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Non-Resident Imputed Income Tax

Raymundo Larraín Nesbitt, October, 9. 2018

Marbella-based lawyer Raymundo Larraín briefly covers non-resident property owner tax obligations in Spain, with particular focus on the end-of-year annual imputed income tax.

Larraín Nesbitt Lawyers, over 16 years’ taxation experience at your service.

Photo: Amsterdam slender canal houses at dusk.

The following article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. The advice given is of a general nature and should not be construed as tailored tax advice. Seek professional legal advice on your matter – see disclaimer below.

Article copyrighted © 2.018. Plagiarism will be criminally prosecuted

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of October 2018

Introduction

As the end of the year approaches fast, I thought it would be a good idea to remind non-residents of their tax obligation to file this end of year non-resident tax on owning property in Spain. However, please indulge me, and allow me to ramble off-topic in the introduction.

Amsterdam, a beautiful northern Venice. It is easy to fall in love with such a gorgeous and culturally refined city, providing you don’t get run over by one of its thousands of bicycle riders!

One of the city’s main bewitching highlights are its beautiful spindly canal houses overlooking the waterways that sprawl throughout the city like watery arteries. These opulent merchant houses were built during the apex of the Dutch Golden Age in the 17^th century. Taking my interest further, I decided to visit one. When they kindly opened the door, I could not believe my eyes; a gaunt impossibly steep staircase, straight out of hell, stretched upwards fading in the distant gloom - no lift for all three storeys. Bonkers! In Dutch, stairs are aptly named as “trap” - and Good Lord, what a trap they are!

Unless you are Dutch, and therefore have preternatural cat-like climbing abilities in-built into your genetic pool, these stairs should be avoided like the plague they are by the rest of humans. So much for dreamy canal houses!

What’s the story behind these hellish stair cases? As it happens, a tax story. Devil and taxes go hand in hand it would seem.

Sea trade routes made the Dutch Republic vastly rich in the XVII century with a commercial empire spanning the world, from East to West. As an example of their might, today’s US New York city was founded by Dutch traders and was originally known as New Amsterdam. Wealthy patricians felt compelled to outdo one another, flaunting their newfound wealth building ever more impressive canal mansions in Amsterdam’s Golden Bend (feel free to draw parallels with Western London nowadays).

This exuberant madness would eventually come to an abrupt end with the culmination of the tulpenmanie (or ‘tulip bubble’ craze) where a canal house would be exchanged for a single tulip bulb! Fortunately, four centuries on, we would surely not fall for this *bitcoin*.

A patrician ruler, major of the city, concerned by his peer’s outlandish ostentatious lifestyle, sought to put some restraint and order on his fellow merchants for all this un-Dutch wealth display. He came up with a new tax on the width of houses (!). Albeit Dutch, ever pragmatic, ever keen businesspeople, neatly circumvented the tax law on building impossibly tall narrow houses instead. This ‘efficiency’ led to nightmarish staircases.

As a result, four hundred years on, we have these beautifully wobbling sinuous houses dotting the city’s landscape straight out of a Tim Burton’s movie. Stunning to gaze upon, impossible to dwell in (bar Dutch).

This quaint example just goes on to show how tax laws - bad or good - shape modern society as we know it even centuries on.

Image result for steep dutch staircases

Photo credit: Luca Coppola

Extreme sports, you say? That’s for wimps. Try climbing up three flights of Dutch stairs with groceries in one hand, a baby in the other, whilst you are talking on the mobile - that’s the real deal. Dutch (somehow) casually manage it every day.

Non-Resident Taxation in Spain

Unbeknownst to most non-residents, on buying property in Spain, you automatically become liable for a series of property-related taxes. No one will give you the heads up on them, so it is up to you to find out how much you owe and comply with the Spanish Tax Authorities.

For a full review of all taxes non-resident property owners are liable for, you can take a peek at our tax article: Non-Resident Taxes in Spain – 8th December 2015.

Today’s article keeps it short and simple featuring only one tax: Non-Resident Imputed Income Tax (or NRIIT, for short).

**Non-Resident Imputed Income Tax (NRIIT)**

Long story short, you only pay this tax once a year, on or before the end of December. This tax applies nationwide in Spain.

All non-residents owning property in Spain need to file once a year this testimonial tax.

Even if you do NOT rent out your property in Spain you still need to pay it.

Also, if you do rent out the property part time during the year, on the days you do not rent out your property in Spain these are taxed as imputed income on a pro rata.

Basically, this tax is a legal fiction whereby it is surmised that you derive some form of financial benefit (income) from your Spanish home; that is why it is called non-resident imputed income tax, as it is deemed income. Spanish Tax Authorities take the view an owner derives a benefit in kind from owning property, irrespective of whether it is true or not, and taxes it accordingly.

When is it filed? Once a year, before end of December of the following year. For 2018 we are filing the tax corresponding to the previous year (2017). We are accepting filing this tax until the 20^th of December. We advise you file this yearly tax as soon as possible to avoid end-of-year bottlenecks. In fact, you should start filing it now in October to pre-empt any issues.

Tax rates: The imputed ‘income’ is assessed as 1.1% or 2% of the cadastral value. Tax rate is applied on this amount. More on what a cadastral value is in our article: What is IBI tax?

Larraín Nesbitt Lawyers offers you this non-resident tax service:

Non-Resident Income Tax (Fiscal Representation Service) from only 100/year: *

*Our fee includes up to two joint owners. If there are more, higher fees apply.

Advantages of appointing a Fiscal Representative in Spain

Larraín Nesbitt Lawyers, 16 years’ experience filing expat taxes at your service.
Professional Indemnity Insurance which you can claim from in case of negligence or malpractice. This cover stands at €1,000,000 with Larraín Nesbitt Lawyers.
Registered professionals. Larraín Nesbitt Lawyers only employs experienced qualified and registered Abogados and Economists. Registered abogados are subject to disciplinary action by the Law Society so must conduct themselves honourably to continue practising or else risk being barred.
Deal only with native English-speaking lawyers & economists.
Ensure you do not overpay on calculating the tax due on your property based on its rateable value and the number of days you have owned it on a pro rata basis.
Submit the tax returns before the Spanish Tax Office in a timely manner (thus avoiding attracting penalties and surcharges on late payment).
Setting a fiscal representative’s address to deal with all tax-related correspondence generated throughout a fiscal year.
Reply to any tax notifications within the deadline ensuring tax compliance.
Appeal misunderstandings or material errors (additional fees may apply).
Up-to-date knowledge on fast-paced fiscal changes.

Conclusion

Larraín Nesbitt Lawyer’s Fiscal Representation Service offers you peace of mind.

Let go of all the stress appointing us to deal with your yearly tax in exchange for a small annual fee.

We file taxes all over Spain.

We offer the most competitive fees in the market.

Non-Resident Imputed Income Tax (Fiscal Representation Service) from only 100/year

We are specialized in taxation

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

“Dan denk ik niet aan al de ellende, maar aan het mooie dat nog overblijft.” – Anne Frank

I don’t think of all the misery but of the beauty that still remains.

“Wat is gebeurd kan niet ongedaan worden gemaakt, maar men kan voorkomen dat het weer gebeurt.” – Anne Frank

What is done cannot be undone but one can prevent it happening again.

Annelies Marie Frank (1929 – 1945). Was a gifted German-born Jewish diarist. She documented her life in hiding during WWII Amsterdam for over two years before being captured by nazis. She would be interned in Bergen-Belsen concentration camp where she would meet an untimely death aged 16. Her Amsterdam canal house has been repurposed as a museum where tourists flock to. It is nigh impossible to visit as it is always fully booked up months in advance.

Article originally published at Spanish Property Insight: Non-Resident Imputed Income Tax (Fiscal Representation Service)

Tax services Larraín Nesbitt Lawyers can offer you

Non-Resident Imputed Income Tax (Fiscal Representation Service) from 100/year
Holiday Rental Accounting Service (HRAS) from 125/tax quarter

General tax-related articles

Taxes on Selling Spanish Property – 8th December 2014
Taxes on Buying Spanish Property – 8th July 2015
Non-Resident Taxes in Spain – 8th December 2015
Renting in Spain - Landlord´s Taxation – 8th of January 2017
Holiday Home Taxation in Spain – 8th of July 2017
Non-Resident Income Tax – 8^th December 2017
Holiday Rental Taxation in Spain – 8th July 2018
What is IBI tax? – 30^th July 2018
Non-Resident Imputed Income Tax (Fiscal Representation Service) – 8th October 2018

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No cats were harmed on writing this article. VOV.

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Licence of First Occupation

Raymundo Larraín Nesbitt, September, 3. 2018

Marbella-based lawyer Raymundo Larraín revisits a First Occupancy Licence and gives us a brief rundown on what it is and its relevance to a property buyer.

Larraín Nesbitt Lawyers, over 16 years’ conveyancing experience at your service.

Article copyrighted © 2.005, 2.010, and 2.018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of September 2018

The Licence of First Occupancy (LFO, for short) is a crucial document on buying off-plan property in Spain that draws a line between what is legal and what is not, in general terms. A LFO does not (usually) apply to resale properties.

This article is just a stub, a short summary. If you fancy an in-depth take on this topic, you can read our 2005/2009 breakdown: Licence of First Occupation.

Definition

A Licence of First Occupation is a certificate issued by a town hall which confirms that a newly-built property (off-plan) fully complies with all planning and building regulations and is fit to be used as a dwelling. It assures compliance with Health, Access, Safety, Planning and Construction laws, and that the property has been fully completed, with no outstanding works.

The LFO allows off-plan purchasers to dwell in a property legally. A LFO is also known as Habitation Licence or Certificate of Habitation and in Spanish, Licencia de Primera Ocupación or Cédula de Habitabilidad.

LFO importance

It is important mainly for four reasons:

It provides a check on the planning legality. A LFO means the developer has built the dwelling in accordance with the original town hall’s Building Licence as well as with all Planning laws. The inspection to grant this licence is carried out by town hall’s chartered technicians who certify the dwelling is deemed apt for human habitation.
It is required by utility companies to have access to official supplies: water, electricity and gas. Spanish law requires the granting of a LFO to hook up the dwelling to the supply grid.
Lenders will ask for it if you require finance. Banks will also be asking you for a LFO. Even on reselling the property, your buyer may request a copy for his own lender.
Holiday lettings. If you are looking to buy as an investment (buy-to-let), a LFO is required by Regional Tourist Authorities to rent out your place on a short-term. If your property hasn’t attained a first occupancy licence, you will not be able to legally rent out your house and may be landed with humongous fines if caught red-handed. The fines for non-compliance are six-figures in some regions of Spain.

Conclusion

Be wary of anyone downplaying the importance of a LFO on off-plan property claiming it is unnecessary.

In general, I advise you not to complete without a Licence of First Occupation.

We offer the most competitive fees in the market.

Conveyancing – Buying

We are specialized in conveyancing

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

“La perfection est atteinte, non pas lorsqu'il n'y a plus rien à ajouter, mais lorsqu'il n'y a plus rien à retirer.” – Antoine de Saint-Exupéry

Maj. Antoine Marie Jean-Baptiste Roger, comte de Saint-Exupéry (1900 – 1944 KIA). French writer, poet, aristocrat, journalist, and expert aviator. He became a laureate of several of France's highest literary awards and also won the U.S. National Book Award. During his U.S. hiatus, he wrote the three books that would earn him literary immortality whilst strongly lobbying for the U.S. to join the war effort against the cruel Nazi tyranny. He is best remembered for his novella The Little Prince (Le Petit Prince), based on his real life Libyan desert crash, and for his lyrical aviation writings, including Wind, Sand and Stars and Night Flight. He vanished without a trace during WWII over the Mediterranean Sea on a reconnaissance mission behind German lines whilst piloting his Lockheed P-38 Lightning. His tragic disappearance marks the start of his literary legend which continues to grow every year, as new generations of young readers become imbued with his exquisite work (in over 350 languages!)

Article also published at Spanish Property Inisght: Licence of First Occupation

Legal services Larraín Nesbitt Lawyers can offer you

Conveyancing – Buying from €995
Conveyancing – Selling from €795
Non-Resident Income Tax (Fiscal Representation) from €90/year
Holiday Rental Accounting Service (HRAS) from €100

Off-plan-related articles

Off-Plan Construction Guarantees – 8th November 2011
Licence of First Occupation Explained – 8th April 2013
Bank Guarantees in Spain – 8th April 2013
Buying Off-Plan Property in Spain – 8th of June 2013
How to Buy Property in Spain Safely – 10th October 2014
Snagging List Explained – 28th October 2016
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Buying Property in Spain from a Developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
8 Tips on Buying Off-Plan in Spain – 8^thJune 2018
Licence of First Occupation – 8^thSeptember 2018

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Golden Visa Spain

Raymundo Larraín Nesbitt, August, 8. 2018

Lawyer Raymond Nesbitt gives us an overview of the advantages offered by Spain’s Golden Visa application.

Larraín Nesbitt Lawyers has over 16 year’s conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats acquiring property all over Spain, including Madrid and Barcelona.

Article copyrighted © 2.013, 2.017, and 2.018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8-8-18

Introduction

The Spanish Golden Visa has become the gateway to Europe for thousands of applicants pursuing the European dream. They have collectively invested over 2 billion euros since its inception in 2013. Although Spain’s visa programme was a flop initially, as it fell well below expectations and was marred with teething issues, an ambitious overhaul in 2015 made it extremely competitive compared with similar schemes offered by fellow EU countries. So much so, that this massive tweak enabled Spain to overtake Portugal last year, becoming Europe´s leading Golden Visa supplier. This is unsurprising given how Spain overtook the US as the world’s second biggest tourist destination.

Although this procedure was originally tailored to cater to well-off Chinese and Russian nationals, British should seriously consider looking into it with renewed interest post-Brexit. The reason is because this scheme would allow British nationals - that lack a EU passport - to travel across Europe skipping pesky passport controls on an equal footing to EU nationals. Much like before the UK voted to break away from the Europe Union. Avoid lengthy queues at EU airports.

If you fancy an in-depth take into this subject, you can take a peek at our 2013 article: Investor Guide to Spain’s Golden Visa Law.

Spain’s Golden Visa programme allows affluent non-EU applicants, and their dependants, unfettered access across Europe´s Schengen Area. Travel unmolested through all of Europe.

A Golden Visa enables you, and your family, to live and work in Spain (Europe). This visa guarantees Spanish residency, which eventually leads to Spanish citizenship (optional). Live the dream, apply now!

Apply for the keys to your Golden Visa through Larraín Nesbitt Lawyers: Golden Visa Service. Your family’s success is only one call away: (+34) 952 19 22 88

Thousands of non-EU nationals have already secured their families’ future and well-being on benefiting from this special arrangement that rolls out the red carpet cutting through all the red tape. Spain’s Golden Visa is a success story, be a part of it.

Why haven’t YOU invested in your family’s future?

Why choose Europe?

Democracy. Europe, cradle of Democracy, hosts some of the world’s oldest and most progressive open-minded societies. A clear and stable legal framework allows freedom, tolerance, nurtures ingenuity, and upholds (property) rights for businesspeople. This concocts the ideal breeding ground to foster business investments and develop an entrepreneurial skill set.
Education. Europe is home to some of the world’s most respected academic institutions. Secure a bright future for your children allowing them to earn their spurs in life through a meritocratic top-notch education.
Culture. Europe is a crucible of cultures, a conflux that laces Western and Eastern influences, offering a rich tapestry of history and arts that shaped the world as we know it. Spain’s vast cultural heritage, spanning millennia, is a legacy of commingled cultures that attracts over 82 million tourists every year leaving an indelible mark upon its visitors.
Languages. Seize the opportunity to master and command some of the world’s most influential languages: English (business & finance), French (arts & diplomacy), German (industry & science), Spanish (literature & poetry).
Security. Taken for granted by modern society, peace and security have become an increasingly sought-after commodity in these perilous times. Europe offers a war-free space ideal for young families to raise their children. Europe, and Spain in particular, boast some of the world’s lowest crime rates. Unsurprisingly, 8 out of the 10 cities with the lowest world-wide crime rates are located within European borders. Tight gun-control policies avoid trigger-happy wackos.
Healthcare. Europe, and Spain in particular, are at the forefront in modern medical facilities.
Modern transport. Spain offers top-tier transport services including state-of-the-art high-speed rails connecting you with Europe’s major capitals.

Golden Visa Advantages

Fast-tracked. This law is specifically devised to attract affluent non-EU investors and helps to cut through the admin red tape greatly streamlining the visa procedure.
Travel Europe visa-free. You can travel without a visa for 90 days out of every 180 days within the Schengen Area, but you will still need a visa to enter EU countries outside the Schengen Area (for example the United Kingdom).
Clear rules. Initially 1 year (Residency Visa), then 2 years (Residency Permit), renewable indefinitely every 2 years.
No need to become resident in Spain. You only have to visit Spain once to get or renew the Residency Permit. There is no minimum stay requirement, and you don’t have to become a fiscal resident or actually live in Spain.
Family included. You may get additional permits for your spouse and children under 18 years (or disabled children over 18). Same-sex partners inclusive. Dependent parents of applicant are now also included (extended family).
You may work in Spain.
Spanish nationality (optional). This is a 2-year Residency Permit, not the right to permanent residency or a Spanish passport. However, it can lead to long-term Spanish residency after 5 years of continuous residence, and citizenship after 10 years.
Underaged children may study in Europe. Underaged offspring can live and study in Europe, in company of your partner, whilst you work and earn money abroad.
Return on investment. Take advantage of Spain´s burgeoning real estate recovery. Year-to-date (first five months), the market has expanded by double-digits in almost every region compared to the same period last year. Property prices are rising sharply spearheaded by Madrid (+17% YOY), Barcelona (+11% YOY), Mallorca (+15% YOY) and selected coastal areas. Low prices and cheap mortgages will not last forever, dip in whilst you can.

General Requirements

Applicants pursuing investor visas must comply with the following general requirements:

Non-EU national.
The investor applicant must be of legal age (18-years-old or over).
The investor must not hold a criminal record whether in Spain or in the previous five years where he has resided.
Not be already in Spain irregularly.
Have access to medical insurance whether private or public.
Have sufficient financial means to support both himself and his family whilst in Spain.
Pay the relevant application fee.

Specific Requirements

Qualified residency permits to non-EU residents will be offered in return for any of the following:

Invest at least €500,000 in Spanish real estate property.
Invest at least €2,000,000 in Spanish Treasury Bonds.
Invest at least €1,000,000 in shares of Spanish companies.
Deposit at least €1,000,000 in Spanish bank accounts.
A ‘major’ business investment which fulfils at least one of the following three conditions:

Meaningful job creation as a direct result of the investment.
Significant socioeconomic impact in the geographical location where the activity will be carried out.
Technological or scientific impact.

Interested? Come and speak to Larraín Nesbitt Lawyers’ friendly staff who will be pleased to guide you through Spain’s Golden Visa programme. Your family’s success is only one call away: (+34) 952 19 22 88

"The predecessors plant trees [and] the next generation cools off in the shade." – Ancient Chinese proverb.

Golden Visa Service *

We are specialized in conveyancing

**includes one family unit*

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by completing our contact form or by telephone on (+34) 952 19 22 88.

Article originally published at Spanish Property Inisght: Golden Visa Spain

Legal services Larraín Nesbitt Lawyers can offer you

Golden Visa related articles

Investor Guide to Spain’s Golden Visa Law – 8th November 2013
Golden Visa (Chinese) – 8^th July 2015
Golden Visa Spain – 8th June 2017

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Holiday Rental Taxation in Spain

Raymundo Larraín Nesbitt, June, 19. 2018

Marbella-based lawyer Raymond Nesbitt gives us an overview on how the taxation for holiday homes work in Spain from a non-resident landlord perspective. For an abridged version of this article here: Holiday Rental Taxation in Spain.

Larraín Nesbitt Lawyers takes the stress off your taxation making it easy, freeing you up so you can relax and spend more quality time enjoying what you value most in life.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of July 2018

Introduction

I often get emails from distressed clients moaning on how the taxation on holiday lettings is convoluted and scares them off. I can relate to someone who, unaccustomed to dealing with taxes, let alone Spanish ones, may feel somewhat overwhelmed by the sheer over-complication and admin red tape involved.

Fortunately, that is where lawyers and economists step in, simplifying matters, and lending you an expert hand to file these taxes in exchange for a reasonable fee in your own language.

Following a new batch of regulation, non-resident landlords can now benefit from generous tax relief which used to be earmarked exclusively for Spanish resident taxpayers. These new laws have had a huge impact in taxation, vastly reducing non-resident landlord’s tax bills.

However, in our experience, few tax advisers are actually taking advantage of these changes in non-resident taxation or else purposely ignore them so as not to ‘overcomplicate’ themselves on filing tax forms! This translates into their clients facing large tax bills which could have been legally avoided if some care and diligence had been put in.

Larraín Nesbitt Lawyers offers a standardized tax service in English for non-residents which is easy to understand and very competitively priced. Do not allow yourself to be discouraged from renting out your Spanish property. As we care to quote in all our holiday home tax articles:

"We will save you more money on taxes than what you spend on hiring us."

Ideally, this article should be read in tandem with the one we wrote last year on the same topic: Holiday Home Taxation in Spain.

Who qualifies for landlord tax relief?

You are EU/EEA-tax resident
You can attain a tax residency certificate from your home country

What makes our rental tax service different and why should you hire us?

We offer to reduce your non-resident landlord tax bill by a minimum of 40% – or money-back guarantee. No questions asked. *
On average, we reduce landlord’s tax on rental income by 70%, or more.
Deal only with native English-speaking lawyers and economists. No lost in translation shenanigans.
Very competitive fees.
Fast, responsive, easy-to-understand tax service.
We will calculate and put in writing exactly how much money on taxes we have saved you through our tax service.

*luxury rentals are excluded from this offer

New changes to non-resident taxation: the taxman knows

The Spanish taxman knows you are renting. Three landmark changes in taxation took place in 2018 which constitute game-changers.

Don’t make the glaring mistake of underestimating the Spanish Tax Office (AEAT) thinking it is unaware of your rental income business. You will be caught and slapped a fine. The Spanish Tax Office is actively cracking down on taxpayers, both resident and non-resident, who fail to file and report their rental income. Spain’s AEAT is slow albeit relentless.

The Common Reporting Standard (CRS).

Over 100 countries signed an agreement to combat tax evasion. This agreement came into force in Spain on January 2018. It has as a pivotal hallmark the automatic exchange of fiscal information between countries on taxpayers. Signatory countries no longer need to formally request information on taxpayers, they receive it automatically - without even having to ask for it. Both the United Kingdom and the ‘not-so-united’ Kingdom of Spain have both signed it. It is foolish to think the (Spanish) taxman is not aware of your Spanish rental income if you have been declaring it in your home country in lieu of Spain. This tax on rental income should have been declared and paid in Spain, not in your home country i.e. in the UK. As a result of the CRS, you may have received earlier on this year letters from your Spanish bank asking you to disclose tax information or else threatening you to block your accounts in Spain.

An in-depth look into the impact of the CRS in our article: Non-Resident Income Tax.

Bottom line, your home country is busy informing the Spanish Tax Authorities - and vice versa - on your tax affairs: reported income, savings, assets, investments, pension pot etc.

Full disclosure agreements signed in 2018 between the Spanish Tax Office and property portals (AirBnb).

Despite putting up a cat fight, the US giant AirBnb finally caved in and agreed to bury the hatchet on signing a full disclosure agreement with Spain’s Tax Office (source: Cinco Dias, The Ibizan). The newly updated privacy policy conditions for Spain, effective 25^th May 2018, now read as follows on section 3.10:

"3.10 Tax Office

Hosts and Guests expressly grant us authorization, without additional notification, to disclose data of the Hosts and Guests and other information regarding both or their transactions, reservations, accommodations and taxes on accommodation to the relevant tax agencies, including, among other information, the name of the Host or Guest, the ad addresses, dates and amounts of transactions, NIF / CIF and contact information, as well as the amount of taxes that the Hosts have received from Guests (or that they owe to the first).”

These new terms apply to all properties located within Spanish territory. It doesn’t matter if you sign an agreement in the UK, it is the Spanish terms that are applied because the properties are located in Spain.

In short, AirBnb will tell the tax office everything they need to know. The tax office will be able going forward to calculate how much back tax you owe on undeclared rental income (and slap you fines and delay interests). This exchange of information begins end of 2018 / early 2019 backdated to May 2018.

It follows that if the Spanish Tax Office had AirBnb bend the knee - the most powerful of the pack - other portals will follow suit. It is only a matter of time.

If you have not been declaring and paying tax on your rental income in Spain, you should pre-empt fines, delay interests and surcharges by coming clean and filing taxes before the Spanish Tax Office is on to you.

Be proactive and speak to Larraín Nesbitt Lawyers to regularize your tax situation for a nominal fee ASAP. Be smart, avoid fines, penalties and delay interests!!

Tax form 179

Last month, we saw the creation of the new quarterly tax form 179. This form creates the obligation for holiday letting intermediaries (i.e. property portals) to report to the Spanish Tax Office on a quarterly basis. They will supply all relevant information to the tax office on property identification, guest details, landlord’s rental income, number of days hired, method of payment, etc. Non-compliance by letting intermediaries has associated fines that range from €20 to €600,000.

Non-payment: Tax office penalties

The Spanish Tax Office has already issued warnings to over 134.000 property owners advertising holiday lettings over unpaid tax. Fines for non-payment of tax on rental income range from 50 to 150% of the undeclared amounts, plus delay interests. The AEAT can collect taxes dating back 4 years. These fines are in addition to those levied by Regional Tourist Authorities (see section below) on unlicensed holiday rentals (up to six-figures!)

If you want to take your chances with the Spanish Tax Office, good luck with that, you will receive a nasty letter such as this one: requerimiento inspección.

You only have 10 days to answer (in Spanish) the tax office’s letter. If you are a non-resident, chances are you won’t be able to and will be landing yourself in hot water.

Don’t risk it, pay your taxes. Larraín Nesbitt Lawyers will greatly reduce your tax bill.

Regional Tourist Authorities – attain a holiday rental licence

Several regions across Spain, on the back of popular uproar and nudged by the hotel industry, have enacted holiday home laws over the last years which range from the overtly permissive to uber-restrictive (i.e. Balears, Catalonia). All these regions require you attain a tourist rental licence if you do not want to be fined for leasing illegally to tourists.

The regional fines for non-compliance are steep across the board, reaching 6-figures in most cases. Take good note that these humongous fines imposed by Regional Tourist Authorities are totally unrelated, and in addition, to those imposed by the Spanish Tax Office on any undeclared rental income (see section above).

If you plan to offer your property out as a holiday rental, you should first register it and attain a Tourist licence from your Regional Tourist Authority.

---> Larraín Nesbitt Lawyers offers a 24-hour registration Tourist licence service exclusive to the region of Andalusia: Registration of Holiday Homes (Andalusia). We will set you up and make it very easy for you to start renting out legally in a jiffy.

Non-Resident Landlord Tax Obligations

Non-resident landlords are liable for the following two set of taxes, depending on whether you rent out or not.

I. You lease your property: Non-Resident Income Tax (NRIT)

Paid quarterly

On owning property in Spain and renting it out, whether long or short-term, you need to file a quarterly tax on your rental income. One tax form needs to be filed for every joint owner.

Filed: quarterly, on the first 15 days of every January, April, July and October.

Tax rates:

Resident in E.U., Iceland or Norway: 19% of net profit
Rest of the world: 24% of net profit

--->We offer you this tax service: Holiday Rental Accounting Service (HRAS)

Flat fee: €125/tax quarter/per property*

*Includes only up to two joint owners. More than two joint owners, has a higher fee. Does not include additional accounting services such as VAT invoicing i.e. your tenant is a company.

**II. You do NOT rent out your property: Non-Resident Imputed Income Tax (NRIIT)**

Paid once a year

Even if you do NOT rent out your property in Spain, regardless, non-residents still need to file once a year this testimonial tax. Also, on the days you do not rent out your property in Spain these are taxed as imputed income on a pro rata.

It is a legal fiction whereby it is surmised that you derive some form of financial benefit from your Spanish home; that is why it is called non-resident imputed income tax as it is deemed. Spanish Authorities take the view an owner derives a benefit in kind from owning property, irrespective of whether it is true or not, and taxes it accordingly.

Filed: once a year, before end of December of following year.

Tax rates: Rent is assessed as 1.1% or 2% of cadastral value. Tax rate is applied on this amount.

--->We offer you this tax service: Non-Resident Income Tax (Fiscal Representation).

Flat fee: €100/year *

*This fee includes up to two joint owners.

Conclusion

Dodging taxes on rental income is risky business in Spain following the changes above, besides many others I do not care to list e.g. cross-checking utility consumption against properties which are purportedly ‘empty’ etc.

Bottom line, the tax office is launching a widespread campaign to catch all those landlords who systematically fail to pay taxes on their holiday rentals. Be legal, don’t get caught out.

Why pay more taxes than you ought to?

Don’t overpay taxes – contact us. Our team of native English-speaking lawyers and economists has a long track record (over 15 years' experience) successfully assisting expats on their tax matters in Spain.

Come and speak to Larraín Nesbitt Lawyer’s friendly staff, we will mitigate your tax exposure with efficient tax-planning and avoid non-optimal taxation scenarios, within the law.

We file taxes all over Spain.

We offer the most competitive fees in the market.

Holiday Rental Accounting Service (HRAS) from only €125/tax quarter

We are specialized in taxation

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

"Ofrecer amistad al que busca amor es dar pan al que se muere de sed." – Gabriel García Márquez

Gabriel ‘Gabo’ José de la Concordia García Márquez (1927 - 2014). Colombian master novelist, short-story writer, screenwriter and journalist. Awarded the Nobel Prize in Literature in 1982. Outstanding example of the ‘magic realism’ literary Bewegung. Among his most lauded novels are One Hundred Years of Solitude, The Autumn of the Patriarch, and Love in the Time of Cholera. From humble origins and through great personal sacrifice, he turned in deposit bottles and collected old newspapers for cash in Paris, he rose to prominence with the invaluable support of his wife and closest friends.

Article also published at Spanish Property Insight: Holiday Rental Taxation in Spain

Legal & tax services available from Larraín Nesbitt Lawyers:

Holiday rental taxation-related articles

Holiday Rental Laws in Spain – 8th of March 2015
Non-Resident Taxes in Spain – 8th December 2015
Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
Renting in Spain - Landlord´s Taxation – 8th of January 2017
Holiday Home Taxation in Spain – 8th of July 2017
Holiday Rentals in Andalusia Made Easy – 3^rd July 2017
Non-Resident Income Tax – 8^th December 2017
Holiday Rental Taxation in Spain – 8th July 2018
Holiday lettings: with or without VAT? – 21st June 2018

... Read more

8 Tips on Buying Off-Plan in Spain

Raymundo Larraín Nesbitt, June, 11. 2018

Marbella-based Lawyer Raymond Nesbitt gives us an overview on how to avoid the most common pitfalls on buying new-build property in Spain. He introduces his article with a brief overview of the property market.

The following article has been greatly summarised to avoid unnecessary legal technicalities. The advice given is of a general nature only and should not be construed as tailored legal advice. Seek professional legal advice on your matter – see disclaimer below. The author does not endorse any of the offplan developments mentioned below for illustration purposes only.

Photo credit: courtesy of Stavanger Group, Belfry villas, Estepona

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of June 2018

Brief overview of the Spanish property market

The sales season is upon us.

Resales remain somewhat sluggish, yet off-plan has taken off and is on full cruise mode.

This is reminiscent on how the last property cycle started (1999 – 2007), with offplan spearheading the recovery and pulling in its wake the resale market. Obviously, market conditions are very different now and no one should expect a huge boom as in the previous cycle.

However, hard data suggests we have clearly started a new expansionist super cycle, as I ventured in last Aprils’ article:

Property prices in Spain (confirmed sales) jumped by almost 10% in the first quarter of 2018 following S&Ps Case-Shiller Home Price Index, according to the latest figures released in May by Spain’s Land Registrars Association (Colegio de Registradores de la Propiedad de España). This impressive figure, all unto itself, is a huge market indicator that flags the real estate market is back on the move.
The overall number of house sales increased 23% year-on-year in January 2018 according to Spain’s National Statistics Bureau (INE). House sales figures grew incrementally for nine consecutive months. There was a 46% jump from December to January in house sales and the trend remains unabated on the 1Q 2018.
The construction sector in Spain has increased 6% year-on-year on the 1Q 2018, following the latest figures released in June by Spain’s National Statistics Bureau (INE). This explosive surge in growth is unprecedented since the year 2001. The construction sector accounts for 10.6% of Spain’s GDP in 2018; a far cry from the jaw-dropping 20% figure reached in the apex of the property boom in 2006/2007.

What these three tantalizing figures translate into - without the esoterics - is that Spain has finally turned the corner in 2018 and is firmly set on the road to recovery. British buyers, traditionally Spain’s strongest market, remain subdued with Brexit looming ominously on the horizon. Northern Europeans, mainly Nordics and Belgians, have taken pole position in this new uncharted market.

The fledgling green shoots, which started in 2014, consolidated all throughout 2017 and are gaining traction in 2018. With this off-plan frenzy in mind, I thought it would be a good idea to publish a gentle reminder on the eight tips new-build buyers should be mindful of.

Brick is back. Can you afford to miss out?

8 Tips on Buying Off-Plan in Spain

Hire a qualified registered Lawyer (Abogado)

Beware of intruders who claim to be Lawyers or law firms but are not registered to practice. Unlike Lawyers, they don’t have professional indemnity insurance and lack the legal qualifications to practice. I see plenty of such outfits advertising themselves regularly on popular expat magazines with glossy ads peddling their conveyance ‘services’. They will label themselves with fancy titles such as: consulting firm, legal office, legal consultant, iuris consultant, jurist, legal executive, oficina juridica, legal advisor, legal assistant, paralegal etc.

In Spain it is very simple, you are either a Lawyer (Abogado) or you are not; there is no in-between. Always ask the person you are dealing with for their Law Society’s number and verify they are registered to practice. If the individual refuses to give you his practising number, walk away. In the last property cycle these intruders wreaked havoc and are now back in force!

Specifically, on buying new-build, it is highly advisable that you retain a seasoned registered Lawyer before you commit yourself signing any document or else paying any amount. Initial down payments, such as holding deposits which strike the property off the market, are non-refundable unless specifically agreed otherwise. If you pull out, you will likely forfeit your deposit.

Many legal problems could easily be avoided on following this simple advice. Don’t be in a rush to hand over your money without having hired an independent Lawyer first; do not allow yourself to be pressurized by intermediaries. Rash decisions often turn out to be expensive mistakes in life.

Our law firm has over 15 year’s conveyancing experience at your service. You can read further here: Buying Property in Spain – 10 reasons to hire a Lawyer

Plot of land under a developer’s name

In the last property bubble, many developers marketed and sold on whole developments without even owning the land.

One should never buy an off-plan unit in a land that is still not registered under the developer’s name. There are far too many associated risks to take a gamble with your hard-earned money.

This is one of the checklist points your Lawyer will do as part of his conveyance due diligence.

Building Licence

The basic recommendation is not to sign a Reservation Contract or a Private Purchase Contract (PPC) unless the town hall where the property is located has issued a Building Licence for the development. You should categorically not buy a property that lacks planning permission, it is only basic common sense.

This is by far the biggest mistake that – unbeknownst to many – a buyer can possibly make. Many problems could easily be staved off on following it. The Building Licence will ensure that the building is above board and the property is not being built in green belt land, for example.

Residenziale Cataleya-Salón comedor ático-Porcelanosa.jpg

Photo credit: courtesy of Erasur, Cataleya, Estepona

Bank Guarantees

Once your Lawyer has checked the plot of land is under the developer’s name and there is a valid Building Licence issued, it’s time to sign the reservation contract.

The instalments paid while the property is being built can be guaranteed by means of what is known generically as a ‘bank guarantee’. For more information, please read our detailed article on Bank Guarantees in Spain. Bank guarantees only work now if a Building Licence has been issued (further reading in my blog post). In other words, any payments made towards off-plan property that lacks a BL, will be unsecured.

Bank Guarantees are a legal tool devised to secure the interim deposits of prospective off-plan purchasers should their properties not be delivered on time or their developers file for administration. Every payment made towards the property, including the initial holding deposit, should be secured by a bank guarantee.

A bank guarantee is of critical importance, acting as a safety net securing all your stage payments, should the developer fail to complete your property.

Licence of First Occupation

A Licence of First Occupancy (also known as Habitation Licence or Certificate of Habitation and in Spanish, Licencia de Primera Ocupación or Cédula de Habitabilidad) is a certificate issued by a town hall that confirms that a newly-built property fully complies with all planning and building regulations and is ready to be used as a dwelling. A LFO allows off-plan purchasers to dwell in a property legally. You can read more on this subject in our in-depth article on the Licence of First Occupation.

A LFO is important mainly for four reasons:

It provides a check on the planning legality. A LFO means the developer has built the dwelling in compliance with the original town hall’s Building Licence as well as with all Planning laws. The inspection to grant this licence is carried out by town hall’s chartered technicians who certify that the dwelling complies fully with Health, Safety, Planning and Construction Laws and is deemed apt for human habitation.
It is required by utility companies to have access to official supplies (water, electricity and gas). Spanish law requires the granting of the LFO to hook up the dwelling to the supply grid.
Lenders will ask for it if you require finance. Banks will also be asking you for a LFO. Even on selling the property, your buyer will request a copy for his own lender.
Holiday rentals. If you are looking to buy as an investment (buy-to-let), a LFO is required by regional Tourist Authorities to rent out your place on a short-term. If your property hasn’t attained a first occupancy licence, you will not be able to legally rent out your house and may be landed with humongous fines if caught red-handed. The fines for non-compliance are six figures in some regions of Spain.

Be wary of anyone downplaying the importance of a LFO claiming it is unnecessary. In general, I advise you not to complete without a Licence of First Occupation.

NIE number

A NIE number is a Fiscal Identification Number for foreigners and is required, among other things, to buy property in Spain. More details in our article: NIE Number Explained.

You can attain a NIE Number through us in only 3 days.

Snagging list

Before you complete on a newly-built property you should always do a snagging list of the property. You can either draw up a snagging list yourself or else appoint one of the many reputable companies that may carry it out on your behalf.

It goes without saying that Lawyers do not carry out snagging lists! This is why we strongly advise you to hire a chartered surveyor. Ideally, your surveyor should be a fellow of the Royal Institute of Chartered Surveyors (RICS), so you are guaranteed they work to British standards. You should know that Spanish survey reports are very different from our own.

You can read further on this topic in our detailed article Snagging List Explained or else in my Q&A with The Sunday Times.

For post-completion flaws and their repair, please read our article on Off-Plan Construction Flaws: Know Your Rights so you learn what your rights are and how to defend yourself once you have completed on a new build property. Post-completion, building flaws may become apparent which were either not picked up during the snagging list or else are new.

Photo credit: courtesy of Real Capital Solutions, Arboleda villas, Estepona

Post-completion: dealing with property taxes, utilities, community fees & other

Once you have acquired your new Spanish property, you will have to face all the associated running expenses. Make sure you have carefully budgeted for this to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines may have steep maintenance expenses.

You should open a Spanish bank account if you haven’t done so already. Utility companies do not accept overseas payments and only accept standing orders against your Spanish account.

You should set at least as standing orders all the following:

IBI tax. Paid once a year (akin to the UK’s Council tax).
Rubbish collection tax. Paid twice or once a year depending to your town hall.
Utility bills (invoiced quarterly in the case of water and monthly with electricity).
Community fees (only if you’ve purchased in a Commonhold). Usually quarterly but may vary.

The particularities on buying off-plan are for example that IBI tax will not be usually readily available to pay until two years after you’ve purchased the property, maybe even more. You will be nonetheless held liable for those two previous years on the backdated IBI tax. Failure to pay IBI tax may lead to your house being auctioned off to recoup the debt. More on these taxes in our article Non-Resident Taxes in Spain.

You are also liable to file Income tax on owning property in Spain every year for which you need to appoint Fiscal Representation. Even if you do not rent out your property, you still need to pay this tax every year as a non-resident. We have a very competitively-priced taxation service, ask us.

Holiday rentals

If you do decide to lease your Spanish property as a holiday rental, given the spectacular rental boom Spain is undergoing over the last two years, we offer a Holiday Rentals Accounting Service (HRAS).

We can reduce your landlord tax bill by a minimum of 40% - or your money back! Ask us.

Spanish will

To close, we cannot stress enough how advisable it is that you make a Spanish will to dispose of your Spanish estate. This will not preclude any other will made in your home country and is limited exclusively to your Spanish assets. A Spanish will saves your beneficiaries time, money and hassle at a time of bereavement as it greatly streamlines the Spanish succession procedure. Contact us on our will writing service.

We offer the most competitive fees in the market.

Conveyancing – Buying from €995

We are specialized in conveyancing

Larraín Nesbitt Lawyers, small on fees, big on service.

"Podrán cortar todas las flores, pero no podrán detener la primavera." — Pablo Neruda

Ricardo Eliécer Neftalí Reyes Basoalto (1904 – 1973). Brilliant Chilean poet. Since a young age he proved to be extraordinarily gifted with the Arts writing all manner of poems. Nobel Prize winner for Literature in 1971. Due to his international high-profile and strong political beliefs, which he passionately defended, was suspected poisoned on the orders of Dictator Augusto Pinochet only days after his nefarious coup d'état. Among his timeless classics, 20 poemas de amor y una canción desesperada stands head and shoulders above the rest. The Colombian master novelist Gabriel García Márquez once called him "the greatest poet of the 20th century in any language."

Article originally published in Spanish Property Insight: 8 Tips on Buying Off-Plan in Spain

Legal services Larraín Nesbitt Lawyers can offer you

Conveyancing – Buying from €995
Conveyancing – Selling from €795
Non-Resident Income Tax (Fiscal Representation) from €90/year
Holiday Rentals Accounting Service (HRAS) from €100

Off-plan-related articles

Buying Off-Plan Property in Spain – 8th of June 2013
House Hunting in Spain – Interview with The New York Times. June 2015
Resurgent Spain: Málaga Sees Strong Sales – Interview with Mansion Global (The Wall Street Journal). December 2015
Buying Property in Spain from a developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Non-Resident Taxes in Spain – 8th December 2015
Non-Resident Income Tax – 8th December 2017

... Read more

Seven Advantages of Making a Spanish will

Raymundo Larraín Nesbitt, May, 1. 2018

Marbella-based Lawyer Raymond Nesbitt explains the advantages of making a Spanish will.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of May 2018

Ideally foreigners should make two wills; one in their home country ruling on their national assets and a second Spanish will drawn up in Spain which will rule exclusively on their Spanish estate.

Recent European legislation (Brussels IV) has rendered some old Spanish wills made by British void. In such cases it is highly recommended a lawyer drafts a new one to safeguard your heirs' interests. Any will witnessed before the 17th of August 2015 should be revised by a Lawyer to ensure it is fully compliant. More details in our article: Spanish Wills and Probate Law in light of European Regulation 650/2012.

Our law firm can draft a Spanish will (in English and Spanish). More on this: Will-writing service.

A Spanish will only affects your Spanish estate. It does not affect any assets or preclude any prior will witnessed in your home country.
Drawing up a Spanish will help your heirs mitigate their tax bill. There’s a deadline of 6 months as from the time of the testator’s demise to file and pay Spanish Inheritance Tax (IHT). Late payment of IHT attracts surcharges, penalties and delay interests. A Spanish will cuts through the red tape streamlining the succession procedure so tax is paid on time within the deadline (without attracting penalties and interests on top).
Drawing up a Spanish will saves both money and hassle. If you only make an English will, your beneficiaries will have to follow a Grant of Probate in the United Kingdom (over £1,200). You'll need to translate into Spanish by a sworn translator all legal documents, notarise them and affix to each of them the Apostille seal of The Hague Convention. All this greatly increases the expenses for your beneficiaries, as well as significantly delaying the whole procedure of transferring your Spanish estate which will attract surcharges, penalties and delay interests (point two above). However, if you make a Spanish will, the above becomes redundant.
Spanish wills are stored safely at no extra charge. On making a Spanish will, you will be given only a “copia simple” (simple copy) or “copia autorizada”. The original is stored by the Notary in his files for record. Should you lose your copy, don’t panic. All Spanish wills' details are safely stored at Madrid’s Central Registry of Last Wills. One can always request a copy and if you believe you are a beneficiary, they will let you know before which Notary it was witnessed.
Spanish wills drawn up before a Notary public add security. Making a will is a personal act. A Notary is a highly qualified law professional who witnesses the signing of a will. He will highlight any incorrection or illegality.
The content of a Spanish will is governed by your own national laws. This means that you are not constrained by Spain’s forced heirship rules. Additionally, if you are a British or Irish national, you have free testamentary disposition in Spain. Meaning you can make a will exactly the same as you would in the United Kingdom or in the Republic of Ireland, albeit with all the additional advantages for your loved ones that I’ve highlighted above.
A Spanish will can be worded in English. Spanish wills can be drafted in double barrel, English-Spanish, so you know at all times what you are signing at a Notary public.

We offer the most competitive fees in the market.

Will writing service

We are specialized in inheritance

“Intelligence is the ability to adapt to change.” – Stephen Hawking.

Stephen William Hawking (1942 - 2018). English theoretical physicist, cosmologist, writer, and director of research at the Centre for Theoretical Cosmology at the University of Cambridge. Former Lucasian Professor of Mathematics at the University of Cambridge and author of A Brief History of Time. Likely the world’s smartest man. Despite his serious physical condition from a young age, he sported a brilliant sense of humour that humbled all and made him appear no less than four times in The Simpsons show as himself - no one else holds this record to date. Given his physical disability and the severe adaptation he endured, if we are to go by his own quote, his mind must have been touched by God.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, conveyancing, taxation and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published in Spanish Property Insight: Seven Advantages of making a Spanish will

Legal services Larraín Nesbitt Lawyers can offer you

Inheritance-related articles

Non-Residents: Six Advantages of Making a Will in Spain – 8th August 2012
Spanish Wills and Probate Law in Light of European Regulation 650/2012 – 8th January 2015
Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
Dispelling Spanish Inheritance Tax Myths – 8th August 2015
Spanish Inheritance Tax for Non-Residents (Part I) – 21st February 2016
Spanish Inheritance Tax for Non-Residents (Part II) – 8th March 2016
Non-Resident: Why you need to make a Spanish will – 24th June 2017
Andalusia to slash Inheritance tax for inheritances under 1 million euros – 21st September 2017

... Read more

Bank valuations vs. market value

Raymundo Larraín Nesbitt, April, 10. 2018

Lawyer Raymundo Larraín explains the difference between both concepts as they are often confused by non-residents. He also ventures the start of a new expansionist super cycle in some areas of Spain.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of April 2018

Introduction

The Spanish property market has been a roller coaster over the last decade. From the dizzying heights of 2007 to the gut-wrenching lows of 2011. Over the last 15 years bank valuations have compounded this erratic behaviour exacerbating it. When property values were high, lenders overvalued properties by a long shot; when property values fell, lenders undercut property values even well-below their current market value.

I have been prompted to write this article on the back of low bank valuations which have nearly botched a series of conveyances I have been recently involved with as demand for Spanish property remains unabated. If you are an industry insider, you may want to skip this article altogether because it would be like teaching granny to suck eggs. This article is aimed to be read by neophytes who are largely unaware of how things work in Spain. I thought it would be a good idea to shed light on two points as I keep having to explain them to clients.

Firstly, to dispel a common blunder between non-residents that Spanish bank valuations are a true reflection of a property’s market value at any given time, which is simply untrue.

Secondly, why bank valuations seem to be always so out of touch with reality never seeming to match the real market value.

Bank valuations are NOT a reflection of a property’s market value

One of the first things I was taught in Economics 101 at university, is that the price of a good is always determined by the intersection of demand and supply at any given moment. In other words, prices of goods and services fluctuate over time in line with demand and supply.

A property that was worth one and a half million euros at the peak of the market, can now go for €900,000. But it may have fallen as low as €700,000. So, what is its real price? Is it 1.5m, 900k or 700k? The ‘real’ price is what someone else is willing to pay a vendor at any given moment. If you can find someone willing to pay 1.5m, that is its current market value.

Bank valuations however do not reflect real market values. They are devised for a mortgage loan application and often are calculated for the purposes of an auction value (in the event of a bank repossession).

A common occurrence is for a foreigner to agree to buy a property for say €500,000, apply for a mortgage loan and then be upset to find out his lender values the property at ‘only’ €400,000. The buyer feels cheated at the €100,000 shortfall and becomes angry with the vendor, estate agent and even with the lawyer!

Bottom line, Spanish bank valuations are NOT a reliable assessment of a property’s current market value.

Why are bank valuations so out-of-sync with the market value?

Lenders, believe it or not, have their own vested interests which at times (read frequently) are misaligned with a borrower’s interests. Lender’s valuations serve a purpose: the bank’s purpose, not yours.

Why were properties overvalued during the property bubble haze? In the early two thousands the then Chairman of the US Fed, Mr Alan Greenspan, flooded the financial market with cheap credit on slashing interest rates. This prompted a credit bubble of gargantuan proportions which led to a house of falling cards with which we are all too familiar. Back in the day, it was in the best interests of lenders to overvalue properties well-above the accepted market price so that borrowers borrowed as much money as possible (read up to their eyeballs) to over-indebt themselves. This (reckless) credit policy led banks to profit from huge gains in the short-term (at the expense of the mid to long-term growth). Basically, anyone with a pulse qualified for a mortgage loan. In my opinion self-certified mortgages exemplified like no other this ‘irrational exuberance’ (credit furore) at the start of the new millennia.
Why are properties so undervalued now in 2018? Lenders suffered great losses post 2008 leading to hundreds going under. Many were forced to request state-backed loans to prop up zombie balance sheets. The Spanish government bailed out several banks but imposed harsh repayment terms in exchange. The slow and painful readjustment of the banking sector - which still endures a decade on - led to merges and acquisitions, tighter credit regulations and also to laying off dozens of thousands of bank employees and forced early retirements. As a result of this state-imposed downsizing, lenders are now ultra-conservative on their lending criteria and value properties prudently (read undervalue them significantly). The interest of lenders now, a decade on, is the opposite; to only lend money restrictively to creditworthy customers which actually have the ability to fully repay mortgage-backed loans. This goes on to explain why lenders nowadays purposely (under) value properties well-below the current market value, because they wish to spread the loan risk and force would-be borrowers to pay a larger percentage of the property’s value out of their own pocket. In the event of a default, a bank wouldn’t lose as much.

Conclusion

Buyers should not be shocked if their chosen lender values the property they are buying 25 - 35% below the agreed asking price. Bank valuations are simply a reflection of a lender’s credit policy, nothing more; which currently is ultra-conservative in the aftermath of the banking collapse of 2008 (The Great Recession).

What really matters on buying is that the property you are purchasing can be resold later on for a higher price. That is what should concern you foremost. Asking rental prices and capital appreciation underpin any sound financial investment. Spain's real estate market seems to be staging a comeback in full swing on both accounts according to the latest macroeconomic figures.

Asking rental prices are soaring by two digits year-on-year as reported by experts. The exact figure remains contentious, as some prestigious media, like El Pais daily, quote a 21% annual increase whilst others, such as El Mundo daily, estimate the national average rental increase to be at 10.2%. In any case, minutiae aside, the consensus is clear and unanimous that we are witnessing a whopping two-digit rental growth in asking rental prices year-on-year. Nothing short of a new rental bubble. I analyse this new lease frenzy in my article Holiday Home Taxation in Spain.

Capital appreciation is quickly catching up with the above figures. After having reached all-time lows in 2011, properties in Spain are gradually picking up the pace seven years on (abetted by historic ultra-low interest rates which translate into cheap mortgages). Although Spain’s real estate market remains largely fragmented in a two-speed recovery, with some areas steaming ahead whilst others sluggishly trail behind, there is a reported one-digit year-on-year gain across the board. And even stunning two-digit capital appreciation year-on-year in selected areas with prime beachfront locations as well as in large Spanish cities such as Madrid (17%), Palma de Mallorca (14.7%) and Barcelona (11%); source TINSA. Some bold economists and rating agencies (Fitch) are even predicting the start of a new property bubble…

The average rental yield in Spain can be expected at 5% pa (dependent on location). If to that you also add the potential of capital appreciation, Spanish real estate is poised for combined two-digit gains over the next years easily trumping alternative investments and paltry fixed returns in a context of historic ultra-low interest rates.

If one thing remains constant in Spain’s ever-changing property market is that it is cyclical (roller coaster metaphor). Hard data suggests we are geared towards a new expansionist super cycle.

Can you afford to miss out?

Buying property in Spain? Our law firm has over 15 years' experience dealing in conveyance transactions nationwide. Deal only with native English-speaking lawyers and economists, we will be very pleased to discuss your matter with you.

The thrust of my whole article can be neatly summed up in the wise words of a great American writer.

“A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.” – Mark Twain.

American writer, humourist, entrepreneur, publisher, and lecturer. Among his novels are The Adventures of Tom Sawyer (1876) and its sequel, the Adventures of Huckleberry Finn (1885).

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyance, taxation, inheritance and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article originally published at Spanish Property Insight: Bank valuations vs. market value

Legal services Larraín Nesbitt Lawyers can offer you

Conveyancing-related articles

House Hunting in Spain – Interview with The New York Times. June 2015
Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
Buying Property in Spain from a Developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Non-Resident Taxes in Spain – 8th December 2015
Non-Resident Income Tax – 8th December 2017
Bank valuations vs. market value – 8^th April 2018

... Read more

Tax advantages on becoming resident in Spain

Raymundo Larraín Nesbitt, February, 26. 2018

Contrary to popular belief, it is not all bad news on becoming resident in Spain. Lawyer Raymundo Larraín sheds some light on the matter, casting away some widely held prejudices.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of March 2018

Introduction

2018 will go down as a year of changes. The advent of the Common Reporting Standard (CRS, for short) coupled with the dreaded Brexit will significantly dent the taxation of non-residents in Spain.

‘Fake’ non-residents in Spain will have already started to feel the heat from their lenders as from early January in the shape of letters, emails and phone calls requesting clients confirm their tax details that will be relayed over to the Spanish Tax Office. Moreover, some Spanish banks have even contacted some of my clients threatening them with freezing their bank accounts in Spain unless they could prove their alleged 'non-resident' status. This is quite the change from what we were used to in Spain in previous years where it was ‘no pasa nada’.

The Spanish Tax Office receives information from 47 different sources (!). So, going forward, ‘fake’ non-residents are playing a cat and mouse game with the tax office that will likely end (very) badly for them. Not to mention they could also get into trouble with their home country’s tax office as well. I already made it clear in previous taxation articles that you have to come out clean in 2018; or you are resident, or you are non-resident in Spain for tax purposes. You can no longer sit on the fence gaming the system to your advantage.

The purpose of this article is to give some pointers on why becoming (tax) resident in Spain is not as bad as some people would have us believe. Mind you, if you do become tax resident in Spain, you will be taxed on your worldwide income unless you are lucky enough to attain from Spain’s Tax Office a coveted Non-Domiciled tax status (only affluent taxpayers need apply, thank you very much) which basically legally exempts you from paying tax on your worldwide assets/income. So much for equality.

Advantages on becoming resident in Spain

The below list is open-ended, there are many more I do not mention (regional variations).

Income tax

Holiday home rentals: Landlords can benefit from lenient tax relief which on average reduces your tax bill by 70%, or more. Ideal for those with tourist rentals.
Residents and EU-residents pay a much lower percentage as opposed to non-residents (approximately 21% less tax).
Residents in Spain do not have to pay every year Non-Resident Income Tax.
You do not need to file an income tax return for earnings below €22,000 from one employer (not as self-employed)*.

Inheritance tax:

Take advantage of lenient tax allowances (at a three-tier level: national, regional and local) which make a vast majority of foreign inheritors not having to pay ANY inheritance tax whatsoever in Spain. For example, in Andalusia inheritances under one million euros are untaxed (per beneficiary). Post-Brexit inheritance taxes in Spain will be punitive for most British residents. If you are concerned on this, you can commission from us a Spanish Inheritance Tax Assessment Report (SITAR) which lays out clearly how much inheritance tax your heirs stand to pay in Spain. You can of course apply for unilateral tax relief from the HRMC (on the inheritance tax bill paid in Spain) despite their being no double-taxation treaty on inheritance matters.
95% of tax reduction on a heir’s taxable base on his main home (up to 99.99% in some regions in Spain i.e. Andalusia). **

Gift tax

Multiple regions in Spain offer generous tax allowances between next-of-kin i.e. Valencia offers €156,000 tax-free for cash gifts to under 21-year-olds. €100,000 euros tax-free for over 21-year-olds.

Capital gains tax (on selling your property in Spain)

No 3% of the sales proceeds withheld by the Spanish Tax Office on selling your property in Spain.
Rollover relief: investing the sales proceeds in a new main home in Spain (or in the European Union) will negate completely your cgt liability.
Absolute relief: pay no capital gains tax on selling your property in Spain. Over 65-year-olds are not liable for cgt on selling their main home. ***
More details on this in our in-depth taxation article: Capital gains tax mitigation on selling (or gifting) property in Spain – 8th May 2019

Plusvalia tax (on selling, on inheriting)

Town halls offer significant discounts to residents. Up to 95% in some cases.

IBI tax (Spain’s council tax)

Significant discounts available to residents.

Wealth tax

Wealth tax: huge reductions available for residents (€300,000 on main home, per partner) besides a personal tax-free allowance of €700,000. A resident couple may apply for a combined €600,000 tax reduction on their main home (in addition to their own personal tax-free allowance of €700,000 each).
Spain’s Non-Dom Tax Scheme (for affluent expats)

Other advantages

Access to free state healthcare: more information in my article How to apply for healthcare in Spain.
Voting rights in local elections: enrolling on your local town hall census (Padron) allows your town hall to receive more funds which in turn are used to improve public services (more ambulances, increased medical attention, discounts on public services etc.). This also allows you the right to vote in local elections.
Mortgage loan applications: Non-residents are limited to 60 - 70% LTV. Whereas Spanish residents are handed out more lenient terms, generally being able to borrow 80% LTV, or even more. When you are starting out your own business in Spain, this can make a key difference on the money you can raise.
Lease agreements: Non-residents, perceived as a greater financial risk because they have no ties to Spain, are required additional financial assurances from their landlords (read increased deposits i.e. 6-months in advance). Whereas Spanish residents are left off the hook and only need to comply with the bare minimum.

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Conclusion

Do you still think that becoming tax resident in Spain offers no real advantages? Think again.

Our team of native English-speaking lawyers and economists have a long track record (over 15 years' experience) successfully assisting expats on their tax matters in Spain. If you pay more taxes than you should, it is only because you want to.

Come and speak to qualified professionals, we will mitigate your tax exposure with efficient tax-planning and avoid non-optimal taxation scenarios.

Larraín Nesbitt Lawyers, small on fees, big on service.

“Está el hoy abierto al mañana.

Mañana al infinito.

Hombres de España: ni el pasado ha muerto,

ni está el mañana ni el ayer escrito" – Antonio Machado.

Antonio Cipriano José María y Francisco de Santa Ana Machado y Ruiz (1875 – 1939). Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98. Died in exile during the fratricidal Spanish Civil War. He is credited as being one of Spain’s most popular poets. Amongst his timeless classics, Campos de Castilla stands head and shoulders above the rest.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published at Spanish Property Insight: Tax advantages on becoming resident in Spain.

Legal services Larraín Nesbitt Lawyers can offer you

IRPF (Spanish Resident Income Tax) from €295
Conveyancing – Buying from €995
Conveyancing – Selling from €795
Non-Resident Income Tax (Fiscal Representation) from €90
Holiday Rental Accounting Service (HRAS) from €100

Related articles

Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
Buying Property in Spain from a Developer (Off-Plan Property) – 8th March 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
Selling Property in Spain – 10 Reasons to Hire a Lawyer – 8th December 2016
Non-Resident Taxes in Spain – 8th December 2015
Non-Resident Income Tax – 8th December 2017
Tax advantages on becoming resident in Spain – 8th March 2018
Capital gains tax mitigation on selling (or gifting) property in Spain – 8th May 2019

... Read more

Distinction between long-term and seasonal contracts

Raymundo Larraín Nesbitt, February, 10. 2018

Lawyer Raymond Nesbitt goes on to explain the key differences between long-term and seasonal contracts. He also points out the great advantages offered to landlords by seasonal contracts.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21^st of February 2018

Introduction

Picking up from last October’s article, where I wrote on the differences between seasonal and holiday home contracts (Seasonal lets: an alternative to holiday home rentals), in this month’s article I’m going to focus on the key differences between long-term and seasonal contracts. I will also make a case on why seasonal contracts are by far the superior option for most landlords.

Frequently, both types of lease agreements are befuddled leading to a mishmash of poorly-drafted lease agreements. Unbeknownst to the parties, this may have serious legal repercussions when such cobbled-up contracts are challenged at court.

I should clarify that the article’s title can be somewhat misleading, as seasonal contracts in truth can also be long-term. For clarity’s sake, when I mention long-term contracts, I will be referring to those which are used as a permanent place of abode and create lenient tenant entitlements as opposed to seasonal ones, which do not. I’ll define both types below, bear with me.

Definitions, definitions

Long-term contract: for this article’s purpose, it is understood as a long-term lease agreement which constitutes the permanent abode of a tenant (and his family). These contracts are subject to Spain’s Tenancy Act or Ley de Arrendamientos Urbanos. This law is the backbone of rental agreements and creates a raft of tenant entitlements which landlords ought to be acutely aware of before entering into any such contract. More details on this in my article: Urban Rental Law in Spain – Spain’s Tenancy Act – 8th May 2016.
Seasonal let: is a type of contract whereby a landlord rents a property not as a permanent abode. It can be either short-term (days, weeks) or long-term (months, years). Seasonal long-term lets are NOT subject to the batch of tenant entitlements set out by Spain’s Tenancy Act (which only apply to rentals that constitute a permanent abode, see above).

Landlord: the importance of getting it right

Normally when a landlord hires our law firm to draft a lease agreement, he is blissfully unaware of the (legal) implications he is getting into on signing a standard long-term lease agreement. Chiefly, that a tenant (and his family) can stay in the property legally for three years plus one at his own choice. A landlord has no saying over this, nada, only the tenant!

EDIT: 4th March 2019. Following new rental laws, this is now 5 years plus 3 for physical persons acting as landlords (total 8 years) and 7 years plus 3 for legal landlords (total 10 years).

If a landlord wishes to avoid having his property tied up for the next three years, or more, he should be signing instead a 12-month seasonal contract. When the 12 months are up, the tenant needs to leave the property unless a new seasonal contract is signed.

The significance of this is better understood with an example. The following is a real case.

An expat landlord has been struggling to sell his property in Spain for several years due to the Great Recession. In the meantime, to make ends meet, he rents it out to a family. This landlord - without taking any legal advice - downloads some random rental contract from internet and uses it. Once signed, sometime later, the landlord manages to find a buyer. The deal has a positive outlook. Regrettably, his buyer finds out the property has long-term tenants living in it (can stay in the property for up to 5 years or more) and at the advice of his lawyer pulls out of the deal. The landlord/seller has lost a great opportunity to sell on his house.

My client, out of ignorance, and because he wanted to save himself lawyer’s fees, used an old contract from internet which gave his tenants cast-iron rights to remain in the property for the following 5 years (plus one). The sales deal, which was a given, fell through because the buyer did not want to commit waiting for 5 years until the end of the lease agreement.

A common mistake in landlords is to think they can end a lease agreement (whenever they want) and ask their tenants to leave the property when they are selling – which is false. A landlord cannot end a lease agreement only because he is selling his house and must respect the whole duration of the signed lease agreement until it elapses (five years in this case).

More details on common mistakes on long-term tenancy agreements in my article: 7 illegal clauses in Spanish rental contracts – 8^th January 2018.

Had this person hired me earlier on, before signing any document, I would have drafted him a 12-month seasonal contract and he would have sold on his property without any problems. Bottom line, speak to a lawyer before you do something rash like signing away lease agreements in a foreign language which give your tenant all sort of rights which you do not fully understand. Sounds easy enough, but few landlords actually follow through and end up in all sort of problems.

Comparison: Long-term leases vs. seasonal lets

	Long-term lease	Seasonal lease
Applicable law	Spain’s Tenancy Act	Spain’s Tenancy Act
Place of permanent abode	yes	no
Urban property	yes	yes
Rural property	no	yes
Accommodation time	More than 2 months, varies between regions	no time limit (days, years)
Contract renewal	Automatic 12-month renewals (leading up to 3 years plus)	no
Can you rent out individual rooms?	yes	yes
Tenant entitlements	yes, significant	no
Creates right to stay and live in the property	yes, 3 years plus one	no
Rental deposit	one-month	two-months (minimum)
VAT	exempt	exempt
Enforced	nationwide	nationwide
Licence of First Occupation required?	yes	no
Landlord tax relief available? *	yes	yes
Tax on rental income to be declared and paid in Spain?	yes	yes

*lenient landlord tax relief is only available to EEA/EU-residents.

Advantages of a seasonal let

No tenant entitlements.
No automatic contract renewals.
Your tenant cannot (over)stay in the property for 3 years plus one.
Smoother eviction procedures.

Disadvantages of a seasonal let

A (minimum) of a 2-month rental is required.
Seasonal lets need to be drafted by lawyers to ensure they comply with all legal requisites to be upheld (successfully) before a law court if challenged.

The myth of the 11-month lease agreements

You may have heard, or been offered by layman, a 10-month contract as a universal panacea to all that is wrong in Spain with tenancy agreements. In theory, the idea behind these ‘magical’ contracts are to circumvent the automatic 12-month renewal periods Spain’s Tenancy Act sets forth.

In practice, you should know these contracts are not worth the paper they are written on. Should your tenant seek advice from a lawyer, or take you to court, they will be informed they can stay in your property for the next three years plus (providing they pay the rent, of course).

The only – legal – way to waive a tenant having the right to remain in your property for three years plus is to sign a seasonal contract. Seasonal contracts have a number of requirements to enforce them. Only because you label a contract as seasonal, it will not make it seasonal and can be easily challenged at court. Only lawyers are aware of the requirements, so they can be successfully upheld at court.

Do I need to declare and pay tax on my rental income in Spain in both cases?

Yes.

We have a competitive taxation service for non-residents that deals with holiday home accounting service (HRAS).

On average, we can reduce a non-resident landlord’s rental income tax by 40% using tax relief (available to all EU-residents, UK nationals included). Ask us.

Conclusion

Most landlords wrongly assume they must rent out their Spanish property using a standard long-term agreement – which is simply untrue.

For decades, landlords all over Spain have been letting their properties out using seasonal lets without a problem. Seasonal lets are by far the superior option for most landlords.

Don't be goaded into using lease agreements that only exist for the benefit of tenants. Be smart and make it easy on yourself – speak to professionals!

If you want to avoid stressful situations for you and your family, it is strongly advised you hire a law firm before you commit signing on the dotted line. Taking legal counsel ahead pre-empts most legal problems saving you money (and grievances) on the long run. This advice applies both to landlords and tenants. You can hire our contract drafting service from €165 plus VAT: Rentals (contract drafting). Rental contracts in English also available.

Be proactive, talk to a lawyer. We can make it happen.

"La acción es la clave fundamental de todo éxito." – Pablo Picasso.

Loosely translated as: "Action is the key to all success".

Pablo Picasso was a Spanish painter, sculptor, printmaker, ceramicist, stage designer, poet and playwright who spent most of his adult life in France. Regarded as one of the most influential artists of the 20th century, he is credited for co-founding the Cubist movement. Child prodigy, Malaga-born Picasso achieved universal renown and immense fortune for his revolutionary artistic accomplishments, becoming one of the best-known figures in 20^th century art. He is one-of-a-kind towering figure that casts a long shadow over every other artist that has followed in his wake.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article originally published at Spanish Property Insight: Distinction between long-term and seasonal contracts.

Legal services Larraín Nesbitt Lawyers can offer you

Rental-related articles

Renting in Spain: Top Ten Mistakes – 8th of June 2011
Let-to-Buy in Spain: The Smart Choice – 8th of April 2012
Letting in Spain: The Safe Way – 10th of October 2012
New Measures to Bolster Spain’s Ailing Rental Market – 8th of July 2013
Tenant Eviction in Spain – 8th of June 2014
Holiday Rental Laws in Spain – 8th of March 2015
Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016
Renting in Spain - Landlord´s Taxation – 8th of January 2017
Renting in Spain: Non-Resident Landlord's Rental Tax Relief – 14th of January 2017
Community of Owners in Madrid to bar Holiday Rentals – 29th June 2017
10 Questions you Should Ask your Agent on Leasing Office Space in Spain – 24th May 2017
Holiday Rental Home Taxation in Spain – 8th July 2017
Holiday Rentals in Andalusia Made Easy – 3^rd July 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Holiday-home lettings: Do NOT register with Andalusia's Tourism Registry unless you are fully compliant – 21^st of July 2017
New Balearics Holiday Rental Law – 8^th of September 2017
Seasonal lets: an alternative to holiday home rentals – 8^th of October 2017
Let-to-buy contracts: do not forget to add a clause forbidding sublets! – 20^th October 2017
The magic of lettings in Spain – 21^st November 2017
7 illegal clauses in Spanish rental contracts – 8^th January 2018
Holiday Rentals Accounting Service (HRAS) – 16^th January 2018
Distinction between long-term and seasonal contracts – 21^st February 2018

... Read more

7 illegal clauses in Spanish long-term rental contracts

Raymundo Larraín Nesbitt, January, 5. 2018

Lawyer Raymond Nesbitt explains the seven most common illicit clauses in Spanish lease agreements.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8^th of January 2018

Introduction

Following Spain’s ongoing two-digit rental property bubble, I thought it would be a good idea to write a brief recap of the seven most common blunders in long-term rental agreements.

If you want to avoid stressful situations for you and your family, it is strongly advised you hire a law firm before you commit signing on the dotted line. Taking legal counsel ahead pre-empts most legal problems saving you money (and grievances) on the long run. This advice applies both to landlords and tenants. You can hire our legal service from €175 plus VAT: Rentals (contract drafting). Rental contracts in English also available.

Seven most common illegal clauses in Spanish lease agreements

11-month rental contracts are watertight. Eleven-month contracts is a popular urban myth that somehow manages to perpetuate itself from one year to the next. Such contracts were designed to circumvent Spain’s Urban Tenancy Act (which deals with 12 months renewable contracts) and thus waive generous long-term tenant entitlements. 11-month contracts are void and when challenged at court, a judge will rule they are in fact a long-term contract subject to the LAU, meaning tenants can stay in a property for three years. If landlords wish to avoid the lenient tenant entitlements set by the LAU, they should be signing seasonal contracts instead which legally waive them. More details in my articles: Distinction between long-term and seasonal contracts – 21^st February 2018, Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016 and Seasonal lets: an alternative to holiday home rentals – 8^th of October 2017.
Non-renewable 12-month rental contracts. A similar trick to point one above, is to word a long-term rental contract, which constitutes a permanent abode, as a non-renewable 12-month contract. Forbidding the extension avoids a tenant staying in a property for a number of years. Such a clause is null and void on being legally challenged. A tenant is allowed to stay in a property for up to three years at his sole choice (he can move out ahead if he pleases, providing six months have elapsed, see point three below). Only a tenant may choose whether to renew or not his rental agreement for a further 12 months. Spain’s tenancy laws are biased towards tenants for historical reasons outlined in my article Urban Rental Law in Spain – Spain's Tenancy Act.
Cast-iron 12-month rental contract. Following on the above, another frequent clause is to word a contract as a 12-month contract, meaning a tenant cannot pull out of the rental contract ahead of the 12 months for whatever reason. This clause is also null and void following the amendment to Spain’s Urban Tenancy Act in June 2013. As explained above, a tenant may move out of a property ahead of the 12 months so long as 6 months have gone by. He must notify in advance his landlord of his intention of moving out but there is no need to justify a reason for it. The tenant however will have to pay a compensation to the landlord on breaking away for the outstanding duration of the long-term contract. So, there is a price to pay on bailing out ahead of time.
Two months' rental deposit. By law, a landlord can only request a one-month rental deposit from a tenant on rental agreements subject to the LAU (Spain’s Tenancy Act). Notwithstanding, additional guarantees may be requested but they are not labelled as a ‘deposit’ from a legal point of view. On the other hand, by law, landlords of seasonal contracts must request a minimum of a two-month rental deposit. Often both type of contracts are confused leading to mistakes. More details in my article: Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016.
Right of entry. Frequently, concerned landlords word into a tenancy agreement the right to visit the rented property giving only a short notice. This is in fact null and void. This error stems from a misconception, when a landlord rents a property, he loses possession of it until such a time the keys are returned. What this means is that a landlord is forbidden to enter (his own) property without the express written permission of his tenant. Should a landlord disregard this, he can be criminally prosecuted for illegal trespassing being remanded into custody. More details in my article: Renting in Spain: Top Ten Mistakes – 8th of June 2011.
The tenant is responsible for any damage to the (rented) property. Frequently, landlords word rental contracts in such a way that they make tenants responsible for any and all damages to the property. Such a clause is - you guessed it - null and void. Tenants are responsible of paying for the normal wear and tear. Landlords must pay for repairs and maintenance that allow the property to be apt for dwelling purposes as per art. 21 LAU.
In the event of a sale, the tenant must leave. Another common mistake is to word a rental contract in such a way that if the property is sold whilst it is being rented out as a permanent abode, the tenant must leave the property (with his family). This again is null and void. Although following the amendments to Spain’s Lease Act in 2013 there are legal reasons which allow a landlord to bypass the three-year rule and kick out his tenant ahead of time, a sale is not one of them. The new buyer will be forced to respect the outstanding tenancy agreement until it ends (the full three years) providing the tenancy agreement is lodged at the Land Registry. This may lead to complicated legal situations with multiple ramifications which exceed the purpose of this article. Legal advice should be taken.

Conclusion

Hiring a seasoned lawyer, in my experience, pays for itself on all the money you stand to save on avoiding the most common pitfalls on signing a rental agreement in Spain.

You should hire a lawyer from the onset, particularly if you are a foreigner in Spain, before you commit yourself signing on the dotted line of a tenancy agreement. All agreements should be put in writing and worded into the rental contract. Quite often these contracts are flawed or have clauses which are null and void as templates are frequently used which tend to perpetuate errors.

Unfortunately, practice tells me that most clients only come to us after they have signed and landed themselves in hot water. The legal fees they wanted to save themselves will now be threefold at least.

Bottom line, for your own good, hire a competent lawyer from the outstart before you commit and sign a tenancy agreement or any other legal document for that matter. Trust me, you will save yourself money and aggravation on the long run.

“If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.” — Steve Jobs.

Steven Paul Jobs was an American entrepreneur, business magnate, inventor, and industrial designer. He was the chairman, chief executive officer (CEO), and co-founder of Apple Inc.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, litigation, taxation, and inheritance. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Article also published at Spanish Property Insight: 7 illegal clauses in Spanish rental contracts

Legal services Larraín Nesbitt Lawyers can offer you

Rental-related articles

Renting in Spain: Top Ten Mistakes – 8th of June 2011
Let-to-Buy in Spain: The Smart Choice – 8th of April 2012
Letting in Spain: The Safe Way – 10th of October 2012
New Measures to Bolster Spain’s Ailing Rental Market – 8th of July 2013
Tenant Eviction in Spain – 8th of June 2014
Holiday Rental Laws in Spain – 8th of March 2015
Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016
Renting in Spain - Landlord´s Taxation – 8th of January 2017
Renting in Spain: Non-Resident Landlord's Rental Tax Relief – 14th of January 2017
Community of Owners in Madrid to bar Holiday Rentals – 29th June 2017
10 Questions you Should Ask your Agent on Leasing Office Space in Spain – 24th May 2017
Holiday Rental Home Taxation in Spain – 8th July 2017
Holiday Rentals in Andalusia Made Easy – 3^rd July 2017
How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017
Holiday-home lettings: Do NOT register with Andalusia's Tourism Registry unless you are fully compliant – 21^st of July 2017
New Balearics Holiday Rental Law – 8^th of September 2017
Seasonal lets: an alternative to holiday home rentals – 8^th of October 2017
Let-to-buy contracts: do not forget to add a clause forbidding sublets! – 20^th October 2017
The magic of lettings in Spain – 21^st November 2017
7 illegal clauses in Spanish rental contracts – 8^th January 2018
Holiday Rentals Accounting Service (HRAS) – 16^th January 2018

... Read more

Articles

Filter by: Date, Finance, Inheritance, Litigation, Property, Rental, Residency, Taxation, Uncategorized

Non-Resident Imputed Income Tax

Raymundo Larraín Nesbitt, October, 9. 2018

Non-Resident Taxation in Spain

Non-Resident Imputed Income Tax (NRIIT)

Non-Resident Income Tax (Fiscal Representation Service) from only 100/year: *

Advantages of appointing a Fiscal Representative in Spain

Non-Resident Imputed Income Tax (Fiscal Representation Service) from only 100/year

Licence of First Occupation

Raymundo Larraín Nesbitt, September, 3. 2018

Definition

LFO importance

Conclusion

Conveyancing – Buying

Golden Visa Spain

Raymundo Larraín Nesbitt, August, 8. 2018

Why choose Europe?

Golden Visa Advantages

General Requirements

Specific Requirements

Golden Visa Service *

*includes one family unit

Holiday Rental Taxation in Spain

Raymundo Larraín Nesbitt, June, 19. 2018

Who qualifies for landlord tax relief?

What makes our rental tax service different and why should you hire us?

New changes to non-resident taxation: the taxman knows

Non-payment: Tax office penalties

Regional Tourist Authorities – attain a holiday rental licence

Non-Resident Landlord Tax Obligations

I. You lease your property: Non-Resident Income Tax (NRIT)

II. You do NOT rent out your property: Non-Resident Imputed Income Tax (NRIIT)

Holiday Rental Accounting Service (HRAS) from only €125/tax quarter

8 Tips on Buying Off-Plan in Spain

Raymundo Larraín Nesbitt, June, 11. 2018

Brief overview of the Spanish property market

8 Tips on Buying Off-Plan in Spain

Hire a qualified registered Lawyer (Abogado)

Plot of land under a developer’s name

Building Licence

Bank Guarantees

Licence of First Occupation

NIE number

Snagging list

Post-completion: dealing with property taxes, utilities, community fees & other

Conveyancing – Buying from €995

Seven Advantages of Making a Spanish will

Raymundo Larraín Nesbitt, May, 1. 2018

Will writing service

Bank valuations vs. market value

Raymundo Larraín Nesbitt, April, 10. 2018

Tax advantages on becoming resident in Spain

Raymundo Larraín Nesbitt, February, 26. 2018

Advantages on becoming resident in Spain

* Subject to terms.** Subject to a cap.*** Subject to terms.

Distinction between long-term and seasonal contracts

Raymundo Larraín Nesbitt, February, 10. 2018

Comparison: Long-term leases vs. seasonal lets

Long-term lease

Seasonal lease

7 illegal clauses in Spanish long-term rental contracts

Raymundo Larraín Nesbitt, January, 5. 2018

Seven most common illegal clauses in Spanish lease agreements

**Non-Resident Imputed Income Tax (NRIIT)**

**includes one family unit*

**II. You do NOT rent out your property: Non-Resident Imputed Income Tax (NRIIT)**

**Hire a qualified registered Lawyer (Abogado)**

_{* Subject to terms.}
_{ Subject to a cap.}
_{* Subject to terms.}