Do you own an expensive property in Andalusia and want to know if you need to pay Wealth Tax? Malaga is leading in Spain in the number of purchase of luxury properties and Marbella is the municipality with the largest number of transactions. Over the last two years, there has been a greater number of foreign buyers of luxury homes in Andalusia, specifically around the Costa del Sol.
Thinking about these foreign buyers interested in purchasing luxury properties or properties with much higher than average prices, we’ll attempt to clarify the current situation in Andalusia in terms of Wealth Tax.
What is the current status of the market for luxury homes in Spain?
A luxury home is considered a home purchased for over 2 million euros. We’ll start with the following data about the property market in terms of the purchase and sale of luxury homes: in 2022, these sales grew 55% in Spain compared to 2021 and, in the first half of 2023, they have grown 30% compared to the same period in 2022. Over the last year, the value of these properties has grown by 13%.
Purchase of expensive properties by foreign buyers
Without a doubt, these sales have a high international profile and we are referring to investment clients with a foreign nationality. Likewise, non-EU buyers with American, British, Chinese or Russian nationality, for instance, have displayed an interest in this market. This is due to the possibility of applying for a Golden Visa once they have completed their property investments.
Who is liable to pay Wealth Tax in Andalusia?
Resident or non-resident individuals, who own assets and rights with a net value exceeding 2 million euros in Andalusia, are required to file a return. From 1 January 2022, the tax value of property is calculated based on the cadastral reference value (so not the cadastral value), published by the Ministry of Finance through the Cadastre.
How much is paid in Wealth Tax in Andalusia?
In Andalusia, since 2022, the rate for this type of tax is subsidised at 100%. This means that no one pays Wealth Tax in Andalusia. It’s important to note that, even though nothing is currently payable for this tax, the requirement to file an annual Wealth Tax return still applies.
Taxpayers must comply with this annual tax obligation. Once the annual return for this tax is submitted, the resulting tax would be reduced in its entirety and, in every case, taxpayers will pay zero euros.
Where is Wealth Tax lowest in Spain?
Currently, Andalusia and Madrid are the autonomous communities with the lowest tax burden for large buyers or property investors in Spain. Both communities have introduced a Wealth Tax reduction of 100%.
In Spain, some Autonomous Communities have entered a tax “battle” to attract large purchases and foreign investment, especially in the real estate market and the purchase of properties. Andalusia and Madrid are at the lead of tax reductions, compared to other communities.
What is the new national tax on large fortunes?
In July, Spain introduced a special tax on large fortunes. This tax has been created so that taxpayers who do not pay Wealth Tax in their Autonomous Communities pay this new tax.
New national tax next to Wealth Tax
A return for this tax must be filed in Andalusia and Madrid by:
residents with assets valued at over 7 million euros
non-residents with assets valued at over 3 million euros
This always refers to the net value of the assets and applies per person. However, this tax has a lower tax impact compared to Wealth Tax in other Autonomous Communities in Spain, as the minimum amount exempt from taxation is higher than that of Wealth Tax.
Legal and tax advice from C&D Solicitors
C&D Solicitors
Advice on the purchase and sale of properties, from an independent lawyer specialising on this matter, is very important to guarantee your investment and avoid surprises during the conveyancing process or later on.
If you are thinking about buying a home in Andalusia, don’t hesitate to contact our firm, C&D Solicitors in Malaga, and we’ll be glad to help you and guide you on this matter, always safeguarding your interests and position as buyer. We can assist you in English, Dutch, Swedish, German and French.
Given the boom in holiday lets in many cities over the last few years -and always taking into account the delicate balance between holidaymakers and resident owners- owners’ associations have been taking measures in this regard for many years, with the aim of limiting and, in most cases, prohibiting RTA holiday lets in their buildings. Based on our legal experience advising foreigners in Costa del Sol, we often come across these “conflicting” interests between owners’ associations and foreign buyers interested in using the property they intend to buy as a holiday let.
We’ll try to clarify the current regulations that enable owners’ associations to intervene in, limit or prohibit this activity.
How can owners’ associations prohibit or limit holiday lets?
During the process of providing legal advice in buying and selling property to our foreign clients, we’ve been coming across more and more properties where owners’ associations have amended the byelaws and prohibited holiday letting in properties that are part of that association.
The procedure that enabled owners’ associations to establish such a limitation is regulated in article 17.12 of the Law on Commonholds (LPH). It enables owners’ associations to limit or place conditions on the operation of holiday lets, by holding an owners’ association meeting and obtaining the favorable votes of over three-fifths of the total number of owners, which must, at the same time, represent over three-fifths of the shares in the association.
Inscribing holiday rental restrictions in the Property Registry
For this prohibition resolution to be enforceable upon third parties, it must be officially registered in the Property Registry (Registro de la Propiedad). In other words, if a buyer acquires a home and the association has adopted this prohibition but it’s not registered in the Property Registry or if it’s registered after the owner buys the property, the owner will be able to register the home in the RTA legally and this prohibition will not be applicable.
Likewise, this prohibition is not applicable to any homes registered in the RTA before the prohibition is adopted by the owners’ association.
Name change of an existing RTA License
Lastly, when it comes to purchasing a home that was already registered in the RTA but the owners’ association later prohibits holiday lets, the Council of Tourism of the Regional Government of Andalusia understands that, in the event that this home is sold, the RTA license will continue to be valid. The new owner who bought the property will be able to put the RTA registration in his or her name.
Is it legal for owners’ associations to prohibit holiday lets?
Prohibition to rent out by the Community of Owners?
Article 17.12 of the LPH literally provides that associations may limit or place conditions on the operation of holiday lets but it does not expressly allow for prohibiting them.
Since this article does not expressly include the word “prohibit”, some judges and jurists consider that it is not possible to prohibit this activity based on this precept and with a 3/5 majority.
It would only be possible to introduce the prohibition based on a different article in the LPH, specifically article 17.5, but this would require a unanimousvote of all owners representing 100% of the shares in the association.
Legal conflict of Owners Associations restrictions for RTA holiday rental
Likewise, the Provincial Court of Cordoba in a judgment of 12 July 2022 argued that there is a jurisprudential approach that imposes a restrictive interpretation of limitations on the right to private property, as it constitutes a constitutionally acknowledged right (article 33 of the Spanish Constitution). Therefore, such a prohibition would go against the right to private property.
Without a doubt, we are facing a legal conflict that must be settled over the next few years, as we understand that, sooner or later, there will be a ruling by the Supreme Court clarifying this matter.
What can owners’ associations do to limit or condition holiday lets?
Even though it is understood that it is not possible to prohibit this activity through the 3/5 majority established in article 17.12 LPH, it is indeed possible to adopt a series of limitations or conditions, which owners’ associations can impose on homes registered or to be registered in the RTA.
The same judges or jurists who interpret that holiday-letting activity cannot be prohibited without a unanimous vote from all owners clarify what a resolution limiting or conditioning the operation of this holiday-letting activity could contain based on article 17.12 LPH and with the approval of 3/5 of the owners:
Potential restrictions for the Community of Owners
Owners’ associations can approve regulations on holiday lets, establishing internal regulations, such as:
limiting the number of users
allowing pets or not
establishing days or times to arrive or leave
obligation to obtain specific insurance for damages
presence of the owner or lessor at check-in to inform users specifically about the rules to use common elements
obligation for the owner to provide tenants with a copy of the document containing such limitations and rules
increase of max. 20% in service charges,
etc.
This resolution or internal regulation adopted by the association to limit holiday lets that would establish what criteria owners wishing to let their holiday homes would have to meet would indeed be mandatory.
What measures can owners’ associations take if these internal regulations are not followed?
These internal regulations adopted by the association may and must include the express legal consequences of not complying with these internal regulations for holiday lets. Obviously, the consequences would not be on the tenant spending a few days at the property. The consequences would be on the owner.
The logical consequence of such a breach would be the exercise of the action for injunction provided in article 7.2 LPH. This action would enable the association to require the effective cessation of holiday lets and compensation for damages, in the event that the holiday lets were to infringe upon the rules established and adopted by the association for homes used as holiday lets.
IMPORTANT: It should be emphasized that, on this matter, we are referring to what the owners’ association can do if we understand that it is not possible to prohibit holiday lets on the basis of article 17.12 LPG, as this precept refers to limitations and conditions. However, this is questionable and this debate has yet to be settled.
Can a developer prohibit holiday lets in a development before the homes are sold?
The answer is YES.
In a development of new build properties or off-plan homes, before the properties begin to be sold, the developer must draw up and register the byelaws establishing the rules for the owners’ association. Therefore, the developer could include the prohibition to use the homes as holiday lets in the byelaws.
This is currently not common but it is possible and perhaps in the future we will begin to see more cases, to provide added value to the property, especially in luxury developments. This after all would be a good way to attract potential foreign investors seeking a place to live or spend time in Spain, away from activities that may disturb the peace of the block or development.
Renting out your property Andalucia and limitations from the Town Hall
Are you investing in real estate and want to know more about potential restrictions from the Town Hall in your municipality? Then read our previous article as well:
Legal advice for investing in RTA holiday lets in Andalucia
Lawyers and team of C&D Solicitors
Advice on the purchase and sale of properties, from an independent lawyer specializing on this matter, is very important to guarantee your investment and avoid surprises during the conveyancing process or later on. If you are thinking about buying a home in Andalusia, don’t hesitate to contact our firm, C&D Solicitors, and we’ll be glad to help you and guide you on this matter, always safeguarding your interests and position as a buyer. We can assist you in English, Dutch, Swedish, German and French.
The Regional Government of Andalusia has announced a new decree to regulate holiday lets, which it hopes to approve before the summer. This decree would enable local councils to limit, through the General Urban Development Plan (PGOU), the establishment of new holiday homes.
Over the last few years, the increase in the supply of properties used as holiday lets in cities that are very appealing to tourists is causing increasingly difficult problems due to tourist overcrowding in certain areas, as well as a shortage in the supply of long-term rental housing, coupled with very high prices.
The debate has moved to the political arena and it seems that there’s a trend to limit or even ban these activities in certain cities or specific areas.
Only in Andalusia, in cities such as Seville, Granada, Cadiz and Malaga, there is a clear debate to limit new homes from continuing to be offered as holiday lets. Other areas in the Costa del Sol, such as Marbella, Fuengirola, Nerjaand Benalmádena, also have a large stock of holiday lets and there are also talks about limiting this activity.
In this first part, we will talk about the current situation in Andalusia, with a special mention about the Malagaarea, in terms of holiday lets and the potential limitations that could be introduced by different cities or municipalities in the medium and long term.
Current situation of holiday lets and traditional rental housing in the city of Malaga
Malaga is the Spanish city that has grown the most in terms of tourism over the last few years. This has resulted in many foreign buyers investing and continuing to invest in buying and selling homes in Malaga to be used in the holiday lets market.
To this growth of holiday lets in the city of Malaga, we must add the shortage in the supply of properties in the long-term rental housing market. According to property site Idealista, Malaga is the Spanish province capital where the supply of traditional rental housing has decreased the most over the last year, with a fall of 27%. In the province, the reduction has been 15% over the previous year.
This shortage in the supply of long-term rental housing in Malaga has mainly resulted in an increase in rent prices, which, only last year, has amounted to 25.8%. For some time now, in Malaga, the average rent being paid has been the highest in its historical series and this is not only happening in the city of Malaga itself but also in other municipalities in the Costa del Sol.
How could the future of holiday lets in Malaga look?
It is obvious that the city of Malaga is beginning to suffer a certain level of tourist overcrowding in the central district. According to a news article published on 7 February, only in central Malaga, 4.778 homes are registered in the Andalusian Tourism Register (RTA).
The nuisance caused by holiday lets for residents, tourist overcrowding and the large percentage of homes devoted to this activity has made even the mayor of Malaga acknowledge that we must limit and regulate holiday lets better. This argument is also bolstered by the need for more homes in the traditional rental market, as demand is much greater than the available supply at this time.
It is likely that, once the Regional Government passes the new regulation, the City Council of Malaga will begin to study what actions it can take to limit holiday lets in the city or at least in some areas.
We don’t know which measures the City Council of Malaga will take but it’s very likely that, in the medium or long term, the market for holiday lets in Malaga becomes limited in one way or another. This applies not only to the city but there will also be other coastal towns that will be taking measures on the matter.
Are holiday-lets profitable in comparison to traditional rental housing?
In many cases they are, but not always. Last year, we published an article on the ROI of the purchase of holiday homes in Spain so we won’t delve too deep into it now. Profitability will depend on the price paid for the home, as well as the personal situation of the owner who wants to rent the home in the holiday lets market.
From our own experience, most of our foreign clients who buy a home in Andalusia, especially in the province of Malaga, are not tax resident in Spain and need an agency to manage their holiday let.
At least 40% of their income turns into costs for the owner in this type of rental. Out of every 100 euros in rent, between 18% and 22% must be paid to the agency to manage the holiday let, in addition to a tax of 19% if the owner is resident in the EU or 24% if the owner is resident outside the EU.
If the owner is tax resident in Spain, the taxes payable on this rental property can be even higher, as this income is deemed equivalent to income from work and is taxed according to the progressive income tax scale. If the owner resident in Spain has a high income, e.g. 70,000 euros a year or more, he or she would have to pay 30% or 35% tax on this income, perhaps even more. In this case, we are talking about costs of 50% or 55% of every 100 euros received in rent.
One of the greatest benefits of traditional long-term rentals is the reduction of 50% in the income received by the owner, which would be tax-exempt, and this reduction can reach up to 90% in some cases. This reduction is only applicable to owners who are tax resident in Spain. Also the dwelling needs to be officially the first residency of the renters.
Among the great benefits of holiday lets is the possibility of the owner to use the home for his or her own enjoyment. Another great benefit of holiday lets is the significant legal problem that owners face when they let their homes long-term and the tenants stop paying rent, as the legal proceedings for eviction will always take several months and up to one year. Not to mention the uncertainty of the condition in which tenants will leave the home.
Are the limitations in holiday lets justified?
In my opinion, it is necessary to limit these activities when, in certain cities or specific areas in them, there is tourist overcrowding affecting the local residents disproportionately. Tourist overcrowding also takes its toll on the quality of public services.
Likewise, the increase of homes used as holiday lets in certain areas, such as in the central district of the city of Malaga, results in a decrease in the supply of long-term rental homes and price increases for people to rent permanent housing.
Why is access to rental housing a problem in Malaga for the resident population?
The average salary in Malaga is about 1,550 euros per month and finding a home in the capital for less than 900 or 1000 euros a month is almost impossible in many areas. If the city needs employees in different industries: teachers, nurses, clerks, hospitality, etc., can they live in Malaga on those wages and pay those rents?
In short, effective regulation is necessary, provided that holiday lets do not become criminalized and political-electoral campaigning should be avoided on this matter.
If there are objective parameters that mean such regulation is advisable, it should be done, because the problem in those areas or cities will continue to get worse. Many of us who live in the city of Malaga see such regulation or limitation as necessary to try to achieve a balance between tourism and residential activities.
Are holiday lets being limited in other parts of Spain?
In cities with a great impact from tourism, such as Madrid, Barcelona and Palma de Mallorca, just to name a few examples, measures have been introduced to limit or restrict holiday lets.
On 11 February 2022, the Balearic Islands passed a decree establishing a 4-year moratorium, during which no new holiday rental properties may be registered.
In 2018, the City Council of Palma de Mallorca prohibited holiday lets in all multi-family homes, i.e. in blocks of flats and apartments, to allow it only in single-family homes such as villas.
This ban from the City Council of Palma was challenged in court but the Supreme Court, in a judgment of 31 January 2023, agreed with the City Council in relation to the prohibition of having holiday lets in the city’s blocks of flats. In one of the most prominent arguments, the Court referred to the jurisprudence of the Court of Justice of the European Union, which argues for “prior authorization in municipalities where tension about rentals is particularly pronounced”.
Likewise, the Court considered the defense of the general right to housing correct and justified, as alleged by the City Council of Palma de Mallorca based on reports evidencing the impact of this activity in neighborhoods, the shortage in the supply of rental housing for the resident population and the significant effects on the environment, the land, energy resources, water resources, infrastructures and roads.
Potential rental limitation or prohibition by your owners´ association?
Are you investing in real estate in Andalucia and want to know more about potential limitation or prohibition for renting out your property by your owners´ association/community of owners? Then also read our article 2 about this subject:
Legal advice about buying to let from C&D Solicitors Torrox/Malaga
Our firm, C&D Solicitors, specializes in providing legal advice in buying and selling properties for foreign residents and non-residents, when acquiring a property in Andalusia, whether a secondhand home or an off-plan home, with a multilingual firm and staff speaking English, Dutch, Swedish, German and French.
Many of our clients are thinking about holiday lets for their homes when making an investment in Spain, this being an essential requirement for some of these transactions to take place.
Even though the current property boom and property investment, especially in the province of Malaga and coastal areas, have had a positive impact on our activity, as residents in this area of Malaga, we are no strangers to some of the problems that have begun to arise in certain areas with excessive holiday lets and a lack of residential supply, with tourist overcrowding in certain areas.
If appropriate and measures considering all stakeholders aren’t taken, in the end this will all have a negative effect on tourism, against our interest and providing quality tourism.
We need tourism because it’s an essential source of activity for many companies in Andalusia, but there must always be a balance between holidaymakers and the resident population. Otherwise, this would not be positive in the long term.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox/Malaga (Andalusia)
Challenging the new reference value of the Spanish Cadastre when buying a property
We have clients who purchased a property in Malaga last year through our law firm. They were in disagreement about the reference value (valor de referencia catastral or new minimal tax value) of the Spanish Cadaster for their urban property. Therefore they decided to challenge this value for their tax application and their arguments were upheld.
This was without the need to start any administrative or judicial proceedings. We will explain what happened in this case in this article. Hopefully with this information buyers of a home in Spain in similar circumstances will therefore be able to decide whether to challenge this reference value.
One year since the new cadastral reference value
In January 2022 the new minimum tax value in property conveyance, inheritance and gifting became effective in Spain. This tax value is called the cadastral reference value and can be obtained directly from the cadastre’s website. But to obtain this value, you will need the cadastral reference of the property and a Spanish NIF number. If there is no cadastral reference, there can be no reference value.
Why is the reference value important for your house purchase?
Even with the cadastral reference, some urban properties do not have a published reference value. Likewise, for most homes in undevelopable or rural lands, these reference values are not published. In these cases, when completing the deed of sale, inheritance or gift, the corresponding taxes will be paid based on the value in the deed. The administration may revise this declared value if it deems that the value in the deed is lower than the minimum tax value.
The reference value of a property makes it necessary to pay the Transfer Tax (ITP) in a purchase based on the said value when it is higher than the actual price paid by the buyer.
How high was the difference between the purchase price, mortgage valuation and reference value for our clients?
Our clients were purchasing a property in 2022, with a reference value 90% above the purchase price. For this reason, it was obvious that the value was excessive. This is an extreme case. These clients needed a mortgage and the mortgage valuation came up with an amount for the property about 25% higher than the purchase price. However, this appraisal value was still well below the cadastre reference value.
These clients deemed it unfair to pay ITP based on the reference value. We explained to them that they could pay ITP based on the appraisal value instead of the reference value. We did so by attaching the appraisal certificate to the deed of sale. The goal was to show that the mortgage appraisal value was appropriate to settle the corresponding taxes for the purchase.
What did our buyers decide?
Our clients decided to pay the ITP for their purchase based on the mortgage appraisal. In doing so, they took a risk since, by not paying the tax based on the reference value. They would be subject to penalty proceedings and the Tax Administration would then demand payment based on the reference value in addition to an overdue payment penalty. They assumed the risk and they were fortunate with the outcome.
The fact of paying the transfer tax based on the mortgage appraisal value has a legal foundation in the General Tax Law. The value of properties in such appraisals is one of the legal methods allowed when verifying the value of properties. The administration itself has often used these appraisals to its benefit. In sales with a mortgage where the appraisal value was higher than the purchase value of the property, it would demand tax payments based on the appraisal.
What happened after the ITP tax for the purchase was paid?
About 9 months after paying the Tax on Asset Transfers (ITP), the buyers received a notice from the Department of the Treasury of the Regional Government of Andalusia (Junta de Andalucia). In it, they were informed that value-verification proceedings had been started and they were notified of the payment proposal from the Department of the Treasury. This proposal demanded payment of the ITP based on the reference value plus a late payment penalty.
When they consulted the situation with our tax lawyer, he submitted allegations on behalf of our clients. The Department approved the allegations and considered it adequate and legal for ITP to be paid based on the mortgage appraisal value. The Treasury Department of Andalusia set aside the penalty proceedings.
Honestly, we did not expect any positive result from these initial allegations and we thought we’d have to “fight harder” on this matter. Therefore, it was a pleasant surprise that the Department directly decided to end the proceedings.
What should we take into account in future house purchases in Spain?
Valuation for your property purchase in Spain
If in a property purchase the reference value is significantlyabove the actual price to be paid for the property, we recommend obtaining a mortgage appraisal for the property. Whether you are using a mortgage to buy is irrelevant in this case. The important thing is that these valuations are one of the methods allowed by tax regulations to establish the value of properties.
What are the costs for a mortgage valuation?
The cost of a mortgage appraisal can be between 300 and 500 euros, depending on the type of property. If the appraisal value is similar to the reference value, it would be difficult to avoid paying ITP based on the reference value. As a buyer, your consolation would be that the purchase price you are paying for the property would be an attractive price, below the market value.
However, if the appraisal value is closer to the real price you will be paying, you can take certain risks and pay ITP for your purchase based on the appraisal value. You will surely receive a notice of the beginning of penalty proceedings for you to pay ITP based on the reference value. You will have to challenge it before the Department of the Treasury.
Do you have guarantees for future cases challenging the reference value of the Cadastre?
What happened with our client above does not mean that, in the future, the administration will accept the appraisal value in all cases. However, it does open the door for it to continue accepting the value of these mortgage appraisals. This in cases where the reference value is higher than these are.
Fiscal advice for your property transfer by C&D Solicitors
The important thing is for you as a buyer to be well aware of the financial consequences before you decide to “fight” with the administration over the reference value. In doing so, it is very important for you to obtain appropriate tax advice during a purchase, inheritance or gift/donation of your property in Spain.
C&D Solicitors is a law firm specializing in conveyancing, property law and inheritance, with experience since 2006. We provide advice on the purchase and sale of properties for foreign clients, whether resident or non-resident. Our colleagues speak English, Dutch, Swedish, German and French.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors (Málaga)
Life goes by very fast. We often fail to take enough time to think about what could happen if we would get a serious health problem like mental incapacity. In which practical and legal situation would our family or friends end up if something serious were to happen to us?
Throughout our years providing legal advice to foreign clients, our law firm has come across some less-than-pleasant experiences with clients and their loved ones. They have developed certain incapacitating conditions, such as dementia or Alzheimer’s. In these unprepared situations, both the patient and the family suffer even more.
These conditions can lead to situations where more financial resources are suddenly necessary. For example to pay for a nursing home. However, the person’s mental condition can entail serious problems in terms of materializing this person’s resources or assets into cash.
There are different helpful legal instruments if executed during life and with full capacity to act. They can help and facilitate decision-making for close family members or a trusted friend. This is about prevention, in the event that we develop a mentally disabling condition in the future. Or if we have an accident that affects our capacity to act.
In legal terms, what happens when there is a loss of legal capacity?
Through this article, we explain some of the tools that exist in the Spanish legal system. Instruments to facilitate decision-making for our loved ones, in the case of conditions that impair our mental capacity to act.
In the acute phase of certain health conditions, a person may lose the ability to make his or her own decisions. In other words, in case of mental incapacity. Incapacity does not only affect everyday decisions and actions but also asset management. Assets may become “blocked” because the person does not have sufficient legal capacity to sign a purchase contract or withdraw money from his or her bank account.
In other words, when it comes to significant and substantial asset decisions, a person affected by a disabling condition or serious accident is unable to make such decisions. For instance, when selling a property owned by this person. A Notary in Spain isn´t allowed to authorize the Deed of Sale, if he or she notices that one of the sellers is incapacitated.
What process needs to be followed to make decisions on behalf of an incapacitated person?
When a person becomes incapacitated and hasn´t anticipated this fact, the only way to make decisions on his or her behalf is through a judicial procedure. This procedure takes several months to obtain a resolution and this timeframe represents a significant handicap in these situations. A medical report confirming that official mental incapacity status is needed needs to be provided. In addition, the procedure has its financial cost. However, mostly there is a certain urgency in decision-making or in terms of the need for financial resources to care for the patient.
In cases where any decision needs to be made that affects a disabled family member, one needs to turn to this judicial procedure to obtain the necessary authorization. This procedure will lead to the court issuing authorization to sell a property on behalf of the disabled person. Even to manage his or her assets held in a bank, depending on the purpose of these actions.
What happens if the patient needs medical care and refuses to get it?
A person might need hospitalization at a healthcare facility or care home but refuses any help or treatment. In cases where safety is at stake, there are judicial procedures for involuntary hospitalization and urgent, forced admission. Resolutions are issued very quickly. In a few days, the judge will rule on such admission if recommended by medical reports.
Is a Power of Attorney valid to act on behalf of the patient?
A power of attorney is a document signed before a notary. In this document, the “principal”, with full capacity to act, confers powers to a person called a “proxy”. With this document, the proxy, on behalf of the principal, can engage in different legal acts and/or transactions.
This document is very common when foreigners buyor sell properties in Spain, as they often appoint a solicitor or law firm specializing in property law. This firm is able to carry out the process to buy or sell a property in Spain on behalf of a principal. During this process, the solicitor will sign various documents and represent the client. This makes it possible for a buyer to avoid having to travel to Spain during the process. Of course Power of Attorney can also be given to a family member or friend.
The problem is that a normal Power of Attorney will cease to be valid if the principal revokes it, has mental incapacity or loses his or he capacity to act for other reasons.
Can a Power of Attorney be valid if the principal has a mental incapacity?
In a normal or general Power of Attorney, a special clause may be included to stipulate this explicitly. The Power of Attorney will continue to be valid if, in the future, the principal becomes mentally incapacitated or incapacitated due to an accident. With this clause, the proxy may engage in asset disposal on behalf of the principal who became incapacitated. In this case, it would be possible to sell a property or withdraw money from a bank account/portfolio. Even to take decisions on civil matters, such as admission to a hospital or care home. Of course, this very wide clause normally is only valid for a relative or trusted friend.
It is important to be aware of the existence of such clauses, which make the Power of Attorney preventative in nature, in light of this complex situation. These clauses may be useful to anyone resident in Spain. Even when the person is not resident in Spain, if he or she has assets in Spain, it may be interesting. Through it, asset decisions can be made on behalf of the incapacitated person without the need to engage in judicial proceedings in Spain.
This is a very convenient power to grant to a spouse or partner when assets like houses are shared. They can make use of such assets and make decisions on your behalf if you lose your capacity to act. Without such a Power of Attorney, it would be necessary to resort to judicial proceedings to sell assets shared or held in common with the mentally incapacitated person.
Is it possible to grant a Power of Attorney that is only valid when the principal becomes incapacitated?
The answer is yes, even though this isn’t very frequent. It is possible to grant a Power of Attorney that becomes valid only if the principal becomes officially incapacitated and is unable to make decisions on his or her own. If the principal never becomes incapacitated, the Power of Attorney will never be used.
In such a preventative Power of Attorney, it is very important for the principal to state in writing, in the document, how the proxy can accredit incapacity. The principal should state expressly, if a medical report is needed or if it is enough for incapacity to be accredited only with this Power of Attorney.
Granting a Power of Attorney is an act of trust in a certain person or persons. It is very important to think carefully about whom will be granted such power and for which purpose. Once this has been decided, anything that facilitates the process and makes things easier for the proxy will always be welcome.
What is a living will?
A living will is an official document where you can decide which treatments you wish to receive and which ones you reject when your health deteriorates irreversibly and you have lost capacity. This is a written statement by a person of sound mind, with instructions on health matters. These instructions must be followed in the event that there are certain clinical circumstances preventing a person from expressing his or her will personally.
This is a document designed to avoid prolongation of suffering, in case your mental situation means you are unable to make any decisions. If you disagree with extending your life artificially, in situations in which it is not worth living, a living will allow you to “die with dignity”.
In Spain, this document depends on each Autonomous Community. In Andalusia, it’s called “Declaraciòn de Voluntad Vital Anticipada” and the document is registered in the Register of Anticipated Living Wills.
Through this document, you can also record if you want to receive euthanasia if your mental condition meets the requirements established by Law to apply this treatment.
What is the purpose of a notarial last will?
Do you already have a Spanish last will?
A notarial last will (testament) is a document through which a person decides how his or her assets will be distributed after death and to whom. If the deceased is not resident in Spain, the inheritance will be managed according to the law of his or her nationality.
On the other hand, if the deceased is resident of Spain, Spanish law will apply to the inheritance. However, under Spanish law it´s not possible to leave your assets to the longest living partner, which most people do wish for. This can be avoided if a person is a resident in Spain and a national of an EU country. This person can sign a last will in Spain stating the decision to apply national law to his or her estate.
What are the main ideas you should remember from this post?
If you live in Spain or you have a property in Spain, it is important for you to note the following:
1) PREVENTATIVE POWER OF ATTORNEY FOR MENTAL INCAPACITY
It is highly advisable to grant one to a person who would be able to decide on your assets when you´d suffer from mental incapacity or there is a serious accident that impairs your capacity to act. If you are going to grant a general Power of Attorney anyway, it may be interesting to include a preventative clause in this power. That Power of Attorney will remain valid in the event you become incapacitated.
2) LIVING WILL
In Andalusia, this official inscribed declaration is called “Declaraciòn de Voluntad Vital Anticipada”. It allows you to write down and record your decisions in terms of the palliative care you wish to receive. We are referring to situations of incapacity due to an illness or accident, as well as in terms of euthanasia. The living will you can activate by following the instructions on the website of the Junta de Andalucia in the link.
3) NOTARIAL WILL
It enables you to decide how your assets will be distributed after your death. As well as to benefit from your country’s inheritance law even if you reside in Spain.
Legal advice by C&D Solicitors
It is very important for matters as important as these to obtain advice from specialists in Spanish succession law. Our law firm, C&D Solicitors, is a specialist with experience since 2006 in providing legal advice in inheritance and property law in Andalusia. We provide our services to foreign clients resident and non-resident in Spain. Our staff speaks English, Dutch, Swedish, German and French. Please don’t hesitate to contact us, we’ll be glad to help you with your Power of Attorney, last will or inheritance in Andalusia.
Author: Gustavo Calero Monereo (lawyer at C&D Solicitors, Malaga/Andalusia)
Buying a property investment in Spain: holiday or long-term rental?
Except for 2020 due to the pandemic, over the last few years the interest of foreign investors significantly increased in buying a property investment in Spain. This goes both for holiday and long-term rentals. Many sale operations of homes in Andalusia, especially in touristic areas like Costa del Sol, are mainly intended to be used for lettings to enable the buyer to obtain gains from the property investment.
Among these investment buyers, many are European citizens not resident in Spain, from countries such as the Netherlands, Belgium, England, Sweden, Finland, France or Germany. According to a report issued by the OMAU (Observatory for the Urban Environment of Málaga), the city of Malaga has gone from having 14,885 total holiday lettings in 2015 to 54,685 in 2021.
Get informed about where to invest in the purchase of a property
There are four things to be taken into account when making a decision about where to buy and the price to pay.
Average price or cost of homes. If homes are very expensive, it will obviously be more difficult to amortize or recover the investment by letting it.
Average price or cost of rent. If the average rent is very low, the profit or gains will be lower and more time will be needed to achieve the desired returns.
Tourism potential of the area where you seek to invest. It is obvious that, in terms of holiday lettings, beachfront properties, for instance, show periods of very high returns when let for holidays. Cultural or touristic cities like Malaga, Cadiz or Seville, for instance, are attractive to tourists for a large portion of the year.
Maintenance expenses and tax costs to be paid for the rental. Holiday and long-term lettings have very different taxation considerations in Spain.
Calculate the ROI-profitability of a property investment in Spain
The most simple Return-On-Investment formula would be to start by calculating the gross income from rent per year, divide it by the purchase price and multiply the result of this calculation by 100 to obtain your returns. Let’s use a few examples:
Ruud, a Dutchman from Utrecht, is thinking about buying a new build home in Málaga, on the east side, which is one of the most expensive neighbourhoods, at a price of 470,000 euros, including conveyancing costs. He is thinking about letting it and has learned that the average rent would be around 1,400 euros per month or 16,000 euros per year.
In other words, for Ruud, letting the home would mean recovering 3.57% of his investment per year. Once again, our friend Ruud is thinking of buying a home in Antequera, very similar to the one in Malaga, but its price is 150,000 euros, including conveyancing. He is thinking of letting it and has seen that the average rent is around €550 per month of €6,600 per year.
In other words, every year the rental of the home allows the buyer to recover 4.4% of the investment made.
How can you calculate the returns from a home used for holiday lettings?
Return On Investment Spanish holiday lettings
The formula above is good for a long-term let, not for holiday letting. In the case of holiday homes, calculating returns is much more complex and it’s impossible to apply a standard formula, as prices present a great deal of variation and depend a lot on the type and characteristics of the property, its distance from the beachfront, amenities like a pool and gardens, etc. There are also big differences in rental prices due to seasonality.
According to data from the rental platform Holidu, published recently, analysing the supply and bookings for summer 2022 in Costa del Sol, the highest price per night for homes in the province of Malaga can be found in Las Chapas, Puerto Banús, Nueva Andalucía in Marbella, followed by San Pedro de Alcántara, Alhaurín de la Torre, Alhaurín el Grande, Estepona and Frigiliana.
Other coastal areas in Cadiz, such as Sotogrande, and the tropical coast made up by Almuñécar-La Herradura, also show a high volume of bookings for this summer 2022.
Think about fixed property and rental expenses
The fixed costs of a home tend to be: property taxes (IBI), co-ownership charges, waste disposal rates and income tax for non-residents, which would be paid during periods when the home is not let. Also, you shouldn´t forget about potential interest costs for your Spanish mortgage.
Likewise, when talking about a home for holiday letting, in most cases the owner is unable to manage and maintain the rental due to lack of time, for which reason it would be necessary to add the management expenses of the agent taking care of letting it. These can be around 18% to 24% of the rent received.
We also need to take into account tax costs or expenses to be paid on the profit from this letting in Spain, which I will be covering in more detail below. In short, if the person who owns the property is resident in Spain for tax purposes, when the property is rented as the tenant’s first-residence home, about 60% of the net profit is exempt from taxes. However, if the home is let for holidays or the owner does not reside in Spain for tax purposes, no exemption applies.
Consider other options: profit from holiday lettings in rural homes
Renting out a rural property
Without a doubt, this is one of the types of properties with the most benefit from the pandemic when it comes to holiday lettings, as demand for homes of this type has increased dramatically over the last few years. These homes, with a pool, a garden and land, are in very high demand for rentals during holiday periods. This has also caused an increase in prices of these properties, due to the interest of foreign investment buyers.
Our own clients, to whom we provide legal advice during the process to purchase a rural home in Andalusia, have told us about the large number of bookings their rustic properties receive in the holiday lettings market. Areas such as La Axarquía, the Guadalhorce valley, the Ronda Serranía or Sierra de Mijas can be very interesting for investors in the property market.
If you’re thinking about buying in Malaga, be aware of the average rent prices
In terms of long-term (non-holiday) lettings, according to a study of the Idealista property website, in Malaga the rental price for a home in May was 10.90 euros per square metre, which represents an increase of 16.40% compared to the same period in 2021 and of 6.6% compared to February this year.
For cities, the rental price increases during 2022 have been very significant. For instance, Casares has accrued an increase of 27.80%, Estepona of 24.80%, Mijas of 24%, Marbella of 21.70% and Fuengirolaof 19.60%. In the city of Malaga, the increase has been 10.1% in 2022 and it is one of the most expensive cities in Spain when it comes to renting a home.
What are the requirements for a property to be used for holiday lettings?
In Andalusia, in order to let a home for holidays (contract of shorter than 2 months), it is necessary to register it before the Andalusian Tourism Registry (RTA). This registry has different categories depending on the type of property you wish to register.
There are a few technical requirements that the home must meet to be registered and, for urban properties, it must have a first occupation license (LPO) or a habitability certificate.
If the property you intend to buy and register with the RTA is rural, it would not normally have an LPO and, in this case, it would be correct to obtain a resolution of Assimilated out of Ordination (DAFO/SAFO) or Out of Ordination (FO)
RTA Licence through liability declaration
It is important to note that registration with the RTA is done through the submission of a declaration of liability, which means that the person declares, under his or her responsibility, that the home complies with all the technical and legal requirements for registration. There is no need to show at that time whether it meets them or not.
In other words, the Regional Government of Andalusia will register the property automatically in the RTA after submitting the affidavit of liability but reserves the right to inspect and fine the owner in the event that it doesn’t comply with the requirements to be registered in the RTA.
Can the Community of Owners prohibit holiday lettings?
The answer is YES. The Community of Owners, during a meeting, can prohibit holiday lettings in all properties part of the association. Herefore it is necessary to obtain a vote of 3/5 of the total number of owners representing 3/5 of the shares for this resolution to pass. However, it should be noted that for this agreement to be binding on the new owners of the property, it must be officially registered in the Property Register (Registro de la Propiedad).
Let’s imagine you’re thinking about buying a home to be used for holiday lettings in Almuñécar and, when you request an abridged property certificate, it does not show the express prohibition to use it for holiday lettings.
Even if the Community of Owners tells you that a ban has been approved for the total building, you, as the owner, are able to register your property in the RTA and let it to holidaymakers. The community cannot prohibit this use if it does not register the prohibition resolution in the Property Register prior to the issue of your property deed.
Could I pay more charges to the Community of Owners if I use the property for holiday lettings?
Once again, the answer is YES. Community of Owners can increase community charges by up to 20% for properties being used for holiday lettings. Once again, this resolution would require a majority vote of 3/5 of the total number of owners, representing 3/5 of the shares.
However, similarly to the prohibition to engage in holiday lettings, this increase cannot be retroactive and cannot be applied to homes already registered in the RTA.
Are more legal limitations and restrictions expected in the future for holiday lettings?
In large cities and towns that are very attractive to tourists, there are more and more people promoting the limitation and regulation of holiday lettings for homes, due to the nuisance they often cause resident owners.
In the city of Malaga, specifically in the historic centre, there are known problems with noise and dirtiness in some buildings, due to holiday lettings in high demand for (bachelor) parties and general leisure.
The debate in Malaga has been open for a few years and no restrictive measures have been taken so far. However, it is likely for this activity to become limited in the medium and long term since, in this part of the city of Malaga, as in other coastal areas or large cities like Granada, Seville or Cadiz, there is a certain oversaturation of housing of this type.
We should also add that the Regional Government of Andalusia is currently working on a new decree to regulate holiday lettings and it is very likely for this rule to establish further limitations on this activity.
What taxes will I have to pay for the earnings obtained from property investment in Spain?
Tax over rental investment Spain
If you are a non-tax resident in Spain but a citizen of the European Union, Norway or Iceland, you will have to declare 19% of the earnings obtained from holiday lettings in Spain to the Spanish treasury, with the ability to deduct some expenses. However, if you are non-resident in Spain and a third-country national, you will have to pay 24% of the earnings obtained from holiday lettings and you will not be able to deduct any expenses.
If you are tax resident in Spain, your earnings from holiday lettings must be declared in your Personal Income Tax, adding such earnings to your annual income. Therefore, since this is a progressive tax, the higher your returns, the more tax you’ll pay.
Tax benefit on long-term letting
Regarding long-term lets, if you are tax resident in Spain and the tenant intends to use the property as his or her main home, you should know that, under the current regulations, 60% of the net profit would be exempt from your income tax (IRPF).
However, in October 2022, the national government is seeking to approve a new Housing Law. This law, in its current form, would reduce the deduction to 50% but it could increase to 60%, 70% and 90% for various reasons, such as refurbishing the home, renting to people younger than 35 and the home being in an area with very high rent prices or when the tenant is a government entity or non-profit organization.
What other advantages can you get from holiday lettings compared to long-term letting?
The first would be the possibility for the owner to use the home during different periods, which would entail being able to enjoy it whilst obtaining an income or gains from it. The second would be that, if there is a bad tenant in a long-term letting, one that stops paying and refuses to leave the property, the legal eviction process is very slow and it is unlikely for the unpaid rent or court costs to be recovered.
At a minimum, between 6 and 9 months would pass from the time that a claim is filed in court before the tenant is evicted. It could take even longer if there are dependent children. As you may imagine, there are tenants who leave properties in deplorable condition when they know they are being kicked out on a specific date.
An additional advantage of holiday letting is that, if you want to sell your property, you have possession of the property and you can do so immediately. If there is a long-term tenant and this is his or her usual home, the law states that he or she will have 5 years to live there and can force the owner to comply with the contract for that time. Of course, unless the new buyer accepts and agrees to continue the lease.
Legal advice on property investment in Spain
In short, inform yourself and get specific advice in this process. Remember that C&D Solicitors is a legal firm specializing in providing advice to foreigners during the purchase of property in Malaga and Andalusia, with over 15 years of experience.
Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Torrox, Costa del Sol (Andalusia)
Construction on rural land Andalucia: when are you allowed to build?
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)
The newly introduced minimum tax value for real estate properties in Spain, introduced on the 1st 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 inheritanceor 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 Andalusiaand 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
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
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
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)
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