New tax value Spain (cadastre reference value)

NEW TAX VALUE IN THE PURCHASE, INHERITANCE OR GIFTING OF PROPERTY IN SPAIN

Written by Gustavo Calero Monereo on 3 February, 2022. Posted in Sin categoría.

New tax value Spain (cadastral reference value)

The newly introduced minimum tax value for real estate properties in Spain, introduced on the 1^st of January 2022, is called “cadastral reference value” or in Spanish “valor de referencia catastral”. The old system was based on the cadastral value multiplied by a factor that varied per town hall and mostly lay significantly below the real market price. On the contrary, the new tax value approaches the real market price much more realistically, because -like an official price valuation for a mortgage- it´s based on actual selling prices in the area.

The new minimum tax value can be checked online through the website of the Cadastre by the cadastral number if you have a Spanish tax number and a digital certificate. Apart from the height of the value, the main consequence of this change is that -if available- it has become the new minimum tax value to always be declared in the purchase of real estate assets or its acquisition by inheritance or gifting/donating, in case the value in the deeds would be lower.

What are the effects on the different kinds of properties?

In practice, this reference value has entailed a general increase in the old minimum tax values. For instance, in Andalusia, we’ve seen cases of value increases in some properties of over 30% after 1 January 2022.

Standard vs. luxury properties

However, this new tax value does not have a special impact on the market for luxury properties or luxury villas, for example on the Costa del Sol. We are talking about areas such as the Golden Mile, Puente Romano or Sierra Blanca in Marbella, as well as in other towns with luxury properties such as Benahavis, Benalmadena, Fuengirola or Mijas, since their current market prices are relatively high.

Rustic or rural properties

Also, this change won´t have an effect on rustic/rural properties, for the reason that these don´t have this new tax value defined. You can in the last paragraph of this article how the Spanish tax authorities treat properties without this minimum tax value.

New build declarations

For new build declarations of existing properties, for example for an extension of the house, this value applies to the AJD stamp duty tax (Actos Juridicos Documentados), which in Andalusia is lowered to 1,2% since October 2021.

New build properties

In the purchase of normal new build properties from a developer, like in off-plan projects, the construction normally isn´t inscribed yet in the cadastre and therefore can´t have this cadastre reference value either at the moment of the signing of the purchase deeds. It´s not legal for the tax office to send you an additional payment request for the AJD tax basic on a cadastre reference value published after the signing of the purchase title deed.

However, this could be the case if you buy an existing new build property that already has the value defined and is sold for a lower price. In this case, the minimum value is only used for the AJD tax, not for the 10% VAT which is always calculated over the purchase price in the deeds.

What are the practical consequences of the new fiscal value on properties?

The new reference value is the official market value of properties for tax purposes, for which reason it needs to be taken into account by taxpayers during property purchases, inheritance or gift/donation executed after 1 January 2022.

The new reference value requires taxpayers to use this value as a minimum for the payment of taxes incurred during this property transfer. Just like in the earlier system of the minimum fiscal tax value that depended on index factors of the different Town Hall, its objective is to require taxpayers to pay the tax using this value without having to initiate value-checking proceedings as there already is an approved and predetermined reference value.

Have your lawyer check the tax value in an early stage

Of course, in order to know your total acquisition costs, it´s best to have this matter checked, preferably by a specialized real estate lawyer, in an early stage to avoid potential unpleasant and expensive surprises later on in the process. To consult this information a tax number and digital certificate from the Spanish authorities are needed. A good lawyer always checks this during the process of conveyancing in Spain.

What are the main taxes affected by the new tax value?

The buyers of a second-hand home, the heirs of a property or the recipients of a donation are the most affected by the reference value when they purchase, inherit or receive a property as a gift. In these property transfers, if the reference value is greater than the purchase price or the value stated in the deed, the new owner, heir or gift recipient must pay the corresponding taxes based on this reference value.

ITP property tax

The reference value is the tax value that determines the minimum taxable amount for the Transfer Tax (ITP), which is paid by the buyer of second-hand homes in Spain. In Andalusia, this tax is currently 7% of the price or value of the property purchased.

Inheritance tax

Likewise, the reference value applies to Inheritance Tax, which is paid as a minimum by heirs of a property in Spain. In Andalusia, following several legislative changes, this tax currently enjoys large exemptions and bonuses for close family members.

Gift/donation tax

Lastly, this tax value also determines the taxable amount in property gifts, which are paid by gift recipients who receive a property during the donor’s lifetime. In Andalusia, gifts also often are subject to much-reduced taxes, depending on the relationship to the receiver.

The gift would be affected by these reference values, for which reason donor tax residents in Spain will need to take this into account in their personal income tax returns. Remember that tax residents in Spain, when they gift a property, have to declare it as a sale and pay taxes on “assumed” capital gains. This doesn’t apply to sellers who are not tax residents, and therefore do not pay income tax on property gifts in Spain.

What happens to taxes paid when selling a Spanish property?

For property sellers, whether or not they are residents in Spain for tax purposes, there are two main taxes when selling a Spanish property, which is Capital Gain Tax and municipal tax called plusvalia.

Capital Gain Tax

In terms of IRPF, the seller pays taxes on the capital gain tax obtained from the sale of the property, if any profit has been made from the transfer. In this case, if the transfer has been for consideration, i.e. subject to a price being paid, the reference tax value does not affect the seller and the tax office cannot require payment of capital gains tax based of this. The administration could only require the seller to apply a higher value if a value-verification procedure has been initiated before, but this procedure is different from cadastral reference values.

Plusvalue tax (Plusvalia)

The new tax value doesn´t have any relation to the Plusvalue tax of the Town Hall over the increased worth of the property either when it concerns a normal sale. However, in donations/gifts it does affect, so we advise you to consult your lawyer on this matter.

Is the local IBI property tax or the IRPF/IRNR income tax affected by the introduction of this new tax system?

No, neither the yearly IBI property tax of the Town Hall nor your IRPF or IRNR income tax will change as they are calculated over the cadastral value and not the new minimum tax value.

What would happen if I don’t apply the new minimal fiscal value to my purchase?

If the reference value is greater than that specified in the Deed during the purchase of a property, the buyer will receive a notification from the Tax Administration with a tax assessment. This assessment will be to pay the tax that was not paid, on the difference between the reference value and the deed value, including any interest.

Penalty procedure from the Spanish tax authorities

At the same time as this assessment notice, the Administration may start penalty procedures, as the taxpayer didn’t apply the established reference value in the appropriate tax return. The penalty would be equal to 50% of the unpaid tax and a reduction of 30% may be applied with the agreement of the taxpayer and timely payment, as established in the notice.

In the event that the reference value is greater than the actual or declared value, if taxpayers choose not to pay the tax based on the reference value, they must be willing to appeal it. Otherwise, the economic damage will be greater than if the tax had been paid based on the reference value. It is no longer advisable to wait and see what the administration does as this assessment will certainly arrive, along with a very likely financial penalty.

What if I disagree with the tax value and wish to appeal?

If you disagree with the reference value of the property, the main argument for a claim should be that it does not represent its real market value. For this purpose, it is essential to obtain an official appraisal/valuation of the property showing that the reference value is excessive and does not reflect market values. In other words, it is necessary to have an appraisal to prove an error in the reference value established by the administration.

What are the risks of an incorrect tax application?

The main risk to taxpayers making such a claim is for the value not to be upheld in this procedure and the reference value being confirmed for tax purposes. In this case, the penalty of 50% of the unpaid amount would be due in full, with no reduction possibilities, in addition to default interest over this amount, which would be higher, in particular because it would take several years for the procedure to be settled. It would be necessary to take into account the cost of an appraisal in this consideration plus the fees of the solicitor involved in this procedure.

What is the likelihood of obtaining a favorable resolution in this appeal procedure?

Since these are property values that entered into force on 1 January 2022, there is still no precedent for claims and it is not possible to know what the administrative authorities and courts will decide in these proceedings in the future.

New tax value versus the official valuation, for example in case of a mortgage

Our law firm C&D Solicitors currently has various foreign clients who have purchased properties in Marbella, Benalmadena and in Ronda, where the reference value is significantly higher than the purchase price. In one of the cases, the purchase was executed with a mortgage and it turned out that the mortgage appraisal while being higher than the purchase price, was significantly lower than the reference value of the property.

In this case, if buyers are willing to file a claim, our recommendation is to pay the Transfer Tax based on the property appraisal value, as we can understand that this is the real market value of the property (even if it is higher than the purchase price).

Advice for buyers who are willing to challenge this reference tax value is to have a property assessment (valuation) showing that the value is excessive and to pay the transfer tax based on this appraisal, attaching their Deed of Sale to it. This will not prevent the administration from requiring payment based on the reference value but it can be helpful during the subsequent appeal procedure. However, as this change is very new, the likeliness of success in an appeal procedure can´t be predicted yet and we recommend you seek advice from your lawyer in order to evaluate the costs versus potential benefits.

What happens to properties without the new tax value?

There are properties that (still) do not have this official reference value. For this reason, the value declared in the deed will be understood to be the market value of the property and, if the administration determines otherwise, it would have to start a value-verification procedure itself.

Minimum tax value for rustic or rural properties

Properties without an associated reference value include most of the rural properties, i.e. properties located in non-developable land, such as chalets, country houses, B&Bs, etc. Fortunately, this reference value does not apply to most of the purchase or inheritance of rural properties, which generate so many purchase transactions in Andalusia and the Malaga province, in places such as la Axarquía, Valle del Guadalhorce or Mijas, where they are very usual, as well as in the provinces of Cádiz and Granada.

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

SPANISH PROPERTY INVESTMENT AND THE GOLDEN VISA

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

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

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

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

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

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

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

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

What if I’m married in joint assets?

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

Can I bring other relatives with a Golden Visa?

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

What is the deadline to apply after a purchase?

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

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

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

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

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

How long is this Visa valid?

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

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

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

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

What are the other benefits does it have?

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

What other requirements are needed to obtain this document?

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

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

Can British citizens apply for a Golden Visa?

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

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

Differences between the Golden Visa and the non-lucrative visa

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

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

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

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

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

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

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

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

ANDALUSIA SUDDENLY DROPS TAXES FOR PROPERTY PURCHASES 2021

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

TAXES FOR PROPERTY PURCHASES ANDALUSIA 2021

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

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

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

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

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

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

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

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

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

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

Recommendation for saving on taxes for property purchases in Andalusia

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

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

PURCHASE OF A HOME IN SPAIN AND HOME INSURANCE: WHAT YOU NEED TO KNOW

Written by Gustavo Calero Monereo on 30 October, 2020. Posted in AFO, andalusia, Andalusian, conveyancing, DAFO, english speaking solicitor, illegal building, malaga, nerja, Property law, purchase process, SAFO, Sin categoría, solicitors Nerja.

Home Insurance, purchase, property, Spain — Home insurance of your Spanish property

Buying a home in Spain entails a great financial investment and, therefore, you’ll want to do it with the lowest possible risk. This is why it’s very important to obtain legal advice and hire a specialised lawyer to help you throughout the purchase process, so that you can enjoy legal certainty and be aware of all the relevant information about the property.

However, there is another important thing to do before signing the Purchase Deed for the property. It is advisable to have home insurance ready to prevent any risk of financial loss due to potential damages, such as theft, water damage or fire. The importance of home insurance for the owner’s peace of mind and the investment made is self-evident.

This is why we’re posting this article, to clarify some concepts for foreign homeowners in Spain, so that they can understand this very important product well. In the event that you are buying with a mortgage, the bank will advise you and recommend that you obtain home insurance as, in the event of serious damage to the mortgaged property, the bank will want to secure repayment of the money borrowed.

At the end of the article, we cover home insurance for rural homes built in Andalusia, with or without DAFO/SAFO.

What are the building and the contents in home insurance?

A home insurance policy for an existing or new build property is based on two main concepts: the building and the contents.

1) The building (continente) is made up of the construction and structural elements of a home or building, whether these are walls, ceilings, floors or installations such as heating, water or electricity, among others.

2) The contents (contenido) are made up of the belongings of the people living in the home, such as furniture, electronic devices, personal effects, clothing, jewellery, art, etc.

What would be an appropriate value for the contents?

To properly assess the contents, we recommend that you think about how much it would cost you to buy the items you have in your home, going room by room until you cover everything in it. Jewellery or cash money have specific valuation in home insurance and may be insured up to a certain limit or under certain conditions. In other words, in this case, this information must be provided to the company so that it takes it into account in the policy.

And what is the right value for the building?

If the building becomes damaged, e.g. a fire, the company will provide compensation according to the cost of rebuilding the home, i.e. the potential cost of rebuilding the home must be calculated. The resulting value of this calculation is the one that should be included in home insurance as the value of the building.

A very common way to calculate said value is the use of average estimated building values published by the Colleges of Architects. For instance:

Mr Olle Johansson, a Swedish national, purchased a new home in the city of Malaga in 2020. It’s a flat measuring 120 sq. m.Well, taking into account the average estimated building values from the College of Architects of Malaga for 2020, the value per square metre built would be 809 euros. In other words, the value of the building for 120 square metres would be 97,080 euros. If there is an underground carpark and a store, these should also be appraised separately from the home, so that the policy covers them. Another example: Mr Jan Van Poppel, a Dutch national, will purchase a home in the countryside, in the Mijas area (rural land), which has: 200 built square metres plus 30 square metres for a pool. The value per square metre for an isolated home in the countryside is 984 euros and the value of the pool would be 445 euros per square metre. Therefore, the value of the building would be about 210,150 euros.

Valuing the building at the purchase price

When we buy a home and obtain home insurance, we often think about setting a value for home insurance as close as possible to the purchase price paid for the property. However, this reasoning is misleading as it should be taken into account that the land where the home is located is not covered by home insurance, as the land always remains intact. In the event of serious damage, if you already own the land, you only need to insure the cost of rebuilding the home. However, the value of this land is what makes up most of the purchase price of a home in most urban sales. For instance, buying a home in the golden mile in Marbella, in central Malaga or on the beachfront in Nerja entails a high cost due to the location (land) of the property, rather than for the value of the building itself.

Rebuilding is much cheaper than buying when you already own the land. Therefore, the most important thing is to insure the real reconstruction value in the event of serious damage. This is about assigning the actual value to the building of your property. You also need to take into account that, when you own a home in a block of flats, if there is serious damage affecting the building, the community insurance will cover part of the damages affecting only the common elements of the building. The façade, roof, terraces, etc., are elements that would be covered by the insurance of the Homeowner’s Association in the event of a fire. In other words, if you are buying a flat or apartment, you’ll need to insure the building. This is why, in these cases, you should calculate the reconstruction value of your building for insurance purposes. If you provide a value above the reconstruction value, this would lead to so-called over-insurance in your home insurance and, if you provide a lower value, it would lead to under-insurance.

What would happen in the case of over-insurance in the policy?

Imagine a home in a building measuring 100 square meters, with a building value of 300,000 euros because this was the price paid when it was bought. If there is a serious accident requiring the reconstruction of the home, the company will never pay more than the reconstruction value, which would in general be around 80,000 – 90,000 euros. In this case, the owner would be paying a very high premium every year for the insurance policy needlessly, as the company will only honour claims up to the reconstruction cost of the home. In extreme cases, the company could even interpret that there has been bad faith when obtaining the insurance policy and this could be a major issue, as it could declare the policy void and refuse to pay the amounts that should be paid in the event of damages.

What happens in case of under-insurance?

In the event that the building or content is valued below the actual value of the building or furniture, the company will not cover 100% of the damages, even if the amount of the claim is lower than the value of the insurance policy. For instance, if the actual value of reconstruction of the building is 100,000 euros and the policy contains a building value of 60,000 euros, the home would only be insured at 60%. Someone might think in this case that any damages equal to or lower than 60,000 euros would be covered by the policy but in reality that’s not the case. For instance, in the event of a small fire with damages valued at 10,000 euros, the company would interpret that 40% of the claim is not covered by the policy as only 60% of the building value of the home is insured. Therefore, it will only pay 6,000 euros as compensation, always applying the rule of proportionality to every claim.

Special insurance: luxury homes

If you own a luxury home or you are thinking about buying a luxury home, the estimated cost of reconstruction or replacement based on the coefficients of the colleges of architects would surely not be a valid calculation method for homes of this type. The key to insure the building in homes of this type is to calculate the reconstruction value of the property with objective parameters. I.e. if the home has very high quality finishes in terms of automation, insulation, aluminium or timber structures, flooring, taps, toilets, air conditioning, etc., this must be taken into account and, in this case, these values should be added to the building insurance. As mentioned, the value of the building must be as accurate an estimate as possible of what it would cost to rebuild the home to the same standards. In this case, it’s very important to inform the company of the “peculiarities” of this home so that it has as much information as possible and to accredit the reason behind the value of building insurance being above the average reconstruction values in the area. Keeping all purchase invoices and proof of purchase for high-value furniture is very important to prove the estimated cost.

What is the insurance compensation consortium?

All persons who have an insurance policy in Spain, whatever the type, pay a small part of the price to the consortium. The consortium is a public business entity that covers accidents such as flooding, terrorism, atypical cyclones, large fires or other risks set down in the “extraordinary risk insurance regulations”, which are not covered by insurance policies, with damages of this type being expressly excluded from insurance covers. When damages of this type occur, as the insurance company does not cover them, the consortium acts as guarantor to compensate policyholders and keep them protected in these situations.

Rural homes and the building value in home insurance

First of all, we should remember the legal premise that most existing rural homes (rustic / countryside) in Andalusia, which are used for residential purposes, are illegal and, therefore, in the event of the destruction and total loss of the home, such as due to fire, earthquakes, serious flooding, etc., they cannot be rebuilt. This is because the Urban Planning Law of Andalusia (LOUA) does not allow for issuing a building permit on rural land for a residential home. The existence and continuity of those thousands of illegal homes on rural land are based on their age. Therefore, in the case of destruction or total loss, there would no longer be an old home and it would not be possible to obtain a permit to build a new house or rebuild the one that was there.

The above explanation means that the value of the building in home insurance for these homes can be estimated, as mentioned above, at around 984 euros per square metre built in Malaga. As the value is based on what it would cost to rebuild the home and the rural home cannot be legally rebuilt in the event of total loss, what situation would we be in? In the event of total loss, if we have a country home with a surface area of 150 square metres and the building is valued at 150,000 euros, the company would pay that amount as compensation for the building, along with the amount corresponding to its contents. In this case, the owner would receive compensation for the home in addition to the value of land where nothing can be built. This is why the value of the land in a rural home is very low compared to the construction value, especially when compared to an urban home on land where it is legal to rebuild it.

Tips for a safe and well insured home

When obtaining home insurance and purchasing your property, think carefully about the value of the building and contents and don’t forget to include stores, parking spaces, pools, etc. If you have any doubts about the insurance value, talk to the insurance company itself. It’s important for the company to help you clear up any doubts when assessing your insurance value.

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

FIRST OCCUPATION LICENCE (LPO) IN ANDALUSIA REPLACED BY RESPONSIBILITY DECLARATION

Written by Gustavo Calero Monereo on 20 May, 2020. Posted in andalusia, Andalusian, conveyancing, costa del sol, english speaking solicitor, malaga, new construction, Occupation licence, RTA, Sin categoría.

First Occupation License in Andalusia (LPO) and the RTA rental licenses — First Occupation Licence in Andalusia (LPO) and the RTA rental licences

Big news for Andalusian house owners that don´t have their First Occupation Licence (LPO) yet which is obliged to present when applying for the RTA rental licence of the Registro de Turismo de Andalucia. This was a problem because many houses don´t have this licence as it wasn´t a standard requirement for new build houses until the eighties.

On March 12, the Andalusian Government published in its Official bulletin (BOJA) a Law Decree which has as its main purpose to simplify the regulation of some procedures in Andalusia. This regulation has affected a multitude of procedures and among these the new article 169 bis of the Urban Planning Law of Andalusia (LOUA) of 2002 was approved, which affects the First Occupation Licence (Licencia de Primera Ocupacion or LPO in Spanish).

Likewise, article 169.3 of the LOUA has been modified with a second paragraph that establishes that those acts that are subject to a responsibility declaration do not require a licence. As a general statement, we can say that the new decree allows obtaining the right to occupy or use the majority of buildings located on consolidated urban land throughout Andalusia, by submitting the responsibility declaration together with the required legal documentation by the interested party.

In other words, it will no longer be necessary for these buildings to obtain the First Occupation Licence (LPO) from the city council since the new ´Declaration of occupation or use´ replaces the Occupation Licence. The responsibility declaration of occupation grants the owner the same rights that the First Occupation Licence granted from the day of its presentation.

What is a “responsibility declaration”?

The responsibility declaration is a document signed by the interested party in which he declares that he meets a series of requirements according to specific regulations and therefore allows him to acquire a right. From the date of presentation (also by a certified architect) the right that is intended to the interested party is recognized, so from the legal point of view it is equal and replaces the earlier First Occupation Licence (LPO) granted by the City Council.

This type of procedure is becoming more common in the Spanish administration. This is because from the presentation of said responsibility declaration the right is recognized and, therefore, it is possible to avoid the waiting time and delay of the administration which in the case of the First Occupation Licence was months.

Which buildings can present a responsibility declaration for their right of occupation?

Article 169 bis commented above, establishes in its section c that it can be obtained by responsibility declaration “the occupation or use of the works of the previous section, provided that the buildings and facilities are finished and their destination is in accordance with the regulations of application”. These works in section b) of article 169, whose occupancy rights would be obtained by means of a responsibility declaration, are: “Works in existing buildings and facilities, on consolidated urban land and in accordance with urban planning, that do not alter the occupation and height parameters, nor involve increases in buildability or the number of homes ”.

Therefore, in section c, existing buildings that have never had a First Occupation Licence are enabled so that they now can obtain their right of occupation, by filing a responsibility declaration. Section d includes the possibility of obtaining the first occupation or use, through a responsibility declaration for new buildings: “d) The first occupation and use of new buildings, provided they are finished and their destination is in accordance with the application regulations and with the works licence granted”.

It is important to say that this change does not affect dwellings on undeveloped land, rustic dwellings, since they cannot obtain the First Occupation Licence as they officially are not part of the urban planning.

What obligations does the responsibility declaration establish?

The interested party who signs a responsibility declaration to acquire the right to occupy a property is responsible for the fulfilment of the established requirements to be able to enjoy said right. Along with the aforementioned declaration, he must present the required technical and legal documentation that certifies compliance with the requirements. Likewise, it will undertake to maintain compliance with said requirements once the declaration is presented.

Therefore, it is evident that responsibility declarations for the occupation or use of a building should not be presented when the requirements demanded by the norm for their presentation are not complied with. It must previously be analysed whether the house in question can obtain this right. It should not be forgotten that the presentation of the responsible declaration supposes assuming a legal responsibility. Presenting said declaration with falsification of the data or documents provided or not attaching all the required legal documentation may suppose legal responsibility for the interested party by the administration.

How does this regulatory change affect tourist rental in Andalusia?

This regulatory change is evident that it will allow many homes, which up to this date do not have a First Occupation Licence for various reasons but still complied with the requirements. These can now obtain this legal recognition with the presentation of the responsibility declaration and required documentation. Since the Andalusian Government legislated tourist homes and forced their registration in the Andalusian Tourism Registry (RTA), requiring the First Occupation Licence, there are many homeowners in Andalusia: Malaga, Costa del Sol or Costa Tropical for example, who have applied for such a licence for their homes. Due to the slowness of the municipalities in granting the First Occupation Licences, many of the owners that have applied for said licence are still waiting for this to be resolved.

Many owners from towns such as Nerja, Málaga, Marbella, Vélez-Málaga, Benalmádena, Fuengirola, Almuñécar, Torrox … etc, and many other municipalities on the Costa del Sol and Costa Tropical will now be able to obtain their right of occupation through a responsibility declaration and hence comply with the requirement of the LPO. This way they can carry out the registration of their home in the RTA for the tourist rental of the property.

There are more than a few foreign clients of our office who have spent months or years “fighting” with their City Council to obtain their First Occupation Licence and now they will be able to obtain said right with the responsibility declaration, easily and quickly. Of course, for these homes, this regulatory change has meant a very important and positive change since one of the main attractions for a foreigner who wants to buy a property in Andalusia is its profitability through tourist rental. With the current crisis of the coronavirus COVID-19, these types of changes help the economic activity.

How does this change affect the sale of second-hand properties?

Most of property purchases by foreigners in Andalusia are existing homes and some of these do not currently have an LPO. It is evident that the responsibility declaration will, from now on, facilitate the process of obtaining the right to occupy a property. This due to the fact that it is understood that the right of occupation or use has been acquired since the presentation of the responsible declaration. Well, from the buyer’s point of view it is very important that, when buying on urban land, carefully check whether the property can obtain said right of occupation or not if the occupancy rights have been acquired by the seller through the presentation of the responsibility declaration.

The potential buyer must request a copy of the technical documentation presented together with the declaration from the seller, so that his lawyer and / or architect can review it and confirm that said property meets the requirements to obtain the right of occupation or use. If the future buyer does not make this verification, there is a risk that the seller of the property, in order to make it appear that his home has the right of occupancy, presents or is going to present the responsibility declaration despite the fact that the property cannot obtain said right for not complying with the requirements.

In this scenario, the buyer and new owner of the property may encounter a problem. Obviously, the seller could be held responsible for this situation but in most cases of foreign sales, the sellers are non-resident, it would be expensive and complicated to initiate legal proceedings. Always check with your lawyer about the situation of the property you are going to buy.

What happens with new construction promotions?

As we have previously mentioned, also for this type of housing it is possible for the developer to obtain what was previously the First Occupation Licence (LPO), through the declaration of occupation or use. The Urban Planning Law of Andalusia (LOUA) with this regulatory change, establishes that an occupancy licence for new homes is not required in Andalusia, it is possible to present the responsibility declaration of occupation.

In other words, even if the developer wanted to he or she could no longer obtain the LPO from the City Council as a result of this regulatory change. This means that, even if it is stated in the signed private purchase contract that the developer is required to obtain the LPO it would now be sufficient for the developer with the responsibility declaration as it would prove that the new house has the right of first occupation. The promoter by means of the declaration fulfils the private contract of sale.

What happens if the developer has improperly filed the statement?

The City Councils have an obligation to review whether or not the responsible statement meets the requirements to obtain the right of occupation or use, and may declare the cessation of occupation in the event that the requirements are not met and may also demand legal responsibility from the promoter for said actions.

If within the first six months from the presentation of the declaration, the City Council has not adopted the necessary measures for the cessation of the act or use, in the event that the requirements for that occupation are not met, the City Council would be liable for damages caused to third parties in good faith. In other words, the City Councils would answer to the people who bought these homes with the conviction that the sale could be carried out, since these the day they signed the Deed of Sale, they had the declaration responsible for the promoter of occupation or use (former LPO) .

The foregoing gives leaves us to understand that if the Town Hall reviews said declaration in those first six months and understands that the cessation of the occupation must be decreed, the developer would be responsible for the damages to the buyers. However, I understand that in most cases there should be no damage to the buyers, since the optional management of the works (mainly architects and surveyors) will ensure that their final works certificate is in accordance with the law since they would be the main responsible along with the promoter if this was not the case. The final works certificate is the most important technical document to obtain the right of occupation in a new home.

Can the declaration of occupation or use be presented in all Town Halls?

It is true that to this date few municipalities have approved specific procedures for this process such as Malaga, Marbella, Seville or Córdoba. The Andalusian Government has published a practical guide to this decree, along with the models for the responsibility declaration and the necessary documentation, so that the Town Councils can use it. In our opinion, such models can also be used by citizens since the right of occupation can only be obtained through a responsibility declaration, and not through a licence granted by the City Councils as of March 13th 2020.

It is true that since most of the municipalities have not approved this new procedure through their municipal ordinance, it is likely that they do not agree with obtaining said right of occupation by presenting the responsibility declaration, unless that City Council has previously approved that specific procedure.

Notwithstanding this Decree in the tenth transitory provision, allows those interested who prior to March 13 have initiated a procedure to obtain a first occupation license, can request the application of this new procedure and therefore may obtain the right of occupation through the responsibility declaration.

If the new regulation provides for the possibility of changing the procedure already initiated, we understand that since it entered into force it allows obtaining the right of occupation by means of a responsibility declarations, even though the City Council has not published its municipal ordinance.

Can supplies be contracted with this responsibility statement instead of the LPO?

The answer is categorically YES. Although it is very likely that it will be necessary to explain and discuss, at least during these first months since probably several of the supply companies for electricity and water will not have obtained this information or guidelines of said legal modification and will continue to demand the LPO. As you can understand, the best thing to do if you are an owner is to consult with your lawyer or architect about the specific situation of your property.

Of course, if you are in the process of buying a home or thinking about it, it is very important to contact a specialized lawyer who can advise you in the process of buying and selling the property and who knows these urban issues well.

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

purchase, property, coronavirus, private contract

Purchase contracts in Spain and the COVID-19 Corona crisis

Written by Gustavo Calero Monereo on 23 April, 2020. Posted in Andalusian, conveyancing, coronavirus, costa del sol, english speaking solicitor, judgment, lawyer, legal advice, malaga, mortgages, nerja, Property law, purchase process, Sin categoría, solicitor, torrox.

Purchase or sales contract during COVID / Corona crisis

It is clear that the healthcare crisis caused by the Coronavirus (COVID-19) has had a huge impact on all areas of our daily lives. The state of alarm decreed by the Spanish government, as well as many other governments in foreign countries, has caused movement restrictions and limitations, the closure of the airspace, the paralysis of the business fabric and government agencies, etc. People’s everyday lives have been severely affected from a social and economic standpoint.

With this article, we would like to respond, as much as possible, to the doubts and uncertainties of foreign clients buying homes in Spain, as well as their sellers. We are referring to sales between individuals that were already underway with signed contracts but which were ‘surprised’ by the COVID-19 crisis and the measures adopted by the Spanish government decreeing the state of alarm.

At the end of the article, we will comment briefly on the legal situation of sales of new homes or off-plan sales from developers.

What does Spanish law say on the fulfilment of purchase contracts?

The first thing that must be said emphatically is that, under Spanish law, the clauses agreed in a contract have the force of law and, therefore, the parties are required to fulfil them. In other words, the impossibility of fulfilling what has been agreed in a contract is an exception and is interpreted very restrictively.

The Spanish Supreme Court, when dealing with potential breaches of contract and to avoid the loss of the money paid, has established that the party in breach has to evidence and argue the reasons behind said breach, as well as prove that it did everything possible to perform the contract.

However, even after establishing the impossibility of complying with the contract, if it is possible to amend or adapt it so it can be fulfilled, the parties must seek to modify the contract in that way, to solve the problem arising from the situation caused by the state of alarm and the COVID-19 Corona crisis. In other words, when faced with the potential avoidance of the contract by one of the parties, they must always attempt to reach an agreement to fulfil it.

Which property sales could be affected by the state of alarm?

In my opinion, the conveyance contracts that may be affected are those that required either of the parties to fulfil a requirement or condition agreed in the contract before the execution of the public deed of sale and that condition is affected by these months of paralysis.

Due to the paralysation of activities and movement limitations, it is very possible that some of the requirements established in a conveyance contract cannot be fulfilled, as the estimated time to process or manage these were calculated based on a normal situation, which has not existed since 13 March. As an example, we can mention the following:

Purchase contracts in the state of alarm:

For the conveyance contract to establish the condition of being granted a building permit or the record for legalisation of a home, such as DAFO in rural homes in Andalusia. As city halls are paralysed or working at minimum levels, it is very possible for these applications not to be processed until the state of alarm is brought to an end.
For the condition to be obtaining a Spanish mortgage. If the appraiser cannot travel to visit the property or the bank’s risk department is not operating, this process will be paralysed, making the average resolution time much longer than initially expected.
For the date of signing the conveyance contract and recording it as a public deed to coincide with the period of the state of alarm and/or the restrictions on commercial flights, making it impossible for either of the parties to attend the notary office.
The impossibility to obtain an NIE (foreigner’s identification number.), which is necessary to sign a conveyance contract before a notary and pay the corresponding taxes. The processing of these documents is currently suspended. The national police stations in Malaga that we asked don’t know when they’ll be able to open to accept new NIE applications.
Either of the parties being admitted into hospital or in quarantine.

What should the seller and buyer do in this situation?

Well, the first thing is to see if the private contract contains any clause that governs these situations since, as I’ve mentioned, the sales or purchase contract has the force of law and binds the parties. However, in conveyance processes where the deed cannot be signed for reasons arising from the coronavirus crisis, what both parties should do would be to amend the contract and extend it, to give time to the party that needs it in order to complete the sale. In most situations, it is only a matter of time for that circumstance or condition that is currently impossible to fulfil to be fulfilled later on.

Likewise, in the event of inflexibility and the refusal of either of the parties to grant such an extension to the conveyance contract, in most cases there would be no legal grounds to terminate the contract and/or claim damages. As mentioned above, the parties must always attempt to reach an agreement to comply with the contract.

Is it possible for the buyer to terminate the contract due to the COVID-19 crisis?

Withdrawing from a conveyance contract due to a sudden drop in house prices and in the face of an economic crisis is a complex issue. In this case, we are referring to the buyer having to accredit meeting one of the requirements established in case law for terminating purchase contracts, this being that there has been an extraordinary change in the circumstances leading to the execution of said contract.

In other words, the buyer would have to evidence that the current economic crisis, resulting in a deep and prolonged economic recession, could be openly considered an economic phenomenon able to generate a severe disruption or change in the circumstances leading to the execution of said contract.

In Spain, the courts have been rejecting the possibility to terminate a sales or purchase contract based on this circumstance. However, this possibility should not be ruled out and individual factors should be analysed, such as whether the home will be a primary home or a holiday home, if the buyer was in need of mortgage financing, if the financial situation of the buyer has changed significantly, etc.

What is the buyer’s situation in the sales process?

With this question, what we want to address is the situation of a buyer who made a decision to purchase a home at a specific price a few months ago, based on an economic situation that is in no way similar to the current one.

Let’s imagine Dutch, Belgian, English, Swedish or other foreign people who wanted to invest in property in Malaga or the Costa del Sol, either to obtain a profit or to let it. Clearly, the sales price they agreed was based on the value of that property under the earlier economic situation. For instance, let’s imagine a home in the historic centre of Málaga or Nerja, highly sought-after areas with tourist attractions before COVID-19, with great possibilities for letting in the tourist market, which is currently suspended.

Well, as a buyer, in the event that continuing with the purchase of the property would lead to incurring significant levels of debt, the first thing to do would be to analyse two things:

The amount of money paid to the seller (usually 10% of the purchase price). Whether the buyer is willing to lose that money, essentially due to thinking that it is better to lose the money and not buy the property.
The content of the purchase contract clauses agreed in terms of what happens when the buyer breaches the purchase contract. This is an important issue because a breach of contract could lead to different legal situations. The usual process is to execute an earnest money contract, which entails losing the money paid to the seller, leading to the termination of the contract, this being the clause that our firm usually agrees in conveyance contracts. However, if this is not properly drafted in the contract, it is possible for the seller to be entitled to require the buyer to comply with the purchase contract and sign the public deed, even if the buyer agreed to lose the earlier money paid. Obviously, this claim from the buyer would have to be addressed in judicial proceedings, which would take years before the parties get a resolution and usually sellers settle for keeping the money paid as a deposit.

What is the seller’s situation in the selling process?

For sellers, they are most likely the most interested in completing the sale of the home as, certainly, the price set in the sales / purchase contract signed before COVID-19 will be higher than what they can obtain in the short or medium term. Without a doubt, the current situation will lead to a general drop in house prices, even though no one knows how long this will last.

That said, it is possible for sellers who already have a signed contract and who see that buyers are hesitating to complete the conveyance to be interested in making it easier for buyers to complete the purchase. In other words, in this context, negotiating a lower price so that the seller can sell doesn’t seem far-fetched. In the end, the price drop would depend on whether it is very important for the seller to sell right now or they can wait, or whether the money already paid by the buyer is enough compensation for the seller to agree to keep that amount as a penalty instead of negotiating.

What is the situation when purchasing new builds or off-plan homes?

In sales of this type, in terms of the performance of the contract by the buyer, the situation is the same as explained above, in terms of both compliance with the contract and its termination clauses. In my opinion, the buyer’s potential doubts would be determined by the progress of the works and the expected completion date of the development, also thinking about the financial solvency of the developer.

If the buyer signed the sales contract over one year ago, when the market was experiencing a good time and prices were rising, it is very likely for the price agreed at that time to be lower than what they could find at the beginning of this year, for instance. On the other hand, if the works are close to completion, there would be little doubt as to whether the developer will complete them, as they would be almost completely sold and few buyers would be thinking about terminating the purchase contract, since they would have already made significant payments on account for their homes. In this case, the scenario for the buyer is safe.

In the case of developments where construction has not yet started but which were already being marketed, with expected completion likely coming in a year or two, the scenario is different. In this case, buyers who are in doubt and recently signed the private contract must assess the price of the property and its completion date, as well as find out the number of homes with signed contracts sold by the developer, in order to make a decision. However, if the private contract has not yet been signed and only a reservation had been agreed with the developer, they can withdraw from it and recover the amount paid. They can also wait longer, as developers are likely to lower prices, depending on how long the crisis lasts.

In terms of the solvency of developers, due to the obligation to guarantee all the amounts paid during construction once the private contract has been signed, the buyer would have complete legal certainty in the event that the developer is unable to complete construction. This situation is in no way similar to the 2008 crisis, where many buyers lost their payments on account.

Individual review situation purchase contracts

However, these sales processes starting prior to the COVID-19 crisis can lead to complex situations that should be analysed individually and always with the advice of a lawyer. This is not the time to make decisions without the appropriate legal knowledge, taking into account that a private conveyance contract has already been singed. Rushing is never a good idea.

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

Changes in our office due to the coronavirus

Written by Ariane van Wijk on 16 March, 2020. Posted in Sin categoría.

Dear clients and contacts,

Due to the exceptional situation caused by the coronavirus, we inform you that we at C&D Solicitors will continue to attend to all matters of our clients in the coming weeks. You can reach us preferably by email as we´ll only be working in shifts from the office and the rest of the time online from home. Do you have urgent matters for which you would like to come to the office? Please just contact us first.

As most of our projects like purchases or sales take several months to complete, we think that a lot of these will be affected too much by the current situation. However, certain public services of the Spanish authorities will be limited for public. This applies especially to the signings of deeds or Power of Attorneys at the notary, to the application of the fiscal NIE documents and to certain administrative consultations like in the Town Halls. We will inform you individually if these apply in your project.

Deadlines from the government as payments of taxes or fines, administrative or legal deadlines, etc. are by law suspended while the state of alarm lasts. If you have any doubt about the deadline of a private agreement, please let us know.

C&D wants to cooperate and collaborate with the measures taken by the Spanish state to avoid putting at risk the health of our colleagues, clients, friends and family. Thank you for your understanding and we wish you all good health!

Best regards of the team of C&D Solicitors

saving for non-EU citizens in the spanish inheritance tax

INHERITANCE TAX NOW ALSO THE SAME FOR EU- AND NON-EU CITIZENS

Written by Gustavo Calero Monereo on 21 March, 2019. Posted in Andalusian, costa del sol, english speaking solicitor, heir, Inheritance Tax, judgment, lawyer, legal advice, NON RESIDENT, Sin categoría, wills.

As we stated in our post in February 2015, on 01/01/2015, the regulations governing Inheritance Tax were amended, EU citizens began paying the same Inheritance Tax as citizens resident in Spain. From that time EU citizens were able to pay tax in accordance with the regulations of the Autonomous Community where the assets are located. Remember that these regulations are much more beneficial than national regulations on Inheritance Tax, which were applied to EU citizens until that date. This amendment left non-EU citizens out, which were required to continue paying tax according to national regulations.

Supreme Court rules in favour of Non-EU members

However, two judgments of the Supreme Court, in February and March 2018, referring to residents in non-EU countries such as Canada or Switzerland, determined that there would be discrimination contrary to the free movement of capital if non-EU citizens were not allowed to opt for regional regulations in the same manner as EU citizens. Therefore, these non-EU citizens should also be treated in the same manner as EU citizens in terms of Inheritance and Donations Tax, also being eligible to receive regional tax benefits.

We should add that the free movement of capital is enshrined in article 63 of the Treaty on the Functioning of the European Union, which prohibits all restrictions on the movement of capital between Member States and between Member States and third countries, making the limitations for non-EU citizens in terms of Inheritance Tax contrary to the regulations of the European Union.

Since September 2018, the Spanish Tax Agency decided to comply with these rulings and started accepting settlements of Inheritance Tax for non-EU citizens, applying the regulations of the relevant autonomous community to these.

Benefits of tax calculations by Autonomous Communities

This change in tax criteria represents significant savings in terms of inheritance for non-EU citizens, as it should be noted that, in most Autonomous Communities in Spain -including Andalusia-, a widowed spouse, children and descendants, such as grandchildren, barely pay any Inheritance Tax, as they are eligible for significant bonuses. These bonuses in Andalusia were explained in detail in our article from January 2018.

Possibility to reclaim tax until four years back

Suffice it to say that this tax change opens the door to claims from non-EU heirs who have paid Inheritance and Donations Tax over the last few years, if a comparison between national and regional regulations were to show that they paid much more than an EU citizen would have. This claim may be filed provided that the right to claim has not been time-barred, the deadline being established at four years after the payment was made.

Brexit and British citizens

As a last note, considering the consequences of Brexit for British citizens with properties and assets in Spain, fortunately, even if they remain outside the European Union and would be considered non-EU citizens, they would be able to continue to benefit from bonuses and discounts in Inheritance and Donations Tax in the same manner as before.

It should be noted that there are many British homeowners and buyers with properties in Spain and, at least, their heirs will not be harmed in terms of taxes payable in a future inheritance procedure.

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

less taxes when you buy a property in Spain

Less AJD tax in co-ownership termination property and potential claims for Spanish Tax Office

Written by Gustavo Calero Monereo on 1 February, 2019. Posted in conveyancing, judgment, lawyer, legal advice, malaga, purchase process, Sin categoría, solicitor, taxes.

It’s usual when couples break up and they own a property at 50% -or in properties belonging to several heirs- that for various reasons one of the joint owners would want to sell his or her share and the other one would want keep the entire property. Said sale or purchase can be made effective through executing a Deed of co-ownership termination (Extincion de Condominio).

Over these deeds 1.5% AJD Tax (Actos Juridicos Documentados / Stamp Duty) is paid instead of the normal 8% ITP / Transfer Tax. There now is an important change that even lowers this AJD tax and makes it possible to claim back money from the Spanish Tax Office.

What is the Extincion of Condominio and what are its benefits?

It’s usual when couples break up and they own a property at 50% -or in properties belonging to several heirs- that for various reasons one of the joint owners would want to sell his or her share and the other one would want keep the entire property. Said sale or purchase can be made effective through executing a Deed of co-ownership termination (Extincion de Condominio). Co-ownership termination consists in transferring something that belongs to several owners, who agree to award it/sell it to one of them, with the other joint owner/buyer paying a price for acquiring the share that belonged to the others.Termination entails the end of joint ownership and this asset becomes the property of a single individual but it’s only applicable to properties belonging to several owners, if they decide to sell everything to one of them. It wouldn’t apply if the sale of this share goes to more than one owner, e.g. if there are three joint owners and two of them keep the other one’s share.

Termination of co-ownership offers one main advantage over a sale: the tax paid by the buyer to acquire this share of the property is significantly lower. While in Andalusia the tax on asset transfers for the purchase of a home is 8%, the tax paid for termination of co-ownership is 1.5%, as Stamp Duty (AJD Actos Juridicos Documentados). In other words, to benefit from the tax rate for co-ownership termination, there can only be one owner of the property in the end as, otherwise, this would be considered a normal sale and be taxed at 8% ITP Transfer Tax.

Examples

% ITP tax

3 Couples have a joint property. 1 Couple sells their 33,33% on a 50-50 base to the other 2 couples. Both remaining couples pay 8% over their bought share because the property stays in co-ownership.
2 Couples have a property and 1 couple sells to the other couple that is married in separation of goods. They pay 8% ITP tax because the tax office sees this married couple as 2 parties.
3 Brothers inherit a property and 1 sells his part to 1 brother that then owns 66,66%. The buyer pays 8% ITP because there still is a co-ownership of the property.

1.5% AJD tax

A married couple gets divorced or 2 non-registered partners end their relationship. One sells to the other, so there is no co-ownership anymore and the remaining owner pays 1.5% AJD over the bought 50% of the property.
2 Couples have a property and 1 couple sells to the other couple that is married in joint assets. They pay 1,5% AJD tax because the tax office sees them as 1 party.
3 Brothers inherit a property and 2 sell their part to 1 brother that then owns 100%. The buyer pays 1.5% AJD over the bought share of 66,66% because there still is no co-ownership anymore.

The owner/buyer now pays less tax

Since 9 October 2018, thanks to a Judgment of the Spanish Supreme Court, the tax cost assessed for termination of co-ownership has been significantly reduced. Up to that date –incomprehensibly– the tax of 1.5% was paid on the entire value of the property, even if, for instance, the share transferred was just 50% of the property. However, with this judgment, a new approach is established, in which tax will only be paid according to the value of the share effectively being transferred, i.e. only on the price to be paid to the seller, thereby avoiding the extra cost that this type of transfer entailed when tax was paid for 100% of the property value, even if the share acquired was just 30%.

Possibility to claim previous payments AJD tax

Likewise, this change in taxation through the aforementioned judgment can have positive consequences on Deeds of Co-Ownership Termination executed within the last four years. Owners who were already joint owners of a property and acquired the rest by paying the price and paying 1.5% tax on the total property value can file a refund claim for undue payments before the corresponding Tax Office. The tax office of the Andalusia Council is the oficina liquidadora.

They can claim a refund of the 1.5% paid for the share of the property they did not acquire, as they already owned that share. If they purchased 30% of the property two years ago and had to pay 1.5% of the total property value, they can claim a refund of the 1.5% paid for the 70% of the property they already owned when they purchased the remaining 30%.

Important: You can only claim back any tax paid within the four years prior to the date of filing the claim for undue payments, as this is the maximum time period to file a claim in accordance with Spanish tax law. I.e. the submission date of the claim cannot be later than four years after the due date of this tax, which is 30 days after the execution of the Deed of Co-Ownership Termination.

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

DAFO UPDATE: OBLIGATIONS, INSIDE REFORMS, MORTGAGES & RTA/VTAR RENTAL LICENSES

Written by Gustavo Calero Monereo on 1 November, 2018. Posted in AFO, Andalucia, Andalusian, assimilated out of ordination, banks, building permit, conveyancing, english speaking solicitor, illegal building, legal advice, mortgages, Sin categoría.

New information on the DAFO certificate: in June 2017, we posted an extensive article on the legal situation and the legalisation of homes in non-urban land in Andalusia –DAFO / AFO–, outlining our opinion about positive and negative aspects of this legal precept. Almost a year and a half after this article, we would like to use this post to provide new information to owners and buyers of homes on non-urban land.

This information, which we believe may be useful, does not represent a fundamental change from what has already been stated, as there have been no legislative changes to the DAFO during this year and a half. This information, however, is based on our experience with different Councils in the province of Malaga and the approach they have been using for DAFO, as well as the questions we have seen among our clients.

Are Councils required to issue a DAFO/AFO?

Nowadays, we have found that a growing number of Councils, whenever there is any notification relating to a rural home, automatically open a file and start proceedings to start the DAFO process. This could be for example for the notification of:

Sale of a home
RTA (VTAR / Vivienda Rural) rental registration
Opening License Casa Rural / B&B
Registration of a property in the Land Registry
Applying for an urban certificate (for example for a purchase)
Change of account holder of the water supply

In other words, a growing number of Councils have been taking advantage of any information or request related to a property located on non-urban land to demand owners to start the DAFO process and legalise the rural homes built in the municipality. That said, if you wish to rent your property seasonally and you intend to register your home in the RTA -Andalusian Tourism Registry-, or you would like to register a pool or storage in the Property Registry, we recommend that you first analyse whether your home could obtain a DAFO.

As we have explained on many occasions, the DAFO is a procedure created to regularise homes on non-urban land that have been built illegally –most of them–, over which legal liability can no longer be claimed due to the passage of time. When the Council issues the first notification, it does not really require the owner directly to start the DAFO process. This first notification is about “telling” the owner to submit evidence whether the home complies with the legal requirements to be eligible for DAFO. This means that, if it does not comply with these, it is very likely that this is because there is some illegal situation in the building. This issue may still be subject to penalties from the Council and, in this case, the Council must open a sanctioning procedure against this unlawful situation, with the legal consequences you can imagine.

It is for these reasons that it is very important that, before you do anything or apply for anything at the Council that may entail the opening of a file against the property, you confirm that the home is eligible for DAFO and whether there is any building or work that may give rise to penalty proceedings. In this case, it is best to do nothing until enough time has passed. This in normal countryside is 6 years. Likewise, if you are thinking of buying a rural property, you must know that, when the Public Deed of Sale is executed and submitted to the Property Registry, the Council will receive a notification of this transfer and may later require you to legalise the home through a DAFO process.

Can I carry out internal refurbishments and renewal works through DAFO?

In accordance with Decree 2/2012, which governs DAFO, in this type of buildings “… only repair and preservation works required by the strict maintenance of the safety, habitability and sanitation of the building may be authorised”. Having said this, it is obvious that the works that may be carried out in properties of this type are limited and must be very clearly justified, always thinking about preservation and maintenance and never on improvements or additions, as renewal works as such are not possible. Since all rules are subject to interpretation, it is possible for some Councils to authorise certain types of refurbishment works that others do not. For this reason it is best to inquire at the Council to see if you could get planning permission before the work begins.

However, having said this, the desired internal refurbishments must always be justified from a point of view of habitability and necessity in terms of health and safety in the building, such as:

the opening of windows,
replacement of the roof,
replacement of floors,
substitution of sanitation equipment,
extension of the surface of a room that may be considered too small (without increasing building surface), etc.

The important thing is to evidence the need to carry out such works. Most likely, for the council to issue planning permission, it will be necessary to have completed or applied for the DAFO. Along with the technical project from an architect for the DAFO, the need to carry out such works should be justified due to the safety, habitability or sanitation of the home, applying for the corresponding licence. It will be very difficult to obtain permission without having completed the DAFO process.

If the home you intend to purchase already has a DAFO certificate, it is possible to apply for planning permission for the refurbishment works mentioned above but it is necessary to take into account the date the DAFO was obtained. It would not be very logical to apply for permission to refurbish a home for which the DAFO was approved only a few months prior, as the DAFO is supposed to certify that the home was in perfect conditions of habitability, without problems in terms of its safety or sanitation. Needless to say, if there has actually been some sort of unforeseen breakdown or accident in the property, permission may be requested for such repairs.

Can properties with a DAFO/AFO be mortgaged?

This question arises because a Spanish Royal Decree from 2009, regulating the mortgage market, contains an article that specifies that properties not meeting the legal requirements may not be mortgaged. Despite the existence of this rule, we must state that rural properties or homes on non-urban land have been, are and will continue to be able to obtain mortgages. There may be some banking institutions that do not provide mortgages for rural properties but there are many that do, which is logical as, in most cases, these properties are consolidated and are not subject to penalties, for which reason there is legal certainty over these.

We have submitted a query/test to one of the largest appraisers on the national market for mortgage valuations. In our query, we sent the land registry information – nota simple – of a rustic property with a DAFO certificate registered in the Property Registry and the response from the appraiser was unequivocal: homes with a DAFO are being appraised on the mortgage market. It should be taken into account that the appraisal value of a property for mortgages issues on non-urban land –a rural property– may be 20% to 40% lower than the purchase price, as the mortgage is given over the valuation price of the property. Nevertheless, a mortgage can be secured for these.

Can I have a RTA / VTAR rental licence for my rural property?

It is possible to rent and register a home on non-urban land in the Andalusian Tourism Registry -RTA- for short-term rentals (less than 2 months). This home would usually be registered as a tourist home for rural accommodation -VTAR-. As clarification, it should be said that it is possible to register rural accommodation or B&B as a country lodge or “casa rural” but this is designed for owners who are engaging in economic activities and operating such rental as a business, with at least one of them being required to register before the Treasury, pay VAT and register for Social Security.
The registration of a rural property in the RTA is subject to two approaches, depending on whether we talk to the Regional Government of Andalusia or the Council.

a. Regional Government of Andalusia

A few days ago, we had a talk with an inspector of the Regional Government in Malaga, who is in charge of inspecting homes of this type. Among other things, he told us that the Licence for First Occupation –Licencia de Primera Ocupación or LPO– is necessary to register homes on non-urban land in the RTA. As some people know, very few rural homes have an LPO. However, it is possible to obtain “legalisation” through the DAFO. The Inspectorate of Malaga have told us that a DAFO certificate would not be deemed to replace the Licence for Initial Occupation. In my legal opinion, I think that the Inspectorate are wrong and I clearly deem it arguable that, in the absence of a Licence for First Occupation, if a property has a DAFO certificate, this document should be accepted. Among other things, the DAFO certificate is the council recognition of the habitability of the property on non-urban land. In fact, Councils interpret this as a licence for the occupation of the property.

b. Councils

The Regional Government of Andalusia will notify the Town Hall when a home is registered in the RTA and this will lead some Councils to automatically call upon the owner to legalise the home through DAFO. It is also possible that a Council form will need to be completed before the home can be rented. Ultimately, at the municipal level, it is necessary to notify that you intend to rent your home and, if you lack an LPO, you will probably have to obtain a DAFO so that you can get this document, which recognises the habitability and occupation of the dwelling.

What should I do if I want to buy a rural home?

You can select the one you like best, without fears or concerns. Take the time you need and, once you have made a choice, you can start the buying process and negotiation. At the start of the process, do not hesitate to hire a lawyer specialising on this matter, who is familiar with this aspect of the law. As we have stated on many occasions, the cost of a lawyer is very small in comparison to all the money you will spend to buy a property in Spain. Saving money by failing to hire a lawyer during the process to buy your home in Spain may be one of the biggest mistakes you ever make. I know you may think what I want to do is to sell you my services –and this is true, this is why I work. But if you think about it carefully, you will understand the importance of having sound legal advice while buying a property in a country different from yours.

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