Author: Gustavo Calero Monereo

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

Written by Gustavo Calero Monereo on 17 March, 2022. Posted in Sin categoría.

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?

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

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 3 February, 2022. Posted in Sin categoría.

New tax value Spain (cadastral reference value)

The newly introduced minimum tax value for real estate properties in Spain, introduced on the 1^st 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

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

Written by Gustavo Calero Monereo on 20 October, 2021. Posted in andalusia, Andalusian, conveyancing, costa del sol, lawyer, purchase process, Stamp Duty, Transfer 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 PROPERTY INVESTMENT AND THE GOLDEN VISA

Written by Gustavo Calero Monereo on 12 July, 2021. Posted in Sin categoría.

Are you a non-EU citizen with an interest in investing in Spain to obtain a ´Golden Visa´? Spain is a place with enormous appeal for foreign investors looking to purchase a property. Cities like Madrid and Barcelona, as well as the Costa del Sol and the entire Mediterranean coast are the focus of many foreigners looking to buy a property to live in Spain or to operate it in the tourist holiday market. The investment appeal mentioned earlier is combined with the Golden Visa for non-EU citizens, introduced in 2013, consisting in a residence permit for citizens from outside the European Union interested in residing in Spain legally.

The Golden Visa is designed to encourage wealthy people to invest in Spain in exchange for obtaining a residence visa. This is a seamless process that has led to 24,534 golden visas being issued to these investors between 2013 and 2020, a figure that doesn’t include their relatives.

The residence process regulating the Golden Visa does not compete with any other residence procedure in Spain and offers enormous benefits and convenience in terms of being obtained. This has made it possible for non-EU citizens with significant assets to use this procedure to reside in Spain, under very beneficial conditions for themselves and their relatives. In this post, we’ll try to summarise the main benefits of the Golden Visa as well as the application requirements for foreign citizens investing in the purchase of a property in Spain.

What is the minimum investment amount when purchasing a property to obtain a Golden Visa?

The minimum investment amount when purchasing a property must be 500,000 euros per person, excluding taxes and without using a mortgage or any financing, i.e. these must be the buyer’s own funds. It’s possible to invest all this money by purchasing different properties but the important thing is for the total amount invested in such properties to add up to at least 500,000 euros.

Do you have to buy a single property or can you buy more than one?

The 500,000-euro investment amount may be reached by adding several properties together. This amount doesn’t need to be paid for a single property. For instance, our firm recently advised an American citizen during the process to purchase two properties, the first in Benalmádena in 2016 and the second in Torrox in 2019. When adding the money invested in both properties, our client exceeded a total investment of 500,000 euros so that, once he signed the Deed of Sale for the second property, he was able to apply for a Golden Visa based on the total investment made.

What if I’m married in joint assets?

Each applicant is required to invest 500,000 euros and, in the event of being married with joint assets, this means that the purchase amount must be 1,000,000 euros for both spouses to be able to apply. However, if you purchase, for instance, a 500,000-euro property in Malaga while married with joint assets, for the purposes of a Golden Visa, one of the spouses would be understood to be the investor and the other spouse may apply for residence as a relative of the main applicant. When married with separation of assets, the process is the same as that for joint assets.

Can I bring other relatives with a Golden Visa?

It’s possible to bring children under the age of 21 who are financially dependent on the main applicant. It’s also possible for applicants to bring their parents, provided they can prove that they are dependent on them.

What is the deadline to apply after a purchase?

There is no deadline. This means the application can be filed at any time after purchasing the property(-ies), the only requirement is that such properties must have been bought in 2014 or later.

Can I apply for a Golden Visa through a company purchasing a property?

Yes, this is possible, as long as the company is not registered in a tax haven and the applicant can prove that he or she holds a majority interest in it. In this case, it’s necessary to obtain a report from the Ministry of the Economy accrediting this situation.

Can I apply for it if I’ve purchased a plot of land and intend to build a home on it?

Yes, it’s possible to acquire a Golden Visa by building a home on land acquired through a purchase. In Spain, this type of purchase is classified as self-development and is very different from purchasing a property off-plan from a developer.

How long is this Visa valid?

A person obtaining a Golden Visa has 2 years to reside legally in Spain and, after these 2 years, a renewal may be requested. This renewal will be for 5 years, subject to proving that the applicant continues to own the investment property and that he or she has visited Spain at least once during those 2 years.

Do I have to pay taxes in Spain if I have a Golden Visa?

A Golden Visa allows you to reside legally in Spain but having it does not mean you need to pay taxes in Spain or become a tax resident in Spain automatically. The obligation to pay taxes in Spain depends on spending over 6 months within Spanish territory, at which point the tax authorities will consider that person tax resident in Spain automatically.

The Golden Visa allows the holder and relatives to leave Spain for over 6 months a year and they are only required to visit Spain at least once a year. Therefore, in this case, even if you have a Golden Visa, the tax authorities would consider you a non-resident in Spain for tax purposes and you’ll continue to pay taxes in your country.

What are the other benefits does it have?

You can move freely throughout the Schengen area to enter and leave Europe completely freely and with no need for a visa.
The spouse and family members mentioned above can apply for a residence permit at the same time. In other words, they don’t need to do it after the main applicant, which is not possible with other residence permits.
It allows for working in Spain automatically.
The processing time is fast as it needs to be decided within 20 days of submitting all documents and a non-response from the administration is considered to be an approval.

What other requirements are needed to obtain this document?

You need to have sufficient financial resources to live in Spain. In 2021, it’ll be necessary to prove that the applicant has at least 2,259.60 euros available per month, plus an additional 564.90 euros for each accompanying relative.
It’s necessary for the applicant and accompanying relatives to have health insurance with an insurer licensed to operate in Spain. This insurance must be valid at all times and be submitted to renew the residence permit.
Being a citizen of a non-EU country.
Being an adult.
Having no criminal records.

Furthermore, it’s necessary to prepare a series of duly legalized documents, pay certain fees and complete some application forms, which your lawyer or a law firm experienced in procedures of this type can do for you.

Can British citizens apply for a Golden Visa?

Of course they can. Once the Brexit process was completed, they became eligible to obtain a residence permit in Spain through this process. If they are financially capable of investing in a property valued at 500,000 euros or above, this is the easiest and quickest way to obtain residence in Spain.

The advantages of the residence permit obtained through a Golden Visa far exceed those of any other residence process, such as the non-lucrative visa.

Differences between the Golden Visa and the non-lucrative visa

A non-lucrative visa is a very interesting option to reside in Spain, there’s no question about it. Not all homebuyers in Spain are able to spend 500,000 euros on a property. Therefore, if a British citizen wishes to reside in Spain after purchasing a property or because they want to let a home in Spain, this procedure can be very useful to reside in Spain legally.

Since the main purpose of this article is to explain residence in Spain through a Golden Visa, we will just say that a non-lucrative visa is less beneficial than a Golden Visa, some of its drawbacks being:

The application must be filed within a period of 90 days prior to arriving in Spain, i.e. before moving to Spain, for which reason it must be obtained from the Spanish embassy or consulate of the applicant’s country of residence.
It lasts 1 year and can be renewed for a period of 2 years.
It’s not a work permit. It only allows for residing in Spain but does not authorize the holder to work.
It requires holders to live in Spain for at least 6 months and, therefore, they will be considered tax residents in Spain, being required to pay taxes in Spain as residents.
It’s possible to obtain family reunification with a non-lucrative visa but it’s necessary to wait several years before applying.
As with a Golden Visa, it’s necessary to prove a monthly income of 2,259.60 euros for 2021, as well as to obtain health insurance and have no criminal records.

What if I have questions or need a law firm to advise me on obtaining a Golden Visa?

In this case, it’s important for you to look for the company or firm that can give you the most confidence during this procedure.

C&D Solicitors is a law firm located in the Costa del Sol, which specializes in providing legal advice during the purchase of property by foreigners in Andalusia. Whether buying a new property (off-plan), self-development or purchasing a used home (secondhand home), we have extensive experience and can offer comprehensive advice, from A to Z.

We can support you throughout the process of buying a property in Spain and obtaining a Golden Vida. Don’t hesitate to contact us for a free initial consultation or a commitment-free estimate.

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

ANDALUSIA SUDDENLY DROPS TAXES FOR PROPERTY PURCHASES 2021

Written by Gustavo Calero Monereo on 30 April, 2021. Posted in Sin categoría.

TAXES FOR PROPERTY PURCHASES ANDALUSIA 2021

If you buy a property in Andalusia in the remainder of 2021, you will pay less tax as a buyer. Those who are in the process of buying a property at the moment, will see that taxes for property purchases have reduced. On Tuesday 27 April, the Junta de Andalusia unexpectedly and urgently approved a decree that reduces the ITP transfer tax and stamp duty (AJD) for the rest of the year 2021.

The aim of the regulation is to stimulate the real estate market for the purchase of homes in 2021, by reducing the fiscal costs for homebuyers in Andalusia. And by doing so boost the real estate sector, which has also been greatly affected by the pandemic caused by COVID-19.

What is the saving on taxes for property purchases (second-hand real estate)?

A fixed ITP transfer tax rate of 7% will be introduced instead of 8%. Likewise, the tax brackets of 9% and 10% will be abolished. These were applicable to purchases that exceeded EUR 400,000 and EUR 700,000 respectively. The 7% ITP becomes the fixed and only tax rate regardless of the purchase price.

In other words, purchases with a high price will have a larger tax saving, as the market of second-hand luxury homes benefits the most from this tax reduction in 2021.

What are the tax savings for new or off-plan purchases?

For these purchases, the reduction is much lower, as the purchase of a property off-plan is taxed through VAT (IVA) of 10% and through the stamp duty tax (AJD), with a tax rate of 1.5%. With the reform, the AJD goes from 1.5% to 1.2%, with buyers or investors of new homes benefiting the least from this reform.

This is important, as in areas of Andalusia such as Malaga and in general along the Costa del Sol, off-plan or new build property sales represent a very important part of the property market, especially amongst buyers from countries such as England, France, Belgium, Holland, Sweden…etc.

When does it come into effect and until when does it apply?

This reduction came into effect on Wednesday the 28th of April and all purchases made after this date will benefit from this tax reduction. But pay attention when buying, because this rule will only be in force until the 31st of December 2021. This means that on the 1st of January 2022 buyers will pay the same taxes as they paid before.

Recommendation for saving on taxes for property purchases in Andalusia

If you look for a property to buy in Andalusia or are in the process of buying a property in Andalusia, make sure to discuss the tax savings that can be made by completing the sale in 2021 with your lawyer or solicitor, in case you are interested in speeding up the process.

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 13 April, 2021. Posted in Spanish Inheritance Tax, succession tax non resident, wills.

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

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

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 2^nd 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

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.
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
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)

NEW EUROPEAN CERTIFICATE OF SUCCESSION FOR A SPANISH INHERITANCE

Written by Gustavo Calero Monereo on 9 February, 2021. Posted in Uncategorized.

The European Certificate of Succession is a ´new´ standard for international inheritance procedures within the European Union (EU regulation number 650/2012 of the European Parliament). It is applicable to successions of persons who die with assets in different countries of the European Union from 17 August 2015. The European Certificate of Succession is a public document of a voluntary nature, which contains the essential information about inheritance, such as the details of the deceased, information about the last will, applicable inheritance law, details of the heirs and the assets allocated to each legal heir.

In certain cases the certificate can save the heirs costs because they f.e. can avoid the Spanish inheritance deeds. However, the regulation of the European Certificate of Succession does not apply to citizens of the United Kingdom (due to Brexit) and neither to Ireland and Denmark.

Increasement in international inheritances in Andalusia, Spain

This European Regulation is very important in some parts of Spain, such as Andalusia, Malaga and in particular in the Costa del Sol. The reason for this is that here are many foreign owners of assets and homes, both resident and non-resident in Spain. They normally bequeath their assets to their spouse or children through a will (testament), who usually live in the country of their nationality, such as the Netherlands, Belgium, Germany, England, Sweden, etc.

Unfortunately, with the coronavirus pandemic, many hereditary procedures are being highlighted in Spain, due to the unfortunate number of death, which has led to more succession procedures taking place than usual. This also results in longer waiting times at the central last will registry in Madrid (Registro de Ultimos Voluntades).

What is the main purpose of the European Certificate of Succession?

This certificate is an official document that allows for accrediting, in any country in the European Union, all the information about an inheritance distribution. This must be in accordance with the national law of the member state and is meant to make the international process easier and cheaper.

Who can request and who may issue this certificate?

The heirs, legatees having rights in the succession and executors of wills or administrators of the estate may request the issue of a European Certificate of Succession. This needs to happen by submitting form IV, included in annex 4 of Regulation (EU) no. 1329/2014, of 9 December, of the Commission.

This certificate by law may be issued by the court or notary of the country of which the inheritance law applies. This is either the country of residency or the country of which the law has been chosen in the Last Will.

More information and a link to the template of the fill-out form you can find on the website of the European Union.

Which inheritance cases is it intended for?

This new international standard is intended for succession processes of European Union citizens, whose heirs have distributed the inheritance in their country of nationality, with the testator owning property in Spain or another country in the European Union. As said before, this regulation of the European Certificate of Succession does not apply to citizens of the United Kingdom, Ireland and Denmark.

For example: Let’s imagine that there are Belgian heirs, whose father signed a last will. In this Belgian or Spanish will or testament he chose the law of his nationality to apply and the heirs distribute their father’s estate in the city of Ghent. The deceased had purchased a home in Malaga and also had money in a Spanish bank. They can directly request a European Certificate of Succession from this Belgian notary, in order to submit it in Spain. This to be able to inscribe the assets owned by their father in Malaga according to the applicable rules in name of the legal heirs.

What are the benefits of this European Certificate of Succession?

The main advantage of this certificate is that it´s a standard document in English valid in every European country. This makes the inheritance process in Spain or other countries easier and avoids certain costs.

Firstly, the European Certificate of law doesn´t require (possible multiple) legal translations anymore, nor the international ´Apostille of The Hague´. (The Apostille or Apostle of The Hague is a small certificate from the court to proof to the foreign notary that it is an official notorial document). This doesn´t only save costs but also a good amount of time. The legal translation and Apostille until now were always needed for the national Declaration of Law that of course still exists.

Secondly, the European Certificate of Succession in certain, simple cases can be directly used to distribute the assets owned by the deceased. In these specific cases the considerable cost for the Spanish inheritance deeds can be spared.

What are the drawbacks?

One of the main drawbacks is that the certificate is only valid for six months from its date of issue. However, it is possible to request an extension.

Also, as said before, the certificate is not automatically valid for heirs to register the property purchased by their father, which they have inherited. This needs to be done in the Spanish Land Registry (Registro de la Propiedad) and this authority depending on the exact situation can still require the Spanish Inheritance Deeds of the notary. This is explained in more detail at the end of the article.

In any case it´s important that the heirs sign a wide notarial Power of Attorney to their Spanish lawyer. This always needs to include a clause for the potential signing of the Inheritance Deeds, in case still needed after all. Also the normal procedures as the tax declaration or representation before the bank need to be included.

Does this certificate have any impact on Inheritance Tax?

There is no impact on Inheritance Tax or on the declaration procedure of this tax. Once the European Certificate of Succession is received in Spain, the tax form to pay the corresponding Inheritance Tax must be submitted to the Spanish tax office. This even if the payable amount is cero like in most cases in Andalusia for close family members as spouses, children, parents and grandchildren. The tax declaration needs to be done before being able to take the paperwork to the banking institution or the Land Registry, the Oficina de Liquidadora.

The height of inheritance tax depends on the:

relation to the deceased
(fiscal) value of the assets inherited in Spain
balance of the bank account(s) on the moment of death
official worth of a vehicle

It is important to know that inheritance tax must be declared within six months following the date of death. Likewise, if an urban property is inherited Plusvalia tax must be paid. The Plusvalia is local profit tax counted by years of ownership of a property.

Effects on the Land Registry record in Spain

As said, the Land Registry in Spain in certain cases does directly admit the European Certificate of Succession as a title of the hereditary succession. This exemption to register a property in the name of legal heir without the need for a notary inheritance deed or judgment is only possible in the following situation. Also, the Land Registry at all times preserves the right to require Spanish inheritance deeds or other additional legal documentation after all.

Requirements for (potentially) avoiding Spanish inheritance deeds:

Only one single heir
No interested parties, with the right to a reserved share (like or example children under Dutch or Belgian inheritance law)
No curator or authorized person to conduct the inheritance process

Required documentation for the Land Registry when inheritances deeds are not required:

International Death Certificate
Last will or testament (if not signed in Spain, then with legal translation and Apostille)
Certificate of the Spanish Last Will registry (Registro de Ultimos Voluntades)
Notary document signed by the sole heir explicitly requesting the inscription of the property in their name in the Land Registry. This document can be signed by the notary in their own country (in this case the legal translation and Apostille of The Hague are required). However, it can also be done by a Spanish notary.

Conclusion: legal advice for your Spanish inheritance process

The Spanish inheritance process unfortunately is complex, costly and surrounded by lots of bureaucracy, as you surely understand from this article. Are you involved in an inheritance process where the deceased owns a property in Andalusia? And are you in need of legal advice to save time and costs? Do not hesitate to contact C&D Solicitors and our lawyers will be happy to guide you. We are a law firm specializing in providing legal and tax advice to foreigners in Andalusia and we know how to help to make this process as easy as possible for heirs. You can contact us so we can provide the first free consultation or offer.

More information: You can read more about inheritance law and Spanish wills under ´legal services´ where you can also watch our video of the overall process.

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

TAX CONSEQUENCES OF BREXIT FOR BRITISH PROPERTY OWNERS IN SPAIN

Written by Gustavo Calero Monereo on 11 December, 2020. 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 30 October, 2020. 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 LICENCE (LPO) IN ANDALUSIA REPLACED BY RESPONSIBILITY DECLARATION

Written by Gustavo Calero Monereo on 20 May, 2020. 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)