Skip to main content

Tag: land registry

RENOVATING YOUR HOME? DO IT RIGHT AND PAY LESS TAX WHEN YOU SELL

Renovating house in Andalusia: tips & save on Capital Gain Tax

One of the first things many people do when buying a property is renovate it.

The expenses from the renovation and improvement of a property can reduce the tax on capital gains in the event that it is evidenced in the future sale of the existing or new build property. It is important to clarify that repair or preservation costs for the property are not deductible. Deductions only apply to renovations or improvements that increase the value of the property compared to before they were made.

The cost of improvements would be added to the price paid in the sale, resulting in lower capital gains tax due to the difference between the price to transfer the property and the purchase price, which means less tax would be paid to the Tax Agency. This will be so provided that such renovation and improvement works can be evidenced so that the Tax Agency can accept them. Below, you will find what I consider to be the most important aspects to be able to prove the works carried out for tax purposes.

TECHNICAL PROJECT

Having an architect draft a project and oversee the execution of the works is not a minor issue. If the works to be carried out are of a certain scale, it is always best to have a professional perform follow-up and control since he or she would be liable if something goes wrong. Likewise, having carried out the works with a technical project and a final works certificate can be used to evidence the improvements made in be property before the Tax Agency.

BUILDING PERMIT

If you are going to renovate a property, it is always necessary to get a building permit for both major and minor works. It is true that this is often not requested to save money, for instance when renovating the inside of a home or a room, as there are less chance you will be found out.

Having a building permit will help you on three important aspects:

  • To evidence the lawfulness of the works –provided that it complies with the permit granted–. Likewise, it is important for you to know that, if there is an accident at the building site, not having a permit may entail consequences of criminal liability for the owner.
  • When it comes to works where the distribution of the property will change, the constructed area will be enlarged or a new home will be built, the building permit –among other documents, such as the final works certificate and the permit for initial occupation– will be necessary to register this new construction in the Property Register.
  • When selling a home with profit, the building permit will serve to prove to the Tax Agency that improvements were made so as to request that these are taken into account as part of the purchase price of the home.

Having a building permit is more important in terms of urban-planning and criminal law than in terms of taxes.

CONSTRUCTION CONTRACT

It is very important to sign a contract for the works to be carried out with the builder. The construction contract will mainly evidence which is the construction company that performs the works, the type of works to be carried out, their estimated cost and the location where they will take place.

INVOICES AND PROOF OF PAYMENT

Without a doubt, in terms of taxation, this is the most important requirement for the Treasury to recognise this improvement or renovation.

We often find homeowners who have spent a lot of money on improving their properties but who have no invoices issued by the builder or proof of payment for these works. It is essential to prove to the Tax Agency that these amounts have been paid by bank transfer or personal cheques made out to the construction company. If you have no way to prove these payments, it will be impossible for you to include these improvements in the purchase price of the property. You must always request an invoice and keep proof of payment.

The costs of the improvements will be added to the purchase price because of which you will pay less Capital Gain tax. The Capital Gain tax of this moment is 19% over the profit between the purchase and sales price minus the deductions.

WORKS WITHOUT A PERMIT THAT CANNOT BE LEGALIZED

It is possible that, for the works you intend to carry out in your home, it is not possible to obtain a building permit, for instance in works to enlarge a home in non-urban land –rural land–, increasing the surface area beyond the development potential –such as when enclosing a balcony– or building to a height higher than that allowed. The first thing you should take into account is that, as the owner, you will assume the legal liability that may arise if legal proceedings are brought in connection with these works without a permit.

If you will be carrying out such works, it is important for you to sign a construction contract with the builder, for you to obtain an invoice for each payment and for payments to be made by bank transfer or cheque. Even if you do not have a permit, it would be possible for these improvements to be taken into account when selling the property.

The Tax Agency cannot reject improvement works for not having a building permit –inspecting urban planning law is outside their jurisdiction–, for which reason it is important for you to be able to evidence the works that were effectively carried out, what their cost was and submit payment documents.

In these cases, it would not be a bad idea to have a technician draw up some type of report –not a project– explaining how the property was before and the works that have been performed, providing photographs and documentation from the owner. This is an additional document that can be used to prove improvement works.

NEW CONSTRUCTION DEED

The New Construction Deed is a document signed before a Notary Public to register a building in the Property Register in Spain. Even when the construction does not have a building permit, it is possible for it to access the Property Register in Spain –which does not mean it is legal– provided that a series of requirements are met.

If you have built a pool, garage, storeroom, etc. in Andalusia without a licence, it is possible for you to get an architect to issue a certificate of age six years after completion, to evidence the new construction and its age. This certificate can be used to sign a Deed of Declaration of New Construction before a Notary Public and register the construction in the Property Register. In some cases, it would not be possible to register it in the Register, such as when the land is especially protected.

VALUE OF THE CONSTRUCTION DECLARED IN THE DEED

The value of New Construction assigned in the Deed cannot in itself be used to prove to the Treasury how much was spent on the property at the moment of selling.

For instance, if you declare, in the Deed, that you have spent 50,000 euros on the pool and garage you built, unless you have proof of payment and invoices from the construction company, the Treasury will reject this expense. This is so because what you do before the notary is nothing more than a statement, which means that the Notary does not check if you really spent that amount or if it was more or less –and isn’t required to do so–.

In my opinion, if you are going to do a Declaration of New Construction for works without a licence, you should include a copy of the invoices and/or proof of payment to the constructor in the Deed, as this would evidence the value you declared and make it easier for the Treasury to accept it when selling the property.

Lastly, if you are thinking about doing any work on your property, I wish you all the luck in the world and, most of all, lots of patience; I almost ran out of it myself when I renovated mine…

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

ADVICES FOR OWNERS OF NON-REGISTERED HOMES IN THE LAND REGISTRY

New building declaration and Land Registry records
New building declaration and Land Registry records

The possibility of registration in the Land Registry of constructions without building permits after four years of completion, is provided by a State regulation – Spanish Royal Decree Real Decreto 1093/1997 of 7th of July, Section 52 provides this possibility, as well as the following requirements for this registration: 1) proceedings of town planning discipline shall not appear in the Land Registry against the construction; 2) the time fixed by law shall have been elapsed in order to “tackle” this infraction through the administrative procedure and 3) certification of the year of completion of the construction.

Thanks to the above mentioned Section of the Royal Decree, thousands of constructions have been registered in the Land Registry, although they did not have the building permits or the constructions did not comply with the conditions of the building permits.

This Section has not been modified and is still in force, however some elements has been incorporated to increase the requirements demanded by the Land Registry offices and to “toughen” the requirements for the admission of this registration, as for example:

1) Amendment of Section 20.4 of the Spanish Land Law which refers to the declarations of new buildings and incorporates a new requirement for its registration in the Land Registry—the submission of a certificate from the city council stating the fuera de ordenación (out of ordination) condition for this construction.

2) As a result of the approval of the new regulation Reglamento de Disciplina Urbanística (town planning discipline regulation) by the Junta de Andalucía Regional Government in May 2010, pressure and control have been increased above these constructions located in non-developable (non-urbanizable) lands. The Junta de Andalucía have notified the Directorate General for Registries and Public Notaries, so that they demand new obligations for the registration of declarations of new buildings, as for example, the submission of a certificate from the city council, so that the Registry record the “fuera de ordenación” condition (out of ordination) or the “asimilado a fuera de ordination” condition (assimilated to out of ordination).

3) Some Land Registry offices have begun to demand the submission of this certificate from the city council as an essential requirement for the registration of the declarations of new buildings.

 

What do all these changes mean for owners who want to register their home?

In the event that in the future the Land Registry requires owners the submission of this certificate from the city council to register their home, swimming-pool, garage or any other construction in their property, these below may be the consequences:

1) Increase of the economic costs for the declaration of the new building, because some city councils are approving ordinances for the payment of fees for obtaining it, as they need financial resources; in some cases, these costs may range between EUR 2,000-5,000, depending on the square meters of the property.

2) As any other application to city councils, this procedure would be slow and may imply several months until obtaining the certificate; in case owners need to obtain the declaration of new building urgently because of a sale, this period of time may become an important handicap.

3) The fact of recording in the Land Registry the fuera de ordenación” (out of ordination) condition or asimilado a fuera de ordenación” (assimilated to out of ordination) condition on their property, implies the documentary evidence of some limitations, which may affect the sale price when transferring the property to a prospective buyer. It is also worth mentioning that the prospective buyer may demand a discount in a possible transaction regarding this fact.

To sum up, in the event that the Registry offices toughen in the future the requirements to register any construction in the Land Registry and the resulting increase of the costs and period of time for the procedure completion, we advise you to take advantage of the current situation and execute the Public Deed of Declaration of New Building of your home as soon as possible and submit it to the Land Registry to avoid any problem in the future.

 

 

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

 

PROPERTY LAW AND THE CADASTRE OFFICE IN SPAIN

Legal importance of correct inscription in both Spanish Cadastre and Land Registry
Legal importance of correct inscription in both Spanish Cadastre and Land Registry

Although little by little the situation is changing in an important way for the real estate owners, this can not be used to comply with the obligation established in the Real Legislative Decree 1/2004, of 5 of March, in that the text is approved refunded of the Law of the real estate land registry, of recording to its name the property that it possesses or the one that it has just acquired, whether by means of buying and selling, succession or any medium, or to record  any physical change that be produced in this, whether group, segregation, new work…etc.

This “bad” custom nowadays can have quite serious consequences in the enjoyment of the right to the property on the part of any person that possesses good real estate in Spain.

Article 1 in their first section of indexed norm is that to regulate the land registry defines the same one as “…a registration administrative clerk of the Treasury Department in which the goods are described urban, rustic real estate and of special characteristics just as they are defined in this Law”. Subsequently in its second section it exposes that this Law is applied in ah the Spanish territory.

Any owner of a dwelling or plot, or both it should be affirmed that the details of the property coincidence with the physical reality of the same or with the title of property, normally Public Deeds for three important motives from a practical point of view.

1.- Because the Real Decree indexed at the start of this article and that to regulate the real estate and registry, collected explicitly in their article 70, establishes the classification of simple tax infraction, the lack of presentation statements done, does not perform in a time limit and the ones that be false or inexact, that is to say that the people that acquire a good real estate, or those being the owners segregate, they group their plot, or they expand the metres of their dwelling, but they declare said alterations or modifications in the land registry through the official forms, can be guilty persons with a fine that oscillates between 60.00 and 6,000.00 euros according to the circumstances. That is to say, since it is an obligation imposed by normal ranks of Law, the obligation to declare in the land registry any variation or modification of the property on the part of its holder, if it does not comply the same, there can be sanction.

2.- Because upon being a public registration, the land registry that incorporates the plans of each one of the plots or properties of each municipality with inclusion of the sensitive data of the same, without a person with a plot or property does not have the same one recorded in the land registry, or the same one presents some error in its inscription or, still being collected in the land registry, is not to it’s name and did not carry out the corresponding change of property ownership, can be found with the unpleasant surprise that its neighbour, for example, recorded in the land registry its property or carries out some modification of the same that can affect him to its boundaries and, if its property does not appear as its name in the land registry or the same not even appears recorded as we have commented, the and registry wit not be able to notify him that its neighbour is going to proceed to carry out a change and that you have a period of time to allege what estimates convenience. That is to say, if that property modification of its neighbour affects him in the use and enjoyment of his property, you will not be able to allege anything in defence of his interests and, possibly, its neighbour will be able to carry out that alteration in the and registry with the damages that this can cause him in his property. And all because you did not do what the law obliges when you bought the property or when you carried out the modifications in the same one that is perfectly recorded in the land registry the details of its property.

3.- In any operation of buying and selling of good real estate, the notaries are obliged to request descriptive property certificates and graphics since said information can obtain by telematic way. In the supposed one that they cannot contribute that document because there exists some problem in the and registry with the buying and selling of said property, they have to make it to be evident in the Public Deeds and, although that lack of contribution of the property reference by means of the certificate does not impede that the notaries authorize said Deed, neither does it impede the inscription in the Registration of the Property of the same, except in supposed punctuality, the problems that can arise for the good of the operation should be keep in mind, since that the buyer of said real estate before the warning of the notary have doubts of the situation of said property and this can cause the break, or at least the complication, of said operation of buying and selling. It is kept in mind that, although the Public Deeds be the reliable document of property, the land registry is used to being but exact with the existing reality in the real estate, since it incorporates in their fiat detailed database that they be brought up to date from time to time and in which the changes are incorporated that themselves are not collected in the titles so much as relating to the dimensions of the plot and boundaries, as in the constructions that be carry out in the same.

In conclusion, i would like to emphasize that the correct inscription in the land registry of any property has as main consequence in the legal security of the proprietary person of the same and of the person that can acquire it in the future, as well as of administrative agencies. If you have a property real estate in Spain or are thinking to acquire one, be sure that the same one found recorded in the land registry is with at the most important date; situation, ownership, extension and boundaries.

 

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

 

LAWYERS IN MALAGA FOR ENGLISH LEGAL ADVICE ON BUYING, SELLING OR INHERITING IN ANDALUSIA

Please enable JavaScript in your browser to complete this form.
Terms and conditions
Newsletter
  • TORROX OFFICE:

  • C/ LA NORIA S/N, EDIF. RECREO II, 1-15
    29793 TORROX (MALAGA), SPAIN

  • MALAGA OFFICE (ON APPOINTMENT):

  • PASEO REDING 7, 1
    29016 MALAGA (SPAIN)

  • IBAN: ES22 0081 5198 xxxx xxxx 3832

Colegio de Abogados de Mälaga

TORROX OFFICE

MON/TUE/THU: 09:00 - 18:30
WED/FRI: 09:00 – 15:00

LOCATION: 40 KM EAST FROM MALAGA, 10 KM WEST FROM NERJA.
FREE PARKING IN FRONT OF ALDI SUPERMARKET
(ENTRANCE AT THE BACK).

MALAGA OFFICE

MEETINGS ONLY ON APPOINTMENT.

LOCATION: MALAGA CENTER
(LA MALAGUETA).
PARKING CERVANTES, C/ CERVANTES 6

Need help?