plusvalia and pay it to the local authority on behalf of the seller
At the time of agreeing a price to sell your property out, you should note that the 3% of that price will be withheld by the buyer and also the amount of the plusvalia. Therefore, we would recommend that you seek legal advise to find out how much would be the plusvalia and also, to see if there is any excess to pay towards capital gain tax so you save whatever is needed or if on the contrary you will be able to ask for a refund of that 3%. Finally, make sure you have all the necessary documents in place before committing yourself with a date for completion.
For more information feel free to be in touch.