“What costs do I have to pay on top of the agreed purchase price to buy a my apartment? Mrs E. Harrington from Wilmslow
Jose M Lopez–Avalos of Marbella Solicitor writes: “On top of the agreed price you have to pay approx. 10 % of the purchase price to cover notary fees, legal fees, land registry fees and 7 % Transfer Tax and connection of utilities.”
“I have heard that I can save tax and obtain inheritance tax protection by buying my villa through a Spanish SL company?” Mr A. Fellows from Harrogate
Alistair Spence Clarke FCA of Spence Clarke & Co, Marbella, a UK registered firm of Chartered Accountants writes “Yes, this is possible but only if matters are arranged with great care. For example, simply using a Spanish company to own the property achieves nothing as the inheritance of shares of the company would be subject to Spanish IHT in the same way as the property.”
“My friend has been told that if you own your villa for over 15 years it’s free of capital gains tax when sold. Is that right?” Mrs Lewis from Swansea
Alistair Spence Clarke writes “Yes, but only if your friend bought it 10 years before 1996, because of old tax rules that remain effective today. These rules exempted residents and non-residents 11.11% of a capital gain for each year of pre 1996 ownership, but ignoring the first year. Except for tax residents who have additional possible allowances, the only relief available since 1996 is to increase the costs of purchase by the official inflation index.”
“I am 58 and my wife is 53, are there any real advantages to us becoming a residents in Spain?” Mr Powell from Bristol
Alistair Spence Clarke writes “Being classified as a Spanish tax resident is a matter of fact, not choice. The rules are by no means as straightforward but, as a general rule, if you spend more than 6 months in Spain in a calendar year then you would certainly be a tax resident of Spain. In certain circumstances you could be treated as a tax resident even if you spend less time in Spain.
Note that applying for a 'permiso de residencia' does not by itself make you tax resident and many ignore this formality anyway.
You will come across many persons who ignore the Spanish tax regulations and continue to pay tax in their countries of origin, or nowhere. It is logical to assume that such abuse of the Spanish tax system will not be tolerated forever by the authorities, particularly if you consider that people who live in Spain make use of public services and other resources that have to be paid for by someone.
Having said all this, even though the Spanish tax system is currently a bit more expensive than the UK system there are many legitimate tax planning opportunities that only become available to Spanish tax residents. The obvious example is the Spanish capital gains tax rate of only 15%, which when applied to certain types of investment represents a very good deal indeed producing an effective tax rate well below 5%.”
“We would like to obtain a mortgage to complete our off plan purchase. Can we seek to raise 100% - or as near as we can get – to cover the costs of purchasing?” Mr Shah of Reading
Joe Lopez of 123 Spanish Solutions writes: “Normally non-residents can only borrow up to a maximum of 80% of the price or valuation, whilst residents can raise the full 100% and even in certain circumstances 100% plus the purchase costs. However, having said that, there is the possibility for a non-resident to borrow 100%. By that I mean there are some banks that will lend against the valuation rather than the purchase price, effectively meaning that if the current valuation is greater than the purchase price, which could be the case in an off plan purchase, the bank will lend 80% of the valuation. Each case will have to be looked at individually.”
“We have just started a business in Spain and have been renting for the last year. What chance have we got of getting a mortgage?” Mrs Park from Nerja
Joe Lopez writes “There are two fundamental milestones that Spanish banks look for when they receive a mortgage request. These are an acceptable loan to valuation percentage and the second is the ability to repay the mortgage. When starting a new business the normal security of an existing income is removed, which will make them more cautious and an application rather more complicated.
It therefore becomes essential to consider all the circumstances of the applicants, for example what total assets do they have, irrespective of the country they are held? What is the new business and what did they do before? Why are they starting this new business? What income is expected and can this be confirmed? What other income may exist? Of course the loan value and loan percentage is also taken into account, as the more that the applicant invests reduces the risk to the bank.
Fundamentally it is the role of the mortgage broker to establish all these factors and present the case in its best light to the most appropriate lender.
There are some products currently being offered called non status or self certification mortgages which may help, but these are few and far between with often very restrictive conditions such as a maximum advance of 50% of the valuation and or a maximum amount of €150,000. In addition the terms of these products are not as favourable as a regular mortgage and when starting a new business costs and cash flow are fundamental to the decision process.”
“We have a Spanish mortgage – and have had for over two years – during that time the exchange rates have varied enormously giving us less certainty in the sums we are paying every month. Can we reduce the monthly uncertainty?” Mr and Mrs Rice from Liverpool
Roslin Ossanloo from Moneycorp writes “Some specialist foreign exchange companies, like Moneycorp, offer a "Regular Payment Plan" to assist those clients that need to make regular overseas payments, such as mortgage payments. The Regular Payment Plan allows you to fix an exchange rate on regular overseas payments for a period of between 6 and 24 months, removing the worry caused by fluctuations in the exchange rate over that period of time. The foreign exchange company you choose may also offer the convenience of paying by Direct Debit. This means that your monthly payments will be deducted from your account by Direct Debit and transferred directly to the destination account of your nomination.”
“We need to bring sums over from the UK for school fees three times a year. We have noticed that the exchange rate seems to vary dramatically as do the costs of transfer into our Spanish bank account. Is there any way to reduce these costs?” Mr Bridge from El Faro
Roslin Ossanloo writes: “By using a specialist foreign exchange company you can fix an exchange rate for up to two years, protecting you from adverse currency movements and often allowing you to lock into favourable exchange rates. In addition, many reputable foreign exchange companies have established agreements with certain local banks and can ensure that no receiving charges are levied on your transfers, thus saving you money.”
“Aren’t insurance companies the same – you pay your premium for year after year and then when you claim they wriggle out of paying?” Mr McKenzie from Glasgow
Mike Collins of Elite Insurance writes: “You are correct up to a point. All underwriters employ a "perito" whose job it is to reduce damage limitation. However it is the insured who must be very clear what his policy states before paying over the premium. Let me give you an example. Your policy states that "you are insured for robbery outside of the home" Unless you can show or have a witness that you have been physically assaulted it is unlikely that you will be recompensed. The underwriter will say that anybody and everybody would be making claims for robberies that did not occur. The answer is not easy but I would suggest the insured finds a first class broker who is not afraid to take on his underwriter and if necessary the Ombudsman.”
“We have been told that our UK life cover is invalid if we service the premiums through our Spanish Bank Account? Is that correct? Do you know of an alternative provider of life cover in Spain?” Mr and Mrs Coombe from Norwich.
Mike Collins writes:"I have referred your question to Friends Provident who do allow the payments to be made in Spain or the U.K. The laws between the U.K and Spain are complicated where life insurance is concerned. Spanish life insurance is a laugh as they charge the premiums by the year not amortised over the length of the contract like U.K.”
“We are thinking of buying a plot of land in the Campo. We have found a large plot with an old property already on it. We will get our lawyer to check out the legalities but we are concerned about relying on local builders to refurbish it. We can be in Spain reasonably regularly but we need some help to control our project and make sure it’s delivered on time and on budget. Any ideas?” Mr and Mrs Harris from Chester
John Pearce of Sedytec writes: “Do not be discouraged from using local builders, in all probability they will give you a better service than using a larger company from further a field (particularly the coastal strip where there is too much work and standards of service are generally poor).
Some words of advice. Select your architect with great care. Check out with other clients before committing yourselves. A good builder cannot make up for a bad architect.
Ensure that you include everything that you need in the brief to the architect. Anything that must be added or changed during the construction becomes very expensive and generally causes delays.
Finally, consider employing a “Project Manager”. The service that he can provide can vary from a limited input acting as your representative, to a full service controlling the design process as well as the construction phase both as regards programme and cost. If appointed early on, the Project Manager can assist with the selection of the architect and the invitation of offers from the builders. As you cannot be on hand weekly you should consider this appointment very seriously; the Project Manager is on your team, looking after your interests, rather than an extension of the builder.”
"We have had a series of disasters with builders. Our architect doesn’t seem to be working for us. Our project in Neuva Andalucia has gone over budget by 50% and it’s six months behind schedule. Help!!!!” Mrs Aldrich of the Wirral not yet living in Neuva Andalucia
John Pearce writes: “My sympathy is with you. This is a situation which occurs too often. The architect is primarily concerned with the design of your house and once he has obtained the building licence and appointed the builder, he may become far less involved than you would like. He will have appointed a technical architect to manage the quality and site safety, but he has little interest in the programme nor the costs.
Penalty clauses in the contract are very hard to enforce and if you do try to enforce them you may suddenly find that your architect is reluctant to assist you.
At this stage in the project, your options are very limited and much of the damage has been done. Whatever you may feel about the architect you need to keep him “on your side” as he must sign off the project in order for the licence to occupy to be obtained. Even at this stage, the appointment of a Project Manager can be of assistance. He will be able to analyse the excess over budget and can negotiate reductions in the builders final account.”
“We are planning to buy a new property in Spain this Autumn and have heard that build qualities vary greatly. We don’t need a mortgage but wonder whether we could get a “Home Buyers Report” as in the UK. Could you recommend anyone?” Mr and Mrs Holme from Manchester
Campbell Ferguson from Survey Spain writes: “As Chartered Surveyors, Survey Spain can provide three types of survey, all of which are similar to those provided by Surveyors in the UK. They can’t be identical as properties and regulations are different in Spain and frankly, we feel that a more complete inspection and report is needed here.
‘Snagging' Survey
Buyers have 15 days after signing the acceptance of a new property to report differences between what they thought they were buying ‘off plan' and what they find when they receive the keys. If ‘discovered later, it can be more difficult to get things replaced. Especially if someone else with the power of attorney is carrying out the final signing, it’s always best to have the property inspected in detail by an independent professional and faults and omissions formally recorded.
Building Survey
A building survey involves inspection of all accessible areas of a property, plus research into available papers, etc. The report contains notes of all defects found that are likely to affect enjoyment of the property, though these may not have an effect upon the Value.
Valuation Survey
A valuation survey involves a brief visit to a property to confirm the location, style, accommodation and floor areas. Only major defects that will have an effect on the value are noted. Comparing the property to others with known sale and/or asking prices forms the opinion of value. It is normally required by security holders such as banks or building societies, or by owners/buyers already familiar with a property.
Structural Survey
We rarely carry out a structural survey, as that would involve breaking into and testing the structural elements. It is normally only required to find the cause of a defect for which evidence has been found in a Building Survey.”
“We were told by the Estate Agent that we don’t need a survey as every new building is covered by 10 year insurance. Is this correct?” Mr and Mrs McClean from Fyfe.
Campbell Ferguson writes: “By law builder’s have to arrange an insurance policy to cover structural faults to the building. However, it will be only structural faults and not any of the 100’s of others that can occur. Also, it can take ages and much work to convince the insurance company or builder that the fault is theirs. After that there is the wait and then the work being carried out with all the disruption that can occur. It is much better to know at the beginning the state of the property is being bought. If there are defects, these can be brought to the attention of the seller and either they can repair them before the transfer or a discount in the price can be arranged. Most times, any discount is considerably more than our fee!”
“We are due to complete on our off plan property in the next three months. We have visited the site and are really concerned as a number of the features that we thought would be in our apartment but don’t appear to be present. What should we do?” Mrs Fletcher from Bromsgrove
Campbell Ferguson writes: “We can represent you at the snagging inspection, which by law the developer must permit you to carry out prior to paying for the property. We know the typical faults and the standard of finish that should be found and will not be persuaded to drop matters by the typical comment of, ‘ well that’s how it's always done here’. We know what is and what isn’t the convention. With the information we give, the buyer is able to insist on completion as promised or receive a suitable discount for any unauthorised changes. We can negotiate on your behalf or pass the ‘Snagging List’ to your lawyer to do so. The developer cannot just change the specification during the building, despite what the contract might say, as a new law states that changes must be agreed with the buyer.”
“My wife and I have lived in Spain since retirement twelve years ago. At the time we bought a small bungalow in our joint names. We are told it is now worth over €500,000. We have been reading up about Inheritance tax. There seems to be a risk that one of us could be forced to sell our home on the death of the other. We have also become very confused by the press relating “Equity Release”. Is this a sensible option? Does it work? Is it secure?” Mr and Mrs Mitchell from Benalmadena
David Morley of Kevin Neal International writes: “This is a very topical subject at the moment. For the ex-pat that has remained non-resident in Spain and has a property that is unencumbered i.e. no outstanding mortgage, this has become a big problem indeed. On one hand with property prices increasing as they have over the last 5 to 10 years, owners should be feeling comfortable in the knowledge that they have made a good investment however, on the other hand Spanish Inheritance Tax is amongst the most punitive in Northern Europe and can therefore have a significant effect on the beneficiary of the property.
In Spain it is the beneficiary that is taxed, unlike in the UK where it is the estate that is taxed. Here in Spain the threshold starts at €16,000 and there is no husband / wife exemption. Tax rates can be a high as 34% between husband and wife and for further removed beneficiaries such as common law husband and wife, single sex partners or non related beneficiaries the rate of tax can be in excess of 80% of the value of the property. This tax has to be paid within 6 months of death. The property can not be sold prior to this tax being paid; this often leads to expensive bridging loans in order to pay the tax due.
Kevin Neal Associates in conjunction with a leading AA rated UK bank have come up with a simple solution to mitigate 95% of this tax. Quite simply this is an interest only, roll up mortgage. The proceeds are placed in trust offshore and managed in an extremely low risk portfolio, approved by the bank. The return on the investment has been designed to cover both the cost of borrowing and be able to provide an annual income stream to the client of 2 1/2% p.a. Full legal opinion on this product has been taken from a leading law firm in Spain.
There is also an option for the client to withdraw up to 5% of the value of the property at the outset. This is of course optional.
The bank takes a charge over both the property and the investment portfolio. At the point of death the IHT liability will be reduced by the value of the debt outstanding.
There are 2 or 3 of these schemes available in the market place; however most will only mitigate the tax by up to 75%. We would only recommend that you consider using a product offered by an IFA that is either regulated by the SFA in the UK or the CNMV in Spain. You should also make sure that the IFA carries sufficient Professional Indemnity insurance. As an example Kevin Neal Associates carry £1 M of Professional Indemnity cover.
In summary this is a prudent method of reducing IHT, it definitely does work; however please be selective as to which product you choose.”