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MORTGAGES IN SPAIN TO BUY PROPERTY

Mortgages in Spain to buy property

Mortgages in Spain to buy property

Fixed rate, variable rate interest & Euribor

If you want to buy a property with a Spanish mortgage you should know that the standard in Spain is the variable interest. The Euro Interbank Offered Rate, also called Euribor, is the reference rate for variable-rate mortgages and is currently at very low levels. Most mortgages in Spain are established according to the Euribor plus the interest rate offered by the bank.

Some banks offer fixed-rate mortgages but the number of fixed-rate mortgages obtained in Spain is very low compared to that of variable-rate mortgages.


A mortgage in Spain or another country?

If you are non-tax resident in Spain and you are thinking of getting a mortgage to buy a home in Spain, it is very likely that a bank in your tax-residence country can offer you a better interest rate than a Spanish bank. Therefore, you should try to find out which banks in your country give mortgages in Spain.


Ways to reduce the interest rate 

In Spanish mortgages with variable-interest usually offer a series of extra products are offered that may reduce the interest rate of your mortgage loan. Each of these financial products / conditions can reduce the interest rate between 0,25% - 0,50%, with a maximum of non residents of 0,75% en 1,00%.

Some of these products / conditions are:

  • Setting up a direct credit of your salary or pension
  • Keeping a minimum monthly balance in the account linked to the mortgage
  • Signing up online banking or a virtual mailbox
  • Direct debits of service companies (water, electricity, taxes, etc.)
  • Having a debit/credit card
  • Having a pension plan with a minimal yearly contribution
  • Taking a life insurance and a house insurance / contents insurance


Starting the procedure with the bank

If you already know the bank where you want to apply for your mortgage, we suggest that you apply for the financial approval of the mortgage.

At this stage you will provide the bank with a complete list of your income and loans as well as your employment status and the amount of the mortgage loan you need. The bank will enter all these details into the system and tell you if they would approve the mortgage at your income level.

Through this, you can save time and money since you can find out, right from the start, that the bank will not give you a mortgage and it will not be necessary for you to provide all the financial documentation at the beginning. Besides from this it´s not necessary yet to pay the taxation of the property by the bank. This documentation for the bank, by the way, needs to  include an extract (´nota simple´) of the Land Book Registry, the Registro de la Propiedad, of the property you are interested in buying. If the bank analyses your financial details and cannot grant you a mortgage, you always have the possibility to go to a different bank.


Extra costs of the Spanish mortgage

Updated information due to the sentence of the Supreme Court in October 2018 as well as the change in the Spanish law based on which the banks pay most of the initial costs of the mortgage. 

  • Legal expenses:

These are usually between 3% - 4% of the amount of the mortgage, but are since October 2018 paid for by the banks (and they can be claimed back for mortgages signed since October 2014). They refer to taxes, the notary´s invoice (the Mortgage Deeds are different from the Title Deeds and so they are charged separately), the invoice from the Land Book Registry and processing fees. These expenses are the same regardless of whether the mortgage is obtained from a Spanish or a foreign bank.

  • Solicitor fees:

Even though you can negotiate your mortgage directly with the bank, it is advisable for your solicitor to help you with this process as you will obtain professional advice. Besides of this his work with the bank will be more efficient because he knows the different conditions of the banks, the can check the Spanish general Terms & Conditions and he can negotiate on your behalf.

  • Extra bank expenses:

Opening fee (usually 0,5% - 1% of the mortgage), obliged home insurance (contents insurance) and life insurance for each mortgage account holder.

On this point, I would like to make a special mention about the life insurance policy that most banks usually require to obtain. This insurance policy is obtained for the mortgaged amount and guarantees that the bank can collect the amount due to the bank from the insurance company in the event that the account holders die.

Life insurance is an interesting product for mortgage holders but it may involve a high premium, especially if the insured people are elderly or have any health problems. This is because, in these cases, the premium will be higher as the risk that the mortgage holders die increases. It´s important to know that after the first year you can switch from insurance company to one that offers you better conditions on your life insurance.

It is also common for some banks to require you to pay a single premium for this life insurance policy, i.e., when the mortgage is granted, the bank already charges you for the total insurance premium for the entire mortgage period.

It is important for you to have a summary chart of ALL mortgage costs, so you can know the net amount of the mortgage (after deducting expenses) you will have available to pay for the property.


Legally binding mortgage offer

Once the bank confirms that your mortgage is approved, the legal document that guarantees this is the binding offer (´oferta vinculante´). This bank document functions as a contract and binds the bank to giving you the mortgage under the terms established in the document. The binding offer is usually valid for one month but it may not be valid for less than ten days.


Recommendations when buying a property with a mortgage 

Since the final approval of the mortgage by the bank will take 2 or 3 weeks. Therefore it´s wise to start the mortgage procedure as soon as possible, even if you haven´t selected a definitive property yet.

Have you already decided on the property you want to buy, but you do not yet know if you are going to obtain a mortgage? In this case you could try to negotiate with the seller that the reservation document and/or private purchase contract are ´subject to mortgage´. This clause avoids that you would lose your reservation fees and/or down payment if no bank in the end doesn´t grants you a mortgage loan. However, most (Spanish) sellers do not like to sign contracts that are subject to the mortgage so the best thing is to have everything prepared with the bank so that it takes as little as possible to receive a reply.

Also please keep in mind that not all banks are willing to grant mortgages for house in the countryside, or only for a limited percentage.


Saving money by subrogation of a mortgage

If you are a home owner with a Spanish mortgage than -after one year- you have the right to subrogate your mortgage to another band with a lower interest rate of better conditions. In this case the new bank will pay the rest of the loan plus the transfer commission (if this exists) to your current bank and you will pay your mortgage from that moment to the new bank according to the new conditions.

The subrogation cost is very low compared to the cost of signing a new mortgage. Therefore, if the interest rate that the bank offers you is lower, it is very likely for subrogation to be beneficial to you.

 

Read the extended information about this subject in our pdf-file: Mortgages in Spain to buy property.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

JUDGEMENT: Bank responsible for bank guarantee developer

Bank responsible for guarantee developer

Bank responsible for guarantee developer

In September 2013 I published an article where I mentioned a judgment rendered by a Court in Albacete on the 8th of June 2012 and that was confirmed by the Provincial Court in the same year. In these proceedings forty-six homebuyers who purchased off-plan houses that were never built -but for which they had made several payments on account- sued the developer and the bank jointly, despite not having bank guarantees for the amounts paid.

As I mentioned in that article this judgment (a first at the time) ordered the bank to refund all the amounts paid by the buyers. It thereby established joint and several liability with the developer of the homes through an interpretation of articles 1 and 2 of Law 57/1968, of 27 July 1968 on the collection of advance payments in the construction and sale of homes.

This however was just an isolated judgment, which did not set precedent. In fact, in the two years since, there have been judgments both in favour and against banks.

These different interpretations have come to an end as, on 21 December 2015, due to the many contradictory judgments the Supreme Court rendered an appeal judgment on this matter. This judgment of the Spanish High Court unifies the criteria to prevent different interpretations by other courts. The Supreme Court is certain about the interpretation of these regulations and ruled in favour of individual homebuyers.

The High Court understands that the credit institutions where homebuyers deposit advance payments to purchase a home under construction, must respond to homebuyers. This refers to cases where the homes are not completed by the developer and the latter has no money or is insolvent, making it impossible for homebuyers to recover any money paid.

In the Fifth Legal Grounds, the last paragraph of the judgment, the Court states that the credit institution has the legal responsibility of a special duty of oversight over the developer to which it issues a loan for the construction of those homes, so that the deposits of homebuyers, especially individuals, are transferred to the special account that developers must open and the bank must require the developer to guarantee all the amounts it collects.

Credit institutions that grant loans to developers to build homes, have the legal obligation of opening a special and separate account, duly guaranteed, so that the amounts that buyers pay for the homes are deposited in that account. If the credit institution does not guarantee that buyers' money is deposited in a special account, it will be held liable for the total amounts deposited by buyers in any type of account held by the developer at the entity.

In other words, if the bank has not ensured the protection of the buyers' money, with this Judgment, there is no longer any legal doubt that the bank will be sentenced to refund, from its own “pocket”, the money paid by homebuyers in cases where the developer does not complete homes and it has no money or becomes insolvent.

In my humble opinion, it seems logical and consistent for the Supreme Court to have settled this matter in favour of homebuyers.

In banking practice, most developers building homes off-plan create a company aimed exclusively at building that development, with these companies usually being devoid of any assets.

From now own, I believe that these loans issued to developers will only be granted after reviewing the solvency and guarantees of the developers thoroughly and that branks will monitor the money that buyers pay for their homes.

In these situations, with this judgment by the Spanish High Court, buyers of homes that are not completed will have the necessary legal certainty to get, through a Judgment, banks to be ordered to refund their money, thereby having more options available to recover the money they lost.

It is very likely that, if this situation arises, now, with this judgment, the bank will choose to avoid legal proceedings and reach a settlement with buyers.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Nerja/Andalucia)

 

SPANISH INCOME TAX RETURN FOR NON TAX RESIDENTS FILING BEFORE THE 31st OF DECEMBER

Spanish IRNR tax return non-residents

Spanish IRNR tax return non-residents

If you are a non-resident in Spain and own a property there, you are liable to Spanish Income Tax for Non-Residents payment (Spanish IRNR). This issue was already considered in former articles on our website in November 2010 and October 2013:

When a property is owned by a married couple or several persons, each of them becomes an independent taxpayer, so that they should file tax returns separately according to the ownership interest they have on this property.

Depending on the property final use, the income subject to tax payment may be distinguished between:

1.- INCOME FROM LEASED PROPERTY: when the property is leased, the income to be declared will be the whole amount received, excluding Spanish VAT.

2.- TAXABLE INCOME OF URBAN REAL PROPERTY FOR PERSONAL USE: as this is the most common case, it will be deeply analyzed below:

The income to be declared is the amount resulting from the application of the following percentages to the property cadastral value:

  • Generally, 2 per 100.
  • In the event of property with a revised or modified cadastral value, 1.1 per 100 from the 1st of January 1994.

Once these percentages are applied, the final payable amount should be calculated for each of the owners pursuant to how long they have been owners of the property during the year.

Tax form 210 is used to pay this tax and it can be downloaded from the official web of the Spanish Tax Authority (A.E.A.T.), including the steps in English to fill it in. It is worthy mentioning that it is not easy to understand them.

Our office is currently dealing with the IRNR season 2012. The deadline to file this tax return expires on the 31st of December of this year. Although if you want to place the payment as a direct debit in your bank account the form must be filled before the 22nd of December. Thus, if you have owned a property in 2012, you should contact your tax advisor to fulfill this tax liability as soon as possible.

If you need our advice, we will be pleased to help you.

 

 

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

OWNING A BED & BREAKFAST (B&B) IN ANDALUSIA: DREAM OR REALITY?

Bed & Breakfast B&B Andalusia

Owning a Bed & Breakfast (B&B) in Andalusia

Starting a new life with your own B&B in Spain

In recent years, during the course of our work, we have met many foreign customers interested in living in Andalusia Spain, preferably in coastal areas and having their own rural hotel, hostel or Bed & Breakfast (B&B). Many of these customers consider this option due to their attraction to Andalusian climate and culture, with the dream of changing their lives and enjoying life in an extremely charming country.

Taking over a business or starting up yourself?

The main option that customers interested in opening a B&B in Andalusia contemplate is to buy a business already in operation, with fewer people seeking to buy property to build the business from the ground up.

If you look on the Internet, there are quite a few ads for the sale of rural hotels and B&B´s. Many of these ads offer the method of transferring a business that is already operating, along with the rental or sale of the property where the activity takes place.

During the transfer of the business, its assets, such as customer portfolio, fixed assets, provisions, etc. are valued. This serves the purpose of establishing a transfer price for the business, which must be paid by the new owner interested in continuing the operations.

What is a reasonable ´traspaso´ price for buying an existing B&B?

The valuation of the business (traspaso) is usually based on its income during recent years and on net profit, as well as the value of its fixed assets, i.e., all remodelling, improvements and provisions acquired for said business. Obviously, licences and legal permits required for engaging in such an activity are a key part of the transfer value.

In the transfer method, the rental of the property is usually established, most often with a lease option, or the property may be sold directly to the new owner. It seems more reasonable to choose rental with a lease option for the property during the first years of the business as if, for any reason, the business is not what was expected and the profits or workload are not worth the effort, we would lose the amount paid for the transfer but would not have to remain the owners of a property we acquired for a business we no longer wish to operate.

As you may infer, the operational cost of a B&B may be high enough to justify carrying out, prior to its purchase, a due diligence process about it for the purpose of determining whether the asking price (traspaso) is reasonable. I consider three lines of action very important in this regard:

VALUE OF THE BUSINESS.

You should hire an economist, expert, or tax consultant to study the accounting of the business during recent years, including all tax documentation, as well as the accounts submitted at the Commercial Register. With this report, an objective professional, knowledgeable on the matter, will take a snapshot of the financial situation of the business.

BUSINESS LICENCES.

In order to check whether the B&B you are seeking to purchase has all the necessary business licences, it is important for an architect to visit city hall and check whether the business is in order and complies with all the legal requirements for its operation. The architect will visit the property to verify that the infrastructure and installations are those legally required for this business and will issue a report of his or her findings.

PURCHASE OF THE BUSINESS.

Once you have decided to acquire the business, when preparing all the documentation for the transfer and rental/purchase of the property, it is important for an attorney to intervene so as to guarantee all the obligations of the parties, establish the payment method and protect the buyer from potential problems during its execution. If the property where the business will operate is located in a rural area, as is the case for many of these hotels, the intervention of an attorney is even more important, as these areas are subject to a series of legal limitations that must be reviewed.

Professional advice for your investment will pay back

It is obvious that this complete due diligence process for the B&B makes buying the business more expensive as you may spend a significant amount of money on these professionals and you may end up not buying the business. However, you must consider that spending thousands and thousands of euros, often from your savings or a bank loan, on something, before verifying its value, can lead to a very difficult financial and personal situation.

It is also a good idea to get informed about tourism in that area and expectations for the future. There are statistical data about the occupancy rates for rural accommodation that may help you. For instance, the Institute of National Statistics (INE) periodically publishes detailed occupancy surveys for rural tourism and any other type of accommodation and all this information, in detail and broken down by regions, can be accessed from its website.

New business changes after recession in Andalusia

For instance, on the 1 September, www.escapadarural.com published that rural tourism in Andalusia reached an occupancy rate of 36% in July and August. At the provincial level, 49% of businesses in Malaga were fully booked.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

HOME BUYERS ACTING IN GOOD FAITH, MORE PROTECTION IN THE CRIMINAL FIELD

Spanish home buyers acting in good faith

Spanish home buyers acting in good faith

Yesterday Thursday 26 March, the Lower House of the Spanish Parliament ratified the amendment to article 319 of the Spanish Penal Code, approved by the Senate last 12 March. A paragraph has been added to section 3, which reads:  “In any event, the Judges or Courts of Law may issue a reasoned order to demolish the works and restore the physical reality altered at the expense of the principal thereof, without prejudice to the compensations due to third parties in good faith, and, assessing the circumstances and after hearing the competent government body, shall temporarily subject the demolition to the constitution of guarantees that ensure their payment. In any case, the seizure of the earnings from the offence shall be available, regardless of the transformations that these may have undergone”.

This new regulation will be into force next 1st July.

Until now, in proceedings regarding an Offence against Town and Country Planning, the judgment ordered the demolition of what had been built illegally and compensation was set by way of civil liability for the developer, in favour of buyers acting in good faith. The problem is that, in most of these cases, collecting said compensation was very complicated since the developer was either insolvent or had disappeared. However, enforcement of the demolition was not stopped, for which reason we could find ourselves before an unfortunate scenario where a buyer acting in good faith and recognised in a judgment could have his home demolished without being effectively compensated.

From now on, in criminal proceedings for Offences against Town and Country Planning, the judge may stop the demolition of the home until due compensation to the third-party acting in good faith is guaranteed.

From the literal wording of the amendment introduced, it seems that the judge will be the one who, after assessing the specific situation in each case, will stop said demolition, for which reason I understand that it will be an essential requirement to prove that the buyer is really a third party acting in good faith.

Likewise, it seems interesting that, in assessing whether to stop the demolition, it is required for the competent Government Body, which I take to be the City Hall, to be heard in the proceedings. I suppose that, in these cases, the City Hall can provide relevant details leading to stopping the demolition. Also, since the City Hall is the one responsible for executing the demolition, it may argue on the suitability of stopping it until it can ensure compensation for the third party acting in good faith.

Lastly, this amendment refers to stopping the demolition temporarily, i.e., a specific period of time is not established but, in any case, it should not perpetuate over time. However, the concept of “temporarily” is very wide and it may be interpreted as sufficient time to guarantee compensation to buyers acting in good faith.

I can say, with full knowledge, that this amendment of the Penal Code has been possible mainly thanks to the work of two associations in Andalusia that have been working on protecting buyers acting in good faith for several years: SOHA and AUAN, especially noting the great work done by Gerardo Vázquez, a colleague of mine, attorney and legal adviser at AUAN. The efforts of these organisations and their mobilisation have made this amendment possible.

The aforementioned organisations, along with many others that have been created, are justified by the great problem faced in Andalusia, which has 300,000 homes built in non-developable land (NDL). On the Andalusian coast, due to foreign residential tourism, many buyers are foreigners and this has led these owners, facing the legal problems with these homes, to move to defend their interests, to strengthen and to tell authorities about the existing situation.

The main problem, at least in Andalusia, has been the complete inactivity and inefficiency of Urban Planning in Andalusia, which has led to a failure in regulating non-developable land in Andalusia and to the existence of many homes built on non-developable land.

Regulations with very fixed and strict criteria governing construction on non-developable land were approved. However, Autonomic and Local Governments have completely neglected to provide the necessary oversight to enforce these regulations.

From the beginning of the years of the housing bubble, the competent government bodies have shown no predisposition to initiate and solve disciplinary procedures against offenders, with all the legal consequences that this entails, such as demolishing what has been illegally built. The governing party in City Hall should have assumed the “feared” political price that these unpopular measures may have entailed.

Most of these buildings have everything: registered deed, pay IBI (Property Tax), are registered in the Property Register, have electricity and water, and have paid autonomic taxes such as ITP (Tax on Asset Transfer) and AJD (Stamp Duty).

Many of the properties have changed owners, meaning that the person responsible for construction is no longer the owner of the home. When these properties enter legal proceedings, third parties acting in good faith appear, affected by this situation that the Local and Autonomic Governments, with full knowledge, have allowed due to their complete inaction in the field of Urban Planning.

The regulations provided in the Urban Planning Law of Andalusia (LOUA) to govern the very strict use of non-developable land were based on environmental protection and on maintaining the rural value of a large portion of the Andalusian territory so as to preserve this environment and its values.

However, its lack of application due to a lack of real and effective control of what was being done on non-developable land has given rise to the failure of regulations on the use of non-developable land provided in the LOUA.

In reality, this has resulted in large rural areas becoming full of unregulated buildings, achieving the opposite effect, as the lack of protection of the rural environment is clear in these cases.

In practice, a total lack of protection of rural land has occurred in some areas under greater urban pressure, where, without controls or any type of criteria regarding what was being built at the architectural level, construction has been allowed, of palaces, warehouses, terraced houses, one-storey homes, towers and everything in between. There has also been no control of the necessary infrastructure or facilities for these homes to be used: discharge of sewage, illegal wells to obtain water, etc. Furthermore, many of these homes did not pay local building taxes, as the majority were not eligible to obtain a licence under the LOUA.

However, as we explained in a previous post, it should be noted that, in some cases, the licenses for segregation, building and initial occupancy were indeed granted for some of these homes. The fact that the Government is responsible in these cases is more than obvious and the damages suffered by owners, who purchased the homes in good faith, are completely reprehensible.

This situation of deregulation of non-developable land has an undesirable effect on citizens, as there is a feeling that there are citizens who ignore the law and go unpunished and that there are others who are required to comply with it.

If the urban planning disciplinary proceedings had been started quickly and efficiently at the beginning of that frenzied period of real estate development on non-developable land, the message that citizens would have received would have been very clear and many buildings would not have been built. There would still be homes on non-developable land but the magnitude of the problem would be quite different.

Faced with this situation, the legal response to solve this problem should be consistent with the reality that exists and that has been tolerated by the Government itself for so many years. This is why the necessary legislative reforms in this area must be tackled rigorously and without propaganda messages, avoiding a focus on the debate on “amnesty for everyone” or “offenders must pay” because the situation is much more complex.

In the administrative field, the majority of these homes should be regularised as, in many cases, penalties for using land illegally would have expired and many of the developers-builders are not the current owners.

In the future, there should be a debate regarding the effectiveness and efficiency of Urban Planning under current regulations, as well as regarding whether the regulation of non-developable land in the LOUA is adequate for the purpose it intends to fulfil.

 

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

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

 

 

INHERITANCE TAX IN SPAIN: WE ARE ALREADY EUROPEAN!

Inheritance tax in Spain

Inheritance tax in Spain

In our post of last March on Inheritance and Donation Tax, we discussed about the fact that European non-resident citizens in Spain were experiencing discrimination against resident citizens, because, under the same circumstances, they had to pay more taxes than resident taxpayers.

This unequal treatment happened when the deceased or beneficiaries were non-resident in Spain and they paid taxes in conformance with a State regulation which was more detrimental than the regional one, which was only applied to resident citizens.

This discrimination was confirmed by the European Court of Justice ruling dated 03rd of September 2014, which resolved this issue and established that Spain was infringing the free movement of capital within the EU, because of this separate treatment between resident and non-resident citizens.

On the 1st of January 2015, in order to comply with the aforementioned judgment, the amendment of the State Inheritance Tax regulation has entered into force in Spain. A special scheme has been introduced in regards of the Inheritance Tax, so that non-resident citizens in Spain who are European residents may apply the regional regulation as residents already do, equating their situation.

This new regulation establishes that in the event that the deceased is a European non-resident in Spain, the European non-resident beneficiaries may apply the regional regulation where the most valuable assets are located in Spain. If the beneficiaries are resident in Spain, the regional regulations where they reside shall be applicable.

If the deceased has been a resident in a Spanish region and the beneficiaries are non-resident in Spain, the non-resident beneficiaries shall pay inheritance tax in conformance with the regional regulations where the deceased resided.

At this point, it is worth mentioning that the collection of the Inheritance and Donation Tax in Spain is assigned to regional governments, so that they are free to set forth their own regulations.

The effect of this assignment is that the amount to be paid for this tax by Spanish residents may significantly vary depending on the region where they live. In fact, a fiscal “war” has arisen between regional governments as regards of this tax, because some people have decided to establish their residence in regions with a more favourable tax scheme in order to pay fewer taxes for inheritance and donations, particularly those with more valuable estates.

The most recent and famous case in Andalusia was that of the late Duchess of Alba, who was sentimentally related to Andalusia but not fiscally, because her residence for tax purposes was in Madrid. The main benefit of this fact is that her beneficiaries have had a tax saving of more than 90 million Euros in the Inheritance Tax.

Since non-resident citizens will also enjoy the same Inheritance Tax regulation than resident citizens and considering that the regulation to be applied is that of the region where the most valuable assets are located, this unequal treatment between regions will also affect them.

However, imagine that you are a non-resident in Spain, do not have any property, but you have some money in a bank entity in Spain. In this case, which regulation shall be applicable for your beneficiaries? It seems that the applicable regulation shall be that of the region where the bank registered office is located. Thus, it is not the same a bank entity with registered office in Madrid, Barcelona or Seville, for instance. It has been said “it seems” above, because a definitive answer has not been obtained when contacting the Tax Administration Office in respect of this issue.

In short, these are good news for European foreign citizens and their beneficiaries, and welcome to the regional regulatory “chaos” in respect of Inheritance and Donation Tax.

 

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

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

FUTURE REFORM IN ANDALUSIA FOR THE OWNERS OF HOMES CONSTRUCTED ON NON-DEVELOPABLE LAND

Andalucian houses constructed non-develople land

Andalucian houses constructed on non-develople land

Three weeks ago the Junta de Andalucia (Andalusian Regional Government) announced a reform of the Urban Development Law for Andalusia (LOUA) which aims to provide further legal security for owners of homes that are built on non-developable land (rustic land).

With the current LOUA regulations, for those buildings constructed on rustic land in Andalusia and which are within a zoning plot, the prescription period of six years that the administration has to "attack" these constructions on rustic land does not apply. In other words, no time limit is established, therefore the government leaves open the possibility to begin administrative procedures against said plot and the constructions that are on it, when it deems convenient, even if it has been over six years since the home was built.

The above has the main effect that a building on rustic land, built over six years ago on a property that has not been segregated, cannot be penalised or "attacked" by the government, whereas if the construction is part of a segregation/plot division it could be penalised in spite of being built over six years ago, and demolition of the homes built on this plot could be ruled, as established in article 49 of the Regulations on Urban Development Discipline. Regarding this article, I point out that in spite of it and in my opinion, I do not think that it is feasible to carry out any demolition under this precept due to several legal reasons.

The problem with current regulations since the LOUA came into effect in 2003 is that no serious monitoring or inspection policy has been implemented by the Junta de Andalucia and the Town Halls on rustic land. This has led to the proliferation of thousands of new homes and plot divisions throughout Andalusia, especially during the times of the real estate boom, and more so on the Costa del Sol, where this speculation reached unsustainable proportions.

In spite of the fact that it was feasible to control these constructions, it was not done and this led to the buildings entering the legal level, with many owners purchasing in good faith with all the appearances of legality. This has shown that current regulations in Andalusia on rustic land, and specifically on plot zoning, are pointless, because no one has made sure that they were enforced, making them inefficient at best.

Now the intention is to modify the LOUA and provide the possibility for isolated constructions located on plots of rustic land to regularise their situation through the figure of assimilating it as unregulated, that was introduced by the Decree of 2012. This will be so provided that the period of 6 years has elapsed without the government beginning any penalisation procedures against these buildings, therefore to these purposes the legal situation is considered as equal to those homes that are not located on a zoning plot.

It will take a period of 5 or 6 months for this reform to be approved, and it will be approved by parliamentary proceedings, therefore changes will be included during its approval.

I understand that this initiative by the Junta de Andalucia is a first step towards solving this problem. We all would have preferred for this not to have happened and that rustic land would never have been part of town planning speculation, but this problem started many years ago and the issue is clear; what to do with thousands of homes that cannot be demolished now?

Most of these homes are inhabited and they are still being bought and sold between private persons, therefore it is necessary to regularise them so that third parties acting in good faith have legal security as owners of these properties. Likewise, it is reasonable that those that were built without a building permit, which is most of them, should assume a cost for the regularization procedures and they should contribute the same as any citizen who wishes to build a house, and this bearing in mind that the acknowledgement by AFO is not the cure-all either. From an ecological and environmental standpoint, the legalisation procedure must guarantee that these homes do not cause any further damage to the area where they are located, and that their waste water is completely purified by autonomous installations, because as long as they are fully illegal, and cannot be "attacked" by the government, each owner will do what they see fit and damage to the environment will be higher.

In short, given the current situation and bearing in mind the problem that has been created due to the inactivity and lack of control by the public administrations, from a legal, financial and environmental standpoint, we must establish a regularization procedure for these homes. If not, if we continue with the current situation, it would be a great mistake and it would only continue to aggravate the problem as the years go by.

 

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

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

THINKING ABOUT SELLING YOUR PROPERTY IN SPAIN? DO IT IN 2014 TO AVOID PAYING MORE TAXES

Capital Gain Tax when selling Spanish property

Capital Gain Tax when selling Spanish property

Next 1st of January 2015, a new tax reform will come into effect. This reform was approved in August by the Spanish Government and, among other measures, it will affect taxation of capital gains obtained as a result of a property sale in Spain:

1) Tax reduction from 21 % to 20 % for capital gains earned by a sale if the seller is non-tax resident in Spain.

2) Tax reduction from 21 %-27 % to 20 %-24 % for capital gains earned by a sale if the seller is a tax resident in Spain.

In these terms, it may seem that, from the 1st of January 2015, taxes for capital gains earned by a property sale will be reduced. However, you should be careful with this reform, since from the 1st of January 2015 sellers of a property may not be enable to apply reducing and updating coefficients of the purchase value when the property was bought.

You may wonder what it means; and it means that heretofore if you bought a property and then you sold it, when calculating the capital gain from the sale, you could update the price paid when you bought the property a few years ago, however, from 2015, this purchase value will not be allowed to be updated. For example:

You bought a property by public deed for 150,000 Euros in 2003 and now it is on sale for 200,000 Euros.

1 ) IF YOU ARE NON-TAX RESIDENT IN SPAIN

-          if you sell your property in 2014: the updated purchase value would be 177,540.00 Euros and 4,716.60 Euros should be paid for taxes as a result of a capital gain of 22,460.00 Euros taxed at 21 % rate.

-          If you sell your property in 2015: the purchase value would be 150,000 Euros (no update is allowed) and 10,000 Euros should be paid for taxes as a result of the capital gain of 50,000 Euros taxed at 20 % rate.

2) IF YOU ARE TAX RESIDENT IN SPAIN

-          If you sell your property in 2014: the updated purchase value would be 177,540.00 Euros and 5,375.00 Euros should be paid for taxes as a result of the capital gain of 22,460.00 Euros obtained.

-          If you sell your property in 2015: the purchase value would be 150.000 Euros (no update is allowed) and 10,880.95 Euros should be paid for taxes as a result of the capital gain of 50,000 Euros.

As shown by these examples, tax savings when selling your property in 2014 or from the 1st of January 2015 may be worthy of consideration.

Other examples of updated values with the same prices above: if you bought the property in 1995, the updated value in 2014 would be 210,750.00 Euros; then, you should not pay taxes for capital gain if it is sold in 2014 and you should pay 10,000 Euros for taxes if it is sold in 2015.

If you bought the property in 2013, the updated value in 2014 would be 154,454.00 Euros, then if you sell it in 2015, you would pay less taxes than selling it in 2014; however, this a small saving between 400-700 Euros according to whether the seller is a non-tax resident or tax resident in Spain.

In these examples, neither deductible expenditures (taxes, notary, registry and estate agent fees, etc.) have been taken into account, nor other possible deductions to which fiscal residents may be entitled.

CONCLUSION: if you are thinking about selling your property in Spain, you will probably be interested in doing it before the end of 2014, you will avoid paying more taxes for the profit obtained on the sale.

If you have recently bought a property or the sale price is very similar to the purchase price, you may be interested in selling it from 2015, as there is not a great difference regarding taxation. If you are selling at a loss, that is, you obtain no profit, it makes no difference whether selling it this year or the following.

Nevertheless, the most coherent decision is to make your own tax estimation for your particular case in order to know whether it is more convenient to sell this year 2014 or not, so you will have a clear idea of your possible tax savings.

 

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

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

 

 

 

 

CADASTRAL REGISTER: TO BE REGISTERED, THE QUESTION IS CLEAR

Cadastre registration Spanish properties

Cadastre registration Spanish properties

The cadastre is a compulsory administrative register which depends on the Ministry of Finance. It keeps the description of rural and urban properties as well as properties with special features. This register has nothing to do with the Land Register, where registrations are voluntary and legally prevails over the Cadastre.

Cadastral registration by property owners is compulsory, as provided by Article 11 of Spanish cadastral law Ley del Catastro Inmobiliario; that is, title holders to the properties shall declare before the Cadastre Office any variation or modification as for example: conveyance, new constructions, land partitions and additions and any other necessary information so that cadastral descriptions of properties are in accordance with the facts.

Consequently, owners’ obligation to adapting the physical reality of the property to the cadastral facts is clear.

Articles 70 and 71 of the Spanish law Ley del Catastro set out the rules on infringements and penalties, so that “failing to submit declarations, submit them after deadlines or submitting false, incomplete or incorrect declarations” may be considered an infringement punishable by a fine from 60 to 6,000 Euros. To date, we have no evidence that the Cadastral Register is penalizing owners for failing to submit the necessary declarations, although these are not submitted.

The problem that we have noted is that the Cadastral Government Office in Malaga refuses to accept modifications on properties built on non-developable lands and requested by owners or their legal representatives, despite it is deemed that the documents legally required has been submitted for these proceedings. We reiterate that the Cadastre is a compulsory register and as a result it is important to be taken into account.

As far as we understand, the Cadastre systematically refuses some variations and modification on non-developable lands; consequently, it is requested additional documentation which we consider to be unnecessary and should not be demanded according to Spanish law. In view of this situation, which we understand that is not applicable to law, our law firm has filed complaint actions against different administrative proceedings, which are pending to be resolved by the Economic Administrative Court of Malaga.

If owners are obliged to declare their property modifications or variations before the Cadastral Register Office and their legal documents are provided, what is their responsibility if the Cadastre denies their request or asks for further documentation that owners do not have?

From our point of view, the fact of requesting the cadastral variation or modification providing the necessary documentation should exempt owners from any infringement imposed by the Cadastral Register, since they did their best to adapt the physical reality of their property to the cadastral facts.

On the other hand, the Minister of Finance approved last year the cadastral regularization procedure 2013-2016, by which the Real Estate Cadastre intents to incorporate ex-officio urban and rural properties with constructions, as well as any variations of their features, so that these properties are recorded in the Cadastral Register and the Spanish property tax IBI may be collected.

In Malaga, just a few municipalities has acceded to this procedure, by which owners are requested the payment of a 60 Euros fee to carry out this regularization, although it is probable that other municipalities also accede to this procedure in the following years.

To sum up, and despite the existing difficulties to register in the Cadastre some modifications or variations, we advise owners to check if their property is correctly registered in the Cadastre, so that they may request before this register office the necessary modifications and variations to adapt the physical reality of their property to the cadastral facts. As a result of this action, they will avert potential problems.

 

Author: Gustavo Calero Monereo, C&D Solicitors (Torrox-Málaga)

PLUSVALIA TAX PAYMENT WHEN THE ACTUAL VALUE OF CONVEYED PROPERTIES HAS DECREASED

Spanish Plusvalia tax decreased value property

Spanish Plusvalia tax with decreased value property

Currently, as a result of the existing conditions of real estate market, the sale price of a real estate property may be below the purchase price or slightly above it.

As regards of these situations and in connection to taxes to be paid when selling a property in Spain, it is necessary to clarify that the increase in urban land values is the first element of the taxable event of the local tax on the increase in urban land values (Spanish acronym I.I.V.T.N.U.), commonly called PLUSVALÍA. Thus, in the event of no increase, no tax may be applied, despite the content of the objective rules for the calculation of the tax provided by Article 107 of Spanish law regulating local taxation (L.H.L.), since no tax liability may arise when an essential element of the taxable event is missing.

The legal liquidation system does not preclude that the taxpayer proves in the specific case that the application of the calculation methods by the Tax Administration leads to unrealistic results. On the other hand, regarding the formula of Article 107 L.H.L., the Supreme Court ruling dated 22nd of October 1994 was conclusive when maintaining that this article was subsidiary, defending and safeguarding taxpayers. According to this Judgment “legal regulations only provide a rebuttable presumption, which is subject to be distorted in each particular case by appropriate and sufficient evidence in the above terms for the taxpayers and in conformance with the provisions of Article 385 of the Spanish Civil Procedural Law. This reasoning, in regards of the actual increase in value(plusvalía) from property sales leading to non-taxation, was also highlighted by the Supreme Court in the Judgment dated 29th of April 1996 and the Judgment dated 22nd of September 2001.

However, a recent Judgment from the High Court of Justice of Catalonia dated 18th of July 2013 also pronounces undoubtedly the fact that town councils cannot charge the plusvalía tax in the event that it does not exist, since the Judge states that when an essential element of the taxable event is missing –as for example obtaining a profit from a property sale—no tax liability to pay plusvalía tax may arise.

Recently, it is being confirmed an increase of court rulings admitting taxpayers’ appeals against tax liability in the event of loss of assets. In the words of Pablo Chico de la Camara, Professor of Financial and Taxation Law: “the caselaw of the Constitutional Court confirms the impossibility to tax a nonexistent taxable wealth by the local authorities”. This situation may occur when the transferor may certify the loss of assets on the occasion of a land conveyance. It is clear for the Supreme Court that the nonexistence of increase in land values precludes the application of the Plusvalía tax.

To sum up, the objective absence of increase of land value may lead to non-taxation, as a result of the nonexistence of the taxable event, since the legal contradiction cannot and should not be resolved in favour of the “calculation method” and to the detriment of the economic reality. Consequently, it would mean the ignorance of the principles of equity, justice and economic capacity.

These same conclusions shall be applied when an increase of the value occurs and the amount of this increase is proved to be lower than the result of applying this calculation method, being the same principles infringed.

These conclusions, which are already supported by several doctrinal criteria and caselaw, shall be considered as unquestionable at present, in view of the aforementioned economic reality.

In SHORT: when it is certified and proved in a specific case that there has not been an economic and actual capital gain from a property sale, the payment of the Plusvalia tax (I.I.V.T.N.U.) shall NOT be required by town councils.

But the reality is that Town Councils are still requiring the payment of this tax despite properties are sold at a loss, so that the judicial procedure is the only chance in this case for taxpayers to “tackle” the payment of this tax. However, when the resulting plusvalía tax payment is relatively low, it is not worth taking legal actions, due to legal costs.

For those who decide to claim, we understand that there are sufficient legal and solid arguments to obtain a favourable judgment.

 

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

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