Marbella-based lawyer Raymond Nesbitt goes on to explain the new changes afoot in rental laws in Spain.

EDIT (23-01-2019): Congress repealed this new rental law. Please read our blog post for all the details: Congress repeals Spain’s new rental law after just 35 days – 23^rd January 2019

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of January 2019

Soviet mural in Karaghandy, Kazakhstan.

Introduction

Last December saw a number of changes afoot which could easily trip you up faster than having to explain to someone why Brexit will have no impact in our life’s, ha!

If you have been following our articles and blog posts, you will be aware that Spain has undergone a spectacular two-digit rental yield growth YOY over the last three years. This outstanding advance can be pinned down to a number of factors, but it is not the point of this article to digress and delve in the underlying causes. To simplify, the main two causes have been a landmark pro-landlord amendment to Spain’s Tenancy Act from June 2013 and foremost the irruption of new big players such as property portals i.e. AirBnb. Adopting more relaxed laws coupled with the advent of holiday platforms, account for this huge spike in asking rental prices.

As a result of the unbridled growth in rental yields, given how Spain’s rental market traditionally remained sluggish as laws were clearly biased pro-tenant for historical reasons, whole generations of young Spaniards are now being locked out of the market. Despite a severe correction of property prices post-bubble that saw an average price drop of 50% across the board, the truth is that Spanish youngsters still struggle to get a grip on the first rung of the property ladder. A combination of precarious jobs, low wages and high asking rental prices has led to almost 50% of those aged 18 to 35 years old to still live with their parents in Madrid, for example (source: El País).

Spain’s government, ideologically of centre left wing, has taken a series of measures to ensure these problems are challenged in benefit of society. They have increased the minimum wage by almost 30%, the largest increase over the last 40 years, and have now directly tackled the rental problem by enacting a batch of new pro-tenant regulation that greatly empowers long-term tenants (in detriment of landlords). These changes - fortunately - hardly affect holiday lettings.

There is talk that the government’s hard left-wing allies, feel these changes fall short and want to take matters a step further; they have steadily mounted pressure to take a bolder stance and actually go as far as to determine - by decree - rental prices. Whilst this state price allocation has not occurred as of yet, it would indeed be a very misguided step in the wrong direction. Some would even argue this policy has a whiff of communism.

In all my articles I clearly position myself against such state interventionism because, at least to my mind, they clearly introduce market distortions creating serious anomalies and imbalances. We are not in fact living in a planned economy and the government has no business in fixing renting prices by decree.

As an example of this, back in 2017 the Balearics property market was booming, it was Spain’s undisputed hot spot leading the property pack. The local ruling hard left-wing coalition decided to cool down sales prices and asking rental prices in benefit of youngsters seeking affordable accommodation by passing a new stringent regulation that severely restricted holiday lettings. In their minds, they thought these well-intentioned changes would bring down asking rental prices to a more affordable level allowing more young people on low wages to let. Reality bites.

I unequivocally criticized these new measures as counterproductive in my article New Balearics holiday rental law – 8^th September 2017. Not 6 months had elapsed since this clumsy law had  been approved, when the Balearics property market crashed, going from a spectacular 15% growth year-to-year to sales plunging by almost 30% as can be read in a local newspaper.

You would think that, at the very least, after grinding the Balearics market to a standstill the ruling coalition managed to cool off asking rental prices, yes? Wrong. They increased by over two digits YOY.

This is because the market is 'wise' and will adjust itself accordingly. If you artificially stifle supply (by creating draconian requirements for holiday lets that effectively wipe out 50% of supply) but demand remains unabated, then the logical consequence is a price hike of the good or commodity, which is exactly what’s happened. Moreover, ironically a hard left-wing coalition have made the rich richer and the poor, poorer. They have indirectly greatly benefitted well-off owners of detached villas, who are now unshackled to offer their properties as holiday lets without restrictions, as opposed to more humble landlords who own city centre flats and who have seen their owner's rights curtailed as they have been outright banned from offering them as holiday lettings.

Regarding the 'brutal' increase in the minimum wage from last December - whilst commendable - in practice will likely greatly disincentivise (understatement) businesspersons from hiring new employees as in addition to the minimum wage, employers must also pay for Social Security which is over 1/3 of the wage on top. Furthermore, it may even lead to massive layoffs. January 2019 in fact saw the largest figure of employees being let go by companies, with over 274,000. This is the worst figure in over a decade, not even during the recent Great Recession were the figures this bad. To put these numbers into perspective, that is 100,000 more workers losing their jobs than in the same period in the previous year (176,000 in January 2018). Clearly, there is a correlation between the government's (clumsy) vast increase of the minimum wage last December (the largest in four decades) and thousands of people losing their jobs on the following month (source: Idealista).

Whilst it is always commendable in life to aspire to lofty ideals, these have real consequences when put into practice; this is particularly true of those politicians who have a penchant for them and who have never in their life worked in the private sector having lived off public stipends for all their life.

Politicians wield huge power and should carefully ponder the consequences of their ill-thought actions in the real economy and above all, and most fundamentally, on how these changes impact on ordinary families’ life’s.

Changes to Spanish rental laws

The Government approved by Royal Decree last December a spate of game-changers for the rental market. Legal persons acting as landlords should be acutely aware of such changes if they rent or plan to rent out in Spain long term. Physical landlords should take note of the first bullet point.

The idea is to keep it simple and briefly list the most significant changes without going into esoterics. All changes effective from the 19th of December 2018. Prior signed rental agreements follow previous regulation, unless agreed otherwise.

I will be taking as reference my 2016 article  Urban Rental Law in Spain – Spain’s Tenancy Act (Ley de Arrendamientos Urbanos, LAU). I will take for granted legal concepts and will make no effort to explain them; if you are at a loss for example on mandatory and tacit renewal periods, you should read the above article to understand where I’m coming from.

It is strongly advised to read in tandem the above-mentioned article with the brief bullet points collated below to get the big picture on what’s changed in 2019.

• Physical landlords: 5 years mandatory renewal period on long-term rentals (plus 3 years tacit renewal periods). Was three years plus one.
• Legal landlords: 7 years mandatory rental period on long-term rentals (plus 3 years tacit renewal periods). Was three years plus one.
• Legal landlords: additional bank guarantees demanded by a landlord on long-term rentals may not exceed a two-month deposit. Landlords typically request additional guarantees besides the compulsory one-month tenant deposit, especially when a tenant is a non-resident (because of the increased financial risk). These guarantees are now capped for legal persons acting as landlords. For physical landlords there is no change and may keep requesting additional guarantees in excess of the 2-month deposit.
• Legal landlords: landlords - by law - will pay the commission to estate agencies on tenancy agreements: it was the case that tenants paid half or all this commission whether directly or not.
• Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to vote by a simple majority of 3/5 to ban outright holiday rentals within a community. I had already pointed out in a blog post in 2017 that this step was necessary, as the Horizontal Property Act at the time required unanimity to ban them, which logically was never going to happen because landlords would vote against it because of their vested interest. This measure has no retroactive effects.
• Holiday lettings: Spain’s Horizontal Act is amended allowing Community of Owners to increase the communal quota assigned to a landlord (capped at 20%) of the overall community budget. In plain English, communities of owners may now vote to increase the community quota of a property owner who uses his property/ies as holiday lettings. This agreement will have no retroactive effects.

Conclusion

In my view these changes are a faux pas and will understandably make landlords (specifically those acting as legal persons) wary of renting out long-term thereby greatly restricting supply (as legal persons have thousands of units in their possession). Who in their right mind wants to lock themselves into an eight-year contract, or a ten-year for legal persons, losing possession of the property for that long? There has to be an attractive incentive to counter the increased risk these changes bring.

Whilst these changes no doubt can be electorally capitalized, garnering legions of votes on polling day from disenfranchised young men and women who are in need of affordable accommodation, it is uncertain they will actually benefit tenants.

It should be noted that landlords had already been dumping long-term contracts over the previous three years in benefit of the far more lucrative short-term holiday lettings restricting furthermore the long-term supply of properties.

These new changes in law will further compound and exacerbate an already scant supply of long-term accommodation leading to a foreseeable hike of rental prices across the board as more and more landlords will pull out from long-term rentals because of the increased perceived risks for them; exactly the opposite effect of what is sought by lawmakers on passing this new regulation nationwide which is vying to make accommodation more affordable for everyone, especially the more vulnerable collectives on precarious McJobs with low wages, namely youngsters.

Alas don’t fret, ‘fortunately’ for us the government has this base covered as there is talks of planning to intervene rental prices (shortly), goaded by their left-wing political allies, setting them out by decree like in a planned economy! Let us hope common sense prevails and this clumsy policy is not adopted by the incumbent.

I just cannot begin to express how wrong and harmful this decision would be and how counterproductive it could prove for the overall rental market. We’ve already seen last year how a well-meaning (albeit naïve) political decision by a hard-left-wing coalition in the Balearics led the property market to plunge into chaos resulting in fact in the opposite effect of what was sought; a two-digit hike in rental prices YOY (and mounting) making life of all those seeking affordable rental accommodation in the Balearics even more miserable.

Only time can tell whether these well-meant pro-tenant changes introduced by Spain’s government will in fact benefit (long-term) tenants, or not.

My money is it won’t.

You can hire our contract drafting service from only €165 plus VAT: Rentals (contract drafting). Rental contracts also available in English. All contracts completed within 24 hours.

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"Everyone thinks of changing the world, but no one thinks of changing himself.” – Leo Tolstoy.

Count Lev Nikolayevich Tolstoy (1828 – 1910). Was an unparalleled writer of universal acclaim author of pivotal novels such as War and Peace and Anna Karenina. His works attained the pinnacles of realist fiction. The strife’s of the Crimean War imbued in him a strong religious sense that would lead him to reinterpret the teachings of Jesus coalescing in his ideas of non-violent resistance. These ideas are epitomised in his work The Kingdom of God is Within You which would go on to greatly influence two of the most towering figures of the 20^th century, Mohandas Karamchand Gandhi, and Martin Luther King, Jr.

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@larrainnesbittabogados.com, by telephone on 952 19 22 88 or by completing our contact form to book an appointment.

Article also published at Spansih Property Insight: Changes to Spanish Rental Laws.

Legal & tax services Larraín Nesbitt Lawyers offers you:

• Rentals (contract drafting)
• Rentals (advising on pre-existing lease agreements)
• Registration of Holiday Homes (Andalusia)
• Holiday Rental Accounting Service (HRAS)

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
• Urban Rental Law in Spain – Spain’s Tenancy Act – 8th May 2016
• Renting in Spain – Landlord’s Taxation – 8th of January 2017
• Holiday Home Taxation in Spain – 8th of July 2017
• Seasonal lets: an alternative to holiday home rentals – 8th of October 2017
• 7 illegal clauses in Spanish rental contracts – 8th January 2018
• Distinction between long-term and seasonal contracts – 21st February 2018
• Changes to Spanish Rental Laws – 8th January 2019

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 delusional politician was harmed on writing this article. VOV.

2.019 © Raymundo Larraín Nesbitt. All rights reserved.

Marbella-based Larraín Nesbitt Lawyers has over 16 year’s conveyancing & taxation 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 © 2015 and 2018. Plagiarism will be criminally prosecuted.

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. Seek professional legal advice on your matter – see disclaimer below.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of December 2018

Introduction

The new Stamp Duty law brought about by the landmark ruling of Spain’s Supreme Court last October, calls for an updated version of this key taxation article.

The most notable change is that borrowers will no longer be paying Stamp Duty on applying for a mortgage loan in Spain. This translates into saving thousands of euros, on average.

As a rule of thumb, purchase costs add 10 – 13% over and above the purchase price. I collate below the taxes and associated fees on buying.

Be aware there are minor discrepancies from one region to the next, as Spain’s seventeen Autonomous Communities have competence, within limits, over some taxes i.e. Property Transfer Tax (ITP) and Stamp Duty (AJD). Each region is empowered to fix the tax rate, within a sliding scale, that varies between 6 to 11% for ITP and between 0.5 and 1.5% for AJD.

Buyers should be mindful of the Complementaria or ‘Bargain Hunter Tax’. It is a supplementary tax the seventeen regional Spanish Tax Offices levy on buying property as a result of today’s low real estate values post-crash (particularly for resales).

I will split my article distinguishing between two property types for taxation purposes:

I. New-build (or off-plan).
II. Resale.

The tables below are a simplified approximation.

I. New-Build or Off-Plan Property

You can read further in our articles 8 Tips on Buying Off-Plan in Spain and Buying Property in Spain from a Developer (Off-Plan Property).

II. Resale Property

You can read further in our articles Buying Property in Spain from a Private Seller (Resale Property) and How to Buy Rural Property in Spain.

Post-Completion Taxes and Maintenance Upkeep

I refer to our in-depth article Non-Resident Taxes in Spain.

Once you have purchased, you will face the associated running expenses. Make sure you have budgeted these expenses carefully so as to avoid unpleasant surprises! Some of the luxury gated communities with lush tropical gardens and beautiful infinity pools that dot the Spanish coastlines have pretty steep maintenance expenses (tallying several hundred euros a month!).

1. IBI tax: 0.4 – 1.1% of cadastral value per annum (this is not the market value, it is well below it).
2. Rubbish collection tax.
3. Community fees (if you buy into a Community of Owners).
4. Non-Resident Imputed Income Tax (NRIIT): 1.1% or 2% of a property’s cadastral value per annum.*

*Distinction is made between EU and non-EU/EEA-residents as well as revised/unrevised cadastral values on calculating Imputed Income Tax.

Conclusion

Take thorough legal advice to budget your purchase carefully before you commit. Request a full breakdown of taxes, fees and associated expenses. The initial reservation contracts, that strike the property off the market, are normally non-refundable. So, if finance fails the real estate agency and/or seller are entitled to withhold the initial reservation deposit unless specific wording is added to the reservation contract to safeguard against this event.

Attaining finance from a lender should not be taken for granted. Spanish lenders are risk-averse these days and expect a non-resident buyer to come up with a 30 to 40% deposit. That said, lenders are once again dipping their paws brazenly into the market, luring borrowers with enticing 100% mortgage loans.

We are in a buyer’s market. There is plenty of property to choose from, do not rush in or be pressurised to sign on the dotted line. Take your time to consider matters carefully and budget accordingly.

And to close, my shameless plug; hire an experienced conveyance law firm such as Larraín Nesbitt Lawyers.

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 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 in Spanish Property Insight: Taxes on Buying Spanish Property.

“The only advice anybody can give is, if you wanna be a writer, keep writing. And read all you can, read everything.” – Stan Lee

Stanley Martin Lieber (1922 – 2018). Exceptionally gifted Jewish American storyteller, comic book writer, editor, and publisher. This titan became Marvels’ Comics primary creative leader for several decades. In his teens, he won the New York Herald Tribune’s so-called “Biggest News of the Week Contest" prize for three straight weeks, goading the newspaper to write him and ask him to please let someone else win. Through his hard work and determination, he went on to inspire millions of children the world over for generations, of which some would even grow up to become lawyers and write articles of their own.

Buying property related articles

• How to Buy Property in Spain Safely – 10th October 2014
• House Hunting in Spain – Interview with The New York Times. June 2015
• Buying Property in Spain – 10 reasons to hire a Lawyer – 8th November 2016
• 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
• Licence of First Occupation – 8^th September 2018
• 8 Tips on Buying Off-Plan in Spain – The Address magazine (pages 358 - 373). December 2018
• Taxes on Buying Spanish Property – 8th December 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. VOV.

2.015 and 2.018 © Raymundo Larraín Nesbitt. All rights reserved.

Marbella-based lawyer Raymond Nesbitt explains the importance of IBI tax and the consequences of non-payment.

Article copyrighted © 2018. Plagiarism will be criminally prosecuted.

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

Introduction

With the ongoing off-plan property boom firmly underway, I thought it would be a good idea to write a gentle reminder for new-build owners on their duty to pay this local tax on the following year from buying a house.

Unbeknownst to most non-resident property owners, on buying property in Spain, you automatically become liable to pay IBI tax on the following year. No one will give you the heads up on this tax, so it is up to you to find out how much you owe and comply with the Tax Authorities.

IBI tax is of crucial importance because it has associated a valuation for tax purposes of your home known as 'cadastral value' (valor catastral, in Spanish) which is used as the benchmark to calculate any, and all, property-related taxes.

IBI Tax - Definition

The Impuesto sobre Bienes Inmuebles (IBI, for short) is a tax that applies to both residents and non-residents. In some parts of Spain, it is known as SUMA. All property owners must pay this tax every year.

This is a local tax levied by the town hall where your property is located. It is paid once a year (normally due in August through to November). This is Spain’s equivalent of the United Kingdom’s Council Tax. It varies from one town hall to the next. It is based on the rateable value of your property (0.4 – 1.1% of cadastral value per annum); for cheap properties (think rural land) it can be as low as a few euros whereas posh pads, in sought-after prime locations such as Marbella and Sotogrande, command several thousand euros/year.

Cadastral Value - Definition

Is the assessed value local Tax Authorities give to a property. It is usually well below the market value. This rateable value is used as the taxable base to calculate a series of taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI). Be aware that a store room or garage space may be regarded legally as a distinct separate entity from your main home and therefore subject to their own individual cadastral values. A cadastral value, in general terms, is 30 to 40% below the current market price of a property. So it does not equate to a property's true market value, it is actually well below it (which is good news).

Importance

• IBI tax is used as the benchmark to calculate all property-related taxes.
• On selling, a buyer’s lawyer will demand copies of the IBI invoices for the previous 4 years.

When is it due?

• Town halls are empowered to rule on this, so it varies. Normally, it is payable once a year, typically from August through to September. Whoever owns the property on the 1st of January is liable to pay this tax, by Law.

Sample IBI tax invoice

Just follow the link supplied: sample IBI invoice

Consequences of not paying IBI tax

• It may lead to your property being impounded and sold off in a public auction. Spanish town halls, besieged by dropping revenue, are becoming increasingly adept at pursuing aggressively this local tax post-credit-crunch; particularly for high-end property.
• It is not possible to file and pay NRIT and NRIIT taxes, as it requires for its calculation IBI tax. This in turn attracts fines, delay interests and surcharges.
• On selling, a buyer’s lawyer will practice a huge retention to safeguard against any unpaid IBI tax.
• As a seller, you may forfeit the 3% sales proceeds tax rebate (plus legal interests). On selling, when a seller is non-resident in Spain, buyers must withhold 3% of the sales proceeds by law and pay it into the Spanish Tax Office. Non-resident sellers are entitled to a tax rebate on the 3% (subject to criteria).

Real case: Mr Daniel David Brockman, a prominent New York-based US tax lawyer and patron of the Arts, lost the property of a huge residential area in Marbella he was going to develop known as Urbanización Sierra Blanca because he failed to pay IBI tax to Marbella’s Town Hall. This estate is currently valued at over one billion dollars.

Conclusion

Non-payment of IBI tax is the daftest fastest way to lose ownership of your Spanish property.

If you haven’t been paying this local tax, you should contact Larraín Nesbitt Lawyers ASAP to get it sorted out.

We offer the most competitive fees in the market. We file taxes all over Spain.

Setting up IBI tax: from only 200

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.

“What the Arab world needs most is free expression.” – Jamal Khashoggi

Jamal Ahmad Khashoggi (1958 – 2018). Was a Saudi journalist, writer and the former general manager and editor-in-chief of Al-Arab News Channel. He was also a Washington Post Global Opinions contributing columnist and served as editor for Saudi newspaper Al Watan. An outspoken critic of his country’s iron-ruling family, he bravely did not shy away from bringing to public light serious matters and staunchly defended the civil rights of his countrymen, specifically the freedom of speech. About to marry his fiancée, he was brutally butchered inside the Saudi consulate complex in Istanbul, Turkey, by a state-sponsored death squad at the behest of the highest level. You can read his last column here.

Article also published at Spanish Property Insight: IBI Tax Explained.

Legal & Tax services Larraín Nesbitt Lawyers can offer you

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

Taxation-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
• Spain’s Non-Dom Tax Scheme – 8th July 2016
• 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
• Tax advantages on becoming resident in Spain – 8th March 2018
• Holiday Rental Taxation in Spain – 8th July 2018
• Holiday lettings: with or without VAT? – 21st June 2018
• IBI tax explained – 31st 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. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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.

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.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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^th June 2018
• Licence of First Occupation – 8^th September 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.

2.005, 2.010 and 2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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:

1. Meaningful job creation as a direct result of the investment.
2. Significant socioeconomic impact in the geographical location where the activity will be carried out.
3. 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 Service
• Conveyancing – Buying

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

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. VOV.

2.013, 2.017 and 2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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.

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 © 2018. Plagiarism will be criminally prosecuted

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.

1. 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.

2. 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!!

3. 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:

• Non-Resident Income Tax (Fiscal Representation) from €90
• Holiday Rental Accounting Service (HRAS) from €100
• Registration of Holiday Homes (Andalusia)
• Spanish Inheritance Tax (IHT)
• Spanish Inheritance Tax Assessment Report (SITAR)
• Wealth Tax
• Spanish Resident Income Tax (IRPF)
• Tax form 720

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

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. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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.

Article copyrighted © 2010, 2018. Plagiarism will be criminally prosecuted.

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

1. 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

2. 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.

3. 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.

Photo credit: courtesy of Erasur, Cataleya, Estepona

4. 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.

5. 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:

1. 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.
2. 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.
3. 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.
4. 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.

6. 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.

7. 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

8. 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.

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.

"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

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.

2.010, 2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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

Article copyrighted © 2009. Plagiarism will be criminally prosecuted.

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.

1. A Spanish will only affects your Spanish estate. It does not affect any assets or preclude any prior will witnessed in your home country.
2. 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).
3. 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.
4. 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.
5. 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.
6. 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.
7. 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

• Making a Spanish will
• Spanish Inheritance Tax Assessment Report (SITAR)
• Probate and Succession
• Legal Property Report (LPR)
• Death Certificate
• Land Registry Search (Nota Simple)

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

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.

2.009 © Raymundo Larraín Nesbitt. All rights reserved.

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.

Article copyrighted © 2018. Plagiarism will be criminally prosecuted

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.

1. 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. 

2. 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 – Buying 
• Conveyancing – Selling 
• Non-Resident Income Tax (Fiscal Representation) 
• Holiday Rentals Accounting Service (HRAS) 

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

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. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.