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How To Buy Property In Spain Safely
By Rhiannon Williamson, Mon Dec 5th
Buying property abroad is not an undertaking one should embarkupon lightly! It is not wise to assume that the entire purchaseprocess will follow the rules we’re used to ‘back home’ andgenerally speaking there are usually a whole new set of rulesand regulations, traditions and traps to learn, understand andwatch out for. Spain is absolutely no exception and has a tangled web of lawsand legislation seemingly designed to trip up an unwary realestate buyer. This article examines three key areas that apotential property purchaser should be at least aware of beforesigning on the dotted line for that dream Spanish home. Firstly there’s a ‘tradition’ in Spain for purchasers toactively but illegally assist the vendor in reducing his overallcapital gains (or profit) tax liability.
Often the vendor willask for a far reduced purchase price to be written into thepurchase contract and for the buyer to actually make up thedifference between the contract price and the actual price incash. (Article continued below)
This has been a tradition in Spain for many years; in theory itdoesn’t affect the buyer, it certainly doesn’t affect the vendorand what the tax authorities don’t know can’t hurt them, right? Wrong! This action is highly illegal and Spain’s new socialistgovernment have begun cracking down on money laundering and taxevasion and these concerted efforts are targeting the propertymarket in Spain. Of course many potential buyers reading this will simply assumethat if asked to act illegally all they need do is point outthat the new crackdown could result in investigation, fines,even a lengthy prison term and the vendor, estate agent andsolicitor involved in the transaction will step back and acceptthat exact figures are entered into the contract and taxation bepaid accordingly. Unfortunately the reality for those who refuse to act inaccordance with the vendor’s wishes can be far different to theabove proposed ideal scenario. Quite often the vendor backs outof a sale if he cannot get his way and the buyer loses theirdream property in Spain and possibly their deposit as well. So, what should someone hoping to buy property in Spain do iffaced with such a situation? Should they accept the vendor’sdemands and hand over a brown paper bag stuffed with 500 Euronotes? If they do then the price they apparently purchase theproperty for will be the price against which any future profitsfrom the resale of the property will be compared for theircapital gains tax purposes. Therefore if the purchaser everwants to resell the property they too will need to insist thattheir buyer also agrees to having a reduced sum entered into thecontract otherwise they’ll be liable for all the extra capitalgains taxation! Someone somewhere along the line is going tolose out just ensure that it’s not you! Even if you have yourheart set on a particular home in Spain I would stronglyrecommend that you do not go ahead and act illegally even ifthat means you risk losing the property. Think very long and very hard about what you’re being asked todo and the potential legal and long term financial consequencesrather than your short term thrill at securing that dream homein Spain. The next point that is worthy of due attention is the fact thatthere are many unregistered and inexperienced estate agentsoperating in Spain. The fact that anyone can become an estateagent on the Costa del Sol for example has led not only tomistakes in the purchase process being made, but unscrupulousindividuals setting out to exploit foreign buyers. When looking for an estate agent to represent your interestsfind one with a strong and positive reputation…a reputation theywill do everything to protect and therefore one who is unlikelyto want to offer you anything less than a first class service.Furthermore, find an agent who speaks English and Spanish! It isimperative that your agent understands every minute point aboutthe property, contract, terms and conditions and correctlyrelates this information to you. Many estate agencies recommend lawyers to their clients when itcomes to contract negotiations, searches etc. Bear in mind thata solicitor referred to you by your agent may be more inclinedto act in the agent’s best wishes rather than your own. Why?Because the agent likely refers an awful lot of business to himtherefore he will do his best to maintain that relationshipfirst! This is of course not always the case, but you might bebetter advised to find an independent lawyer through therecommendation of friends and trusted third parties who havealready had significant or at least similar dealings with saidlawyer. Finally, changes in land laws in Spain have been introduced inValencia and most recently Andalusia and these changes are ‘agood thing’ in theory, but the stuff of nightmares for manyforeign buyers in the parts of Spain affected by the legislation. In theory the laws have been introduced to protect rural land,agricultural land, to prevent over development and also to stopprivate owners from restricting development. But the laws havebeen badly implemented, they have been exploited and there aremany cases of foreign residents convinced that they have beentargeted unfairly because of their nationality. The intricacies of the law seem open for interpretation and inValencia so many private buyers have suffered at the hands ofdevelopers exploiting the law that the European Union recentlyruled the law unreasonable. As a result a new version of it hasbeen drafted and is awaiting the Valencian parliament’s passingof it. In Andalusia many foreign owners of rural land on which theywere hoping to build a home have lost out to the new laws whichrestrict the development of such land. It is absolutely a caseof buyer beware, and even more importantly it is a case of thebuyer doing their complete homework before making any solidplans for that dream home. If you’re interested in purchasing aruin or run down building for redevelopment or you’re interestedin building from scratch on an empty plot make sure in advancethat permission will be granted and that your piece of land inSpain can and will sustain the ambitions you have for it. If you keep a cool head when buying property in sunny Spain andyou employ the same levels of caution and care that you would ifbuying a house in your home country you will most likely avoidthe common traps and pitfalls that some people fall foul of.Just remember to think of the longer term consequences beforeyou act and consider employing the services of qualified andreputable professionals to assist you with the legal andfinancial side of your transaction and your overseas buyingexperience will be one you savour! About the author:Rhiannon Williamson is the publisher of http://www.shelteroffshore.com/ - the online resource for investment property abroad,offshore investing & living overseas Click the following linkfor Spanishproperty and moving to Spain articles, guides, & resources | 