By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of September 2016

Introduction

I have split my article in two sections.

The first one deals with the recent legal changes to IHT in Andalusia brought about by the Junta. I had written an inheritance tax article earlier on this year where I classified the IHT ‘tax friendliness’ of regions in Spain. Andalusia was a tier 2 region (IHT-unfriendly). In my article I explained in detail the ongoing trend in Spain to reduce the IHT burden championed by some political parties. Following the newly introduced batch of positive changes in IHT in Andalusia I may now have to go back and review my classification, moving Andalusia to a tier 1 region (IHT tax-friendly).

The second part of my article is a straightforward FAQ on what to do when someone passes away in Spain. Lots of questions arise when a loved one dies; the purpose of this short FAQ is to – hopefully – address the most common ones.

IHT Changes in Andalusia

There are two batch of laws. The first one came into force last August and the second one will be effective as from the first of January 2017. I will only focus on IHT changes that affect the majority of residents and non-residents.

1. August's changes:

• Main (family) home: Inheritance tax threshold increased. Before this change there was a blanket maximum (national) reduction in value per inheritor of €122,606. Any amount above was taxed. Applies only to beneficiaries which were already living in the family home at the time of death (all year round). This has now been replaced by a sliding scale:

Main home value up to €123,000 (always per inheritor) are now 100% IHT exempt.

Main home values > €123,000 < €242,000 follow a sliding scale with an exemption that varies between 99 and 96%.

Main home values > €242,000 will have a flat 95% IHT exemption.

As can be gleaned from above, this translates into a 95% IHT exemption for main homes over €242,000 (per inheritor) which is a much welcome respite for inheritors.

• The above only applies if beneficiaries do not sell the property within the next three years from the death. The timeframe has been reduced as it was five years before.

To benefit from the above you must be one of the following:

• Surviving spouse.
• Descendants (natural or adoptive children, grandchildren).
• Ascendants (parents, grandparents).
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

2. Legal changes as from the 1^st of January 2017:

• Nil rate band increased. Before this change the inheritance tax-free allowance (per inheritor) in Andalusia was < €175,000. No IHT was charged below this threshold. As from next year, this allowance is increased to €250,000 per inheritor.
• Another positive change, related to the one above, has been introduced on inheriting estates up to €350,000. There is now a blanket allowance on the first €200,000. The significance of this is better understood with an example. On inheriting say €300,000, the first €200,000 are exempt. You would only pay IHT on the remaining 100k.

This is a welcome respite as before you had to pay the full IHT on any excess over the threshold. This created serious tax anomalies i.e. if the excess over the tax-free allowance was as little as by only one euro, the Tax Office made you pay the IHT liability on the full amount (on the whole €175,000) as you did not qualify for the tax exemption – which was bonkers.

This new change strives to correct this much criticized injustice allowing for a greater degree of flexibility. It will greatly reduce the inheritance tax bill for all those inheriting above the tax-free allowance of €250,000 (new ‘soft’ threshold) but below the €350,000 cap (new ‘hard’ threshold).    

Spanish Inheritance Tax FAQ

1. Is it feasible to do any of the admin ourselves or will we have to hand it all over to a solicitor?

Inheritance in Spain is a convoluted process that requires the input of tax experts. This is further compounded by the fact that besides a national law each of Spain’s 17 regions have devolved competencies on the matter and have passed their own laws creating a legal labyrinth.

What you can do on your own is to collate all the required legal paperwork that will be asked by your appointed expert e.g. notarised copy of last will, original death certificate etc.

2. My father passed away. Can I simply change the (Spanish) deeds over to my name? How long does this take?

No, you cannot.

You first need to appoint a legal expert who will handle the Spanish side of the inheritance. Once Spanish inheritance tax has been filed and paid can you then change the ownership in the deeds over to your own name.

On average you are looking at six to twelve months overall until the deeds are in your name; providing a Spanish will was made. If no Spanish will was made then in all likelihood the whole procedure will be in excess of a year.

3. How do we arrive at a probate value, is there a state website with guide prices based on the square footage or yearly tax paid, or is it done by an estate agent?

There is no national website and no, estate agents do not assess the value for IHT purposes. It is actually the Tax Office that does this.

If the beneficiary is resident in Spain, it will be the regional tax office where the majority of the estate is located that does this. If the beneficiary is non-resident, then this assessment is carried out in Madrid.

4. Can you tell me how the value of a property is assessed for inheritance tax purposes? Is it what you paid for it or is it the market value at the time of death?

The value of the estate for the purpose of calculating the IHT liability, is the net value acquired by each inheritor. All charges and liabilities must be deducted first.

The Tax Office values inherited real estate according to the highest amount of the following three:

• Cadastral value of the property (revised).
• Acquisition value of the property (what you paid for it).
• Tax Office’s assessed fiscal property value.

In practice it will be close to the market value but usually (well) below it.

5. I am skint. Can Spain’s IHT be paid in instalments? Can it be paid off the estate itself?

Yes, Spanish inheritance tax can be paid in instalments. You must request it within the first six months as from the time of the death.

No, Spanish inheritance tax cannot be paid off the estate itself. You must first pay IHT and only then can you change the ownership to your name and dispose of it as you see fit.

Conclusion

Succession in Spain is a complex matter. I strongly recommend appointing a Spanish expert to help you wade through the admin minefield.

To get you started, I advise you read some (or all!) of my related articles below. This will give you a leg up when you start your dealings with a tax expert as the legal jargon will already be familiar.

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

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, taxation, litigation and conveyancing. 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.

Legal services Larraín Nesbitt Lawyers can offer you

• Probate and Succession
• Spanish Inheritance Tax Assessment Report (SITAR)
• Making a Spanish will
• Death Certificate

Related articles

• New EU Regulation to be Passed on Succession and Wills –18th May 2010
• Non-Residents: Six Advantages of Making a Will in Spain – 8th August 2012
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• Taxes on Selling Spanish Property – 8th December 2014
• 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 of February 2016
• Spanish Inheritance Tax for Non-Residents (Part II) – 8th March 2016
• Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 2016
• Which beneficiaries are hit worst by Spanish Inheritance Tax (IHT)? – 2nd June 2017
• Non-Resident: Why you need to make a Spanish will – 24th 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.

2016 © Raymundo Larraín Nesbitt. All rights reserved.

Regular legal-contributor Raymundo Larraín Nesbitt explains Andalusia’s Decree 218/2005 law that regulates the information real estate agencies and developers need to provide to consumers on renting or selling properties, before any deposit is paid, in the region of Andalusia.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of August 2016

Original article: 29th August 2.008

Photo credit: Idealpropertyspain.com

Introduction

This month’s article features a law that was passed in 2005. It acts as a gentle reminder of an article I published well over a decade ago. The reason I republish it this month is because sales are picking up again and we are at the peak of the rentals season.

The concept of Documento Informativo Abreviado (DIA, for short) pervades this law and is the cornerstone of this decree. It is the Spanish equivalent of the UK’s HPI, Home Purchase Information, or Seller’s pack.

DIAs will contain different information contingent on whether we are dealing with property for sale (off-plan or resale) or else a rental.

The idea behind Decree 218 is that when a consumer (tenant or buyer) walks into a developer’s sales office, or else a real estate agency (whoever is marketing the property), they are handed key legal information in the shape of a detailed booklet (DIA) before any deposit is paid, which proves most useful.

I have structured my article as a FAQ and use bullet points for ease of comprehension rather than list and comment its sections one by one which would be rather tedious and off-putting.

Where is it enforced?

Only in the region of Andalusia. All properties located in that region are subject to it.

What properties does it apply to?

Properties being rented or sold (whether off-plan or resales).

What does it rule on?

It rules on the documents and information that is mandatory to be supplied to prospective tenants and property purchasers (consumers) on the sale and let of properties located in the autonomous region of Andalusia.

Basically this law is part of the Consumer’s legislation which has been enacted to further protect and ensure the rights of all consumers in Andalusia. It complements the national Consumer Law embodiment.

Who does it apply to?

It applies to all professional intermediaries such as Real Estate Agencies, sole Estate Agents and developers on selling and letting properties located in Andalusia.

Exclusions

It does not apply in administrative, public or judicial property auctions.

It only applies to main homes. So plots of land and commercial properties are excluded.

Who is the beneficiary of this law?

Consumers at large and the broader real estate market ultimately. Would-be buyers and long-term tenants of properties in Andalusia will do so in a safer legal framework.

Where can I find a copy of this law in Spanish?

Here, just follow this link.

Sorry, no English version.

Brief Legal Overview of Decree 218/2005

It is a fairly short law of only 15 articles.

The information supplied must cover the following points

The following is shared amongst all three DIA classes.

• Specify if the dwelling is under construction (off-plan) or else is a resale.
• Dwelling’s exact location.
• Developer’s identification details.
• Number of dwellings built.
• Number of bedrooms, detailing the usable surface each have.
• If the sales price is mentioned then it is mandatory that all taxes and other expenses are included in a detailed breakdown alongside the sales price.
• If the rental is mentioned then it is mandatory to supply as well the community fees for which the property is liable for. You can read further on Community of Owners in my article.
• When buying off-plan property, and stage payments are involved, it is mandatory to include in the contract that said amounts will be secured under law, the name of the bank, number of the insurance policy or bank guarantee, the existence of a special bank account where the funds will be allocated and the client code. It must be specified if the funds are handed over as a stage payment or else as part of the price and as a deposit to strike the property off the market.

The Documento Informativo Abreviado (DIA, for short)

Developer’s or intermediaries, such as estate agents, are obliged to deliver free-of-charge in Andalusia a copy of a DIA for every property on their books.

DIA’s will include the following information:

• Full name and social address of the developer as well as the company registrar details or that of any physical or company that is acting as an agent.
• Details of the architect, and construction company.
• Detailed and scaled plan of the development with a minimum scale of 1:100
• Usable surface of the dwelling and its annexes (such as garage and store rooms).
• Physical description of the dwelling and its annexes as well as that of the utility connections (water, electricity, gas, sewage grid etc.) and fire protection.
• General description of the building and or development, the communal areas, and the available services.
• Memorandum of Quality (memoria de calidades) which gives a detailed breakdown of the materials used in the construction.
• Dwelling price as well as the associated expenses and applicable taxes, means of payment and deadlines to comply with them.
• Breakdown of expenses and taxes available at the consumer´s sole request.
• When stage payments are involved (applies only to off-plan or new-build property) it is mandatory to mention the existence of a bank guarantee.
• Mention of the plot of land’s Title deed, of any leans and encumbrances on it and the Building Licence under which they are entitled to build on site.
• Mention of the availability of a copy of the Building Licence at the sole request of a consumer.
• Mention of the stage of construction of the development.
• Mention of the expected delivery date of the property, it’s annexes (garages, store rooms) as well as those of the development’s communal areas. Said deadline must be referred to quarterly within a calendar year.
• Mention of liens and charges on the dwelling or annexes or it’s access points (i.e. a Right of Way or Right of Views).
• Mention that the consumer does not have to pay for not taking on the developer’s mortgage if he decides to take another. More on this in my article Abusive Mortgage Clauses.
• Consumer’s right to elect a Notary on whom one cannot be imposed by the vendor. More on this in my article Abusive Mortgage Clauses.
• The capacity for both parties to compel each other to complete the contract before a Notary Public.
• The right of a consumer to be handed free-of-charge a draft of the Private Purchase Contract to be signed for their perusal (applies only on buying).
• Place where all the documents included in this list are available for inspection at the Consumer’s sole request.
• Place, date and signature.

1. DIA for Off-Plan properties

Besides including all the above, a full mention of all the administrative licences available must be included, chiefly:

• Building Licence (BL).
• Licence of First Occupation (LFO). More on this in my detailed article Licence of First Occupation (I cannot understate the importance a LFO has to the point of advising buyers not to complete on an off-plan property without it).

Other ancillary documents that must be supplied alongside the key ones above are:

• Property’s delivery date (contractually binding).
• Land Registry details of the properties if available as well as mention of any liens and encumbrances.
• Community By-laws (which further develop Spain’s Commonhold Act AKA as Horizontal Property Division Law). You can read further in my detailed article  Community of Owners in Spain.
• Internal community rules (not to be confused with community by-laws).
• Libro del Edificio (concrete specifications on the building itself).
• Ten-Year Building Insurance (Seguro Decenal). You can read further on the matter in my detailed article Off-Plan Construction Guarantees.
• Energy Performance Certificate.

2. DIA for resale properties

• Property address.
• General property description.
• Sales price.
• Construction year.
• Community of Owner’s quota (if applicable as not all properties are included within a Community of Owners).
• Mention of community of owner´s insurance policies (if applicable).
• Mention of utilities which are connected at the time.
• Certificate proving vendor’s IBI tax compliance.
• Energy Performance Certificate.

3. DIA for Rentals

• Name, social address and Company Registrar details of the landlord or estate agency acting as intermediary.
• Total built surface of the dwelling and that of its annexes (i.e. garage and store rooms).
• General description of the property to be let including available utilities as well as fire protection devices.
• Furniture inventory, kitchen appliances etc. found within the dwelling.
• General description of the building or development where the property is located.
• Specific mention of the agreed rental as well as that of the annexes, payments terms etc.
• Spain’s Rental Law (LAU) obliges the tenant to a one-month deposit as well as the inclusion of any other guarantees the landlord may deem fit. More on this in my detailed article Urban Rental Act in Spain.
• Full disclosure of the Estate Agency’s commission for their professional service as intermediaries.
• Mention the property complies fully with all administrative licences mandatory under law (i.e. BL, LFO).
• Availability of the Community of Owner’s By-laws at the tenant’s sole request.
• Mention on how the contract will be formalised.
• Community of Owner’s administrator contact details
• Internal community rules (not to be confused with Community by-laws)
• Energy Performance Certificate.
• Place, date and signature.

The Rental DIA can be supplied prior to formalising the rental contract at the consumer’s sole request free-of-charge and in any case it is compulsory to supply it simultaneous to the signing of a tenancy agreement.

Miscellaneous

Art 12.- All premises in which a professional activity of intermediation, on selling or renting property (i.e. Estate Agents or developers), must have a very visible sign with the following message in Spanish: Consumers have a right to be handed over a copy of their dwelling’s DIA. This sign will be placed alongside the one that informs consumers that a Claims & Complaints book is available on request.

Art 13.- All Private Purchase, Sale & Let Contracts must comply fully with Royal Decree 171/1989 of Consumer Protection regarding information that must be made available in conveyance & property lets.

Art 14.- Consumer bodies will enforce this law. The Junta de Andalusia’s Inspectors can, without prior warning and without any need of identifying themselves previously, verify that an establishment open to the public is complying fully with all the obligations set forth in this Decree 218/05.

Art 15.- Fines may be imposed on non-compliance.

The Decree’s Annexes

I won’t go into detail on these as it only affects intermediaries, not consumers. Basically the decree sets out six different annexes which must be used by developers and real estate agencies as templates on marketing a property. So for example annex 3 is the template dealing with new homes (nine pages long!) and annex 6 is the template on rentals (five pages long).

Professional intermediaries must populate these templates to produce a fact sheet which is then handed over to a consumer in his DIA or Home Information Pack.

Conclusion

A well-meaning law which unfortunately falls flat on its face as in practice it is snubbed by many because it adds considerable red tape.

I am not only referring to intermediaries but to owners themselves who must supply the former with a long list of documents so these can elaborate a ficha informativa or fact sheet on a property following the templates in the decree´s annexes. This ungrateful task can prove to be quite laborious and time-consuming (as it must be done for every property on their books).

Suffice is to say that this decree is widely held as unpopular.

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

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, 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.

Legal services Larraín Nesbitt Lawyers can offer you

• Registration of Holiday Rental Homes
• Conveyancing – Buying
• Conveyancing – Selling
• Rentals
• Utilities Connection
• NIE Number (Tax Identification Number)
• Registration of Holiday Rental Homes
• Land Registry Search (Nota Simple)
• Updating Property Deeds (Unregistered Property Extensions)

Related articles

• Off-Plan Construction Guarantees – 8th November 2011
• Community of Owners in Spain – 8th July 2012
• Buying Resale Property in Spain – 21st February 2013
• Licence of First Occupation – 8th April 2013
• Bank Guarantees in Spain – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• House Hunting in Spain – The New York Times. June 2015
• Taxes on Buying Spanish Property – 8th July 2015
• Law 20/2015: Important new bank-guarantee legislation explained for off-plan buyers – 8^th September 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Andalusia’s Holiday Rental Decree – 8^th February 2016
• Urban Rental Law in Spain – 8^th May 2016
• Decree 218/2005. The one about rentals and properties for sale in Andalusia – 8^th August 2016

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.

2.008 and 2.016 © Raymundo Larraín Nesbitt. All rights reserved.

Regular legal-contributor Raymundo Larraín Nesbitt tells us about a relatively new tax scheme the Spanish Treasury quietly introduced last year that works similarly to the UK’s popular non-dom tax arrangement, and which could make Spain a more attractive destination for wealthy expats when word of this pilot scheme gets around.

Credit photo: Flickr, by Phillip Ingham

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of July 2016

Introduction

The Spanish Tax Office quietly, albeit boldly, introduced in 2015 a tax scheme inspired by the popular UKs non-domiciled tax regime which has proven most successful at attracting foreign investments (particularly in the Greater London area). It is a lukewarm attempt to attract high-achievers and create wealth fostering job creation. It is popularly known as Beckham's Law.

Surprisingly, this pilot initiative has flown under the radar as I do not recall having read a single article published on the matter. I believe it merits exposure and should be made known to our large expat community as the savings on taxes are quite significant for the privileged few who are lucky enough to qualify.

Right off the bat I should make it clear that the criteria to benefit from it is fairly restrictive and it is geared at high-earning individuals who plan to relocate to Spain for professional reasons. Which means that most expats will not qualify. It is popularly dubbed as Beckham's law.

Without further ado I analyse succinctly what it consists on and how to benefit from it. I will structure it as a FAQ for ease of comprehension.

Who is it aimed at?

This law is tailored to cater for senior corporate individuals (think of a multinational relocating a top executive in Spain). These over-qualified individuals are the ones that will reap the tax benefits of the generous provisions set out by this law. But other cases, such as high-profile artists, are also included.

Exclusions

Professional athletes, such as football players, are barred from making use of it.

The Tax Benefits

In a nutshell, this tax scheme allows expat taxpayers to make spectacular savings on paying Income Tax in Spain. If you opt into this scheme you stand to benefit from both income derived in Spain as well as any other worldwide income.

• Spanish Income. Unlike in the UK, where you negotiate with the HMRC to pay a fixed annual sum, in Spain the first €600,000 earned from a source within Spanish territory will be taxed at a flat rate of 24%. The remainder will be taxed at 45%. Under normal circumstances resident taxpayers in Spain pay 45% on earnings of €60,000 or above. As can be surmised, even for earnings whose source is in Spanish territory, the tax savings are huge.
• Worldwide Income. But it is here where this tax scheme truly shines. Spanish Tax Authorities will only tax you on your income derived within Spanish territory. Any other source of worldwide income is tax-exempt (just like with the popular UKs non-dom tax scheme). Under normal circumstances, resident taxpayers in Spain should pay for their worldwide income. Moreover, other countries cannot tax you on your worldwide income as for all intents and purposes you have opted to become a Spanish tax resident. You can claim double-taxation relief which negates other countries’ claims. This advantage offers a hugely attractive prospect for those that hold substantial overseas earnings and interests.
• Best of both worlds. On opting for the scheme, expats will be treated as if they were resident taxpayers but in reality it will be a legal fiction whereby they will benefit as if they were still non-resident taxpayers. So you in fact get the best from both worlds.
• Five years plus one. It applies on the fiscal year of relocation as well as on the following five years (total up to six years).

Who can apply?

• Expats relocating to Spain as a result of a professional contract. The contract is a sine qua non requirement to opt into this scheme.
• High-earners.
• Not to have resided in Spain within the previous 10 years.
• No earnings derived from a Permanent Establishment in Spain.

When does it apply?

It is time-limited and applies on the fiscal year of relocation as well as on the following five years (up to six years).

Timeline to apply?

Six months as from the start of the economic activity or as from enrolling in Spain´s Social Security (equivalent to the UKs NHS).

Fall from Grace

Unfortunately, this initiative falls short from its UK counterpart for a number of reasons What keeps it from being great in my mind is the fact that the Tax Office requires that the relocation comes as a result of a job offer. This leaves out entrepreneurs which are hands down the greatest source of wealth and job creation through their drive and ingenuity. This, coupled with the fact that it is time-limited, and that the tax is not capped for income derived in Spain holds it back in my opinion from being stellar.

Conclusion

The Spanish Tax Office should be heartily congratulated on offering such tax incentives to high-achievers. This type of tax scheme attracts talented individuals, fostering wealth and jobs at a time where it is much needed in Spain.

It is most certainly a step in the right direction and I for one hope the AEAT continues to venture down this road. Kudos to them.

If you plan to relocate to Spain as a result of a work commitment and happen to earn a substantial amount you may want to look into this tax scheme. Unless you enjoy overpaying taxes that is; bless your heart.

“If you fail to plan, you plan to fail.” – Benjamin Franklin.

Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

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

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, 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.

Legal services Larraín Nesbitt Lawyers can offer you

• Non-Domiciled Tax Scheme
• Fiscal Representation (Non-Resident Income Tax)
• Inheritance Tax
• Wealth Tax
• IBI Tax (Town Hall Rates)
• Tax model 720

Related articles

• Spanish Wealth Tax (Patrimonio) – 8th November 2011
• Taxes on Selling Spanish Property – 8th December 2014
• Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
• La Complementaria or ‘Bargain-Hunter Tax’ – 8th May 2015
• Taxes on Buying Spanish Property – 8th July 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Spanish Inheritance Tax for Non-residents (Part I) – 8th February 2016
• Spanish Inheritance Tax for Non-residents (Part II) – 8th March 2016
• Spain’s Non-Dom Tax Scheme – 8th July 2016

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.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of June 2016

Introduction

A fortnight ago the BBC News published in its Business section an enticing article which has garnered much attention from the media. It relates to Spanish bank guarantees and the payout that is potentially due to thousands of off-plan buyers (mostly British).

The article quotes as source a Barcelona-based law firm which estimates that up to 100,000 UK off-plan buyers were due payouts to the tune of £20,000 per investor. The law firm quotes a Supreme Court ruling of the 21^st December 2.015 which established the joint liability of banks (and developers) on refunding off-plan stage payments. The article then goes on to explain that Britons could be owed as much as £2bn. The article compares the situation Spanish banks are now facing to the PPI scandal that engulfed UK high street lenders forcing them to set aside billions of pounds in claims as a result of mis-sold financial services.

I will resist the urge to introduce a wedge and mention here how I was harassed day in and day out with phone calls and text messages, whilst working in the UK, offering me 100% guaranteed PPI claims. The fact of the matter is that I knew I did not qualify but that did not stop the buzz. Do not expect a repeat PPI scenario unfolding in Spain anytime soon.

Setting the Record Straight

Long story short, well over a year ago, in the 1Q 2015, I wrote an article titled “Supreme Court Rulings on Bank Guarantees”. This article was published on the 8^th of April 2.015 in Spanish Property Insight, which coincidentally also happens to be a Barcelona-based company.

This long article (over 3,000 words) was the first to analyse in painstaking detail a number of recent Supreme Court rulings that shaped our understanding on how off-plan bank guarantees work in Spain. The article collates a number of legal changes; chief amongst them is the joint liability of banks (along with developers) when no bank guarantees had been issued (or had been wrongly issued) to off-plan buyers.

In layman´s terms this translates into now, for the first time ever, being able to claim directly from banks where off-plan deposits were paid into even when no bank guarantee was issued to a buyer by the developer (as is mandatory by law 57/68). I highlighted repeatedly the legal significance of this change brought about by the Supreme Court in my text.

This, coupled with the fact the Supreme Court had made it clear that the statutory limitation to litigate is now 15 years, effectively moved the goal posts for thousands of off-plan buyers which previously had been barred from litigation for legal reasons I explain below. Please note I avoid at all times using the term ‘investors’, as does the BBC article, for legal reasons I also care to explain further below.

Thousands of new-build buyers which had NOT been issued a mandatory bank guarantee safeguarding their interim deposits, as is mandatory per Law 57/1968, and to which the litigation door was previously tightly shut, found the door left ajar almost in a beckoning manner by way of the recent Supreme Court rulings. These were uncharted waters for us all.

The significance of the legal rulings I analysed early on in 2.015 is threefold:

• You could now litigate for a full refund of your off-plan stage payments (plus legal interests) despite never have been issued a bank guarantee (or been issued an incorrect or partial one).
• The statutory limitation was confirmed to be 15 years as from the first payment.
• Unlike before you could now litigate and file a claim against the lender skipping the developer altogether. This was previously not an option as I highlighted in multiple litigation articles of mine at the time (back in 2.008). This change has associated two major benefits: you save yourself protracted litigation time chasing a developer and most significantly you can now file a claim directly against a bank, which has money, leaving aside developers which in most instances had gone under (so there was little to no chance to recover the funds as their assets had been legally seized by creditors who were first in the pecking order following insolvency procedures).

I even went the extra mile writing a bullet point section, as a recap, collating all the legal changes I had examined throughout multiple Supreme Court rulings for ease of comprehension.

So as can be surmised from my 2.015 article, the ruling of the 21^st December 2.015 the BBC article quotes is not the first and most certainly not the last. It is in fact one more in a long string of positive Supreme Court rulings which clearly favor consumer interests (off-plan buyers). Again please note I do not use the term ‘investor’. Moreover, I concluded stressing in my article the strong pro-consumer bias the Supreme Court has manifested in its rulings. These rulings set jurisprudence, meaning lower courts are bound by them.

To close, I would like to mention I do not know where the catchy headline of “100,000 UK investors” being owed payouts comes from; but frankly I would be highly surprised if even a tenth qualifies. This figure seems way over optimistic to my mind.

Unfortunately, after my positive spin, comes the reality check.

The Damper

Despite the warm fuzzy tone the BBC article exudes, the road to recover off-plan deposits is long; it is by no means a cakewalk. First of all, banks are not going to roll over handing payouts left, right and centre to Britons. Anyone expecting that is naïve and simply deluding themselves.

Knowing lenders, they are going to put up one heck of a fight, Supreme Court rulings or not. Anyone expecting a payout as in the UK with the PPI scandal is in for a sore disappointment. I am certain it hasn’t even crossed Spanish banks´ minds to set aside billions of pounds, unlike their UK counterparts, for these payouts.  And there are multiple reasons for it which I go on to explain.

Banks will make use of the legal defence developers had to counter claims as they are in fact in the same legal position. In my 2.008 litigation article I gave a list of ten reasons why your case could be thrown out of court. I will list some of them below:

1. You can only litigate if you legally terminated (or cancelled) the off-plan purchase contract before a developer attained what is known as a Licence of First Occupation. The reasons to excercise a cancellation must have been a serious breach of contract not a whim i.e. the property was being delivered significantly after the contractually binding date for completion. If you did not cancel your contract legally before a LFO was attained your case is doomed, period. It is almost guaranteed the judge will rule against you. It doesn´t matter if the property was completed properly at a later date (with LFO issued) so long as the off-plan buyer terminated the contract legally before the developer attained a LFO.
2. Only consumers or buyers of good faith qualify for a payout. Investors are expressly ruled out. Hence why I give so much importance above to the terms that are used. This is explained because in Spain Consumer law is very protective. The European Court of Justice (ECJ) has done a sterling job as well over the last years protecting consumers at large from abusive contract terms (i.e. mortgage-related claims on abusive mortgage clauses). On the other hand, the law takes for granted that investors are financially savvy and need no protection so they are excluded from the benefits offered by Law 57/68 (bank guarantees law). So who qualifies as an investor in the eyes of a Spanish judge? An off-plan buyer that buys several properties with the intention of reselling them at a higher price will be seen as an investor (i.e. also known as ´flipping´ properties which was very popular and lucrative at the height of the property bubble). E-mails sent to your estate agent claiming you are looking for an attractive investment with high potential (rental) yields can also be construed as that of an investor. Bottom line, the language, the number of properties bought and the use you are going to give the properties is relevant to be qualified as an investor or not.
3. Lenders must have been ‘aware’ the funds deposited with them were destined to buy an off-plan property in compliance with terms of law 57/68.
4. To claim successfully a refund, an off-plan buyer must be able to supply to a law court prove of having made ALL stage payments (including the initial reservation deposit that strikes the property off the market). Any money that cannot be proved to have been deposited with the bank can simply not be claimed back. In the past there have been serious issues on wiring funds overseas using intermediary companies (i.e. currency forwarding companies or even real estate agents’ accounts) grouped transfers for economies of scale (to get better exchange rates) and it is nigh impossible to prove part of those funds belong to a given client. Many cases have been dismissed at court because lawyers were unable to prove that part of those bulk transfers belonged to their client. Obviously this is not an issue when Mr. Smith, for example, wired his funds from his account at Barclays UK over to Cajasur Spain. Also it may prove challenging for some buyers to retrieve bank records of transfers that were made well over a decade ago.
5. The statutory limitation is 15 years as from the time the first payment was made. Some cases will now be time-barred i.e. those who bought in 2.001 or before.
6. Losing a court case in Spain means the case cannot be considered again.
7. Losing may also mean that you are liable to pay the lawyer’s fees, procedural costs and legal interests of the OTHER party (besides your own set of legal fees). So when someone cold-calls you offering you litigation on a ‘no-win, no-fee’ basis that sounds too-good-to-be-true make sure you are not getting a raw deal. Because even if you do not end up paying the legal fees of your own lawyer as plaintiff, you may be forced by the court to pay the legal fees, procedural costs and legal interests of the defendant (the bank). And banks have a notorious penchant for hiring expensive lawyers.
8. As mentioned above, lenders are not just going to roll over allowing buyers to walk all over them demanding huge payouts. In all likelihood they will follow an attrition war that in their eyes will hopefully prove too expensive and time-consuming for a plaintiff leading them to throw the towel eventually. You can expect protracted litigation that will drag on for several years. Do not expect a swift out-of-court settlement on this matter – won’t happen.

Practical example on who qualifies for litigation now; what has changed

As a case in point, and to avoid esoterics, I put forward a practical example:

Mr and Mrs Fatebringer set down a deposit to buy off-plan property in Spain in 2003. They wire over funds from a UK account under their own names over to a (Spanish) bank designated by the developer in their Private Purchase Contract. No bank guarantees were handed over to the couple safeguarding their deposits as would be mandatory under the provisions of law 57/68. For whatever reason the development is never completed (i.e. Building Licence is not forthcoming). The developer eventually goes under and files for creditor protection (insolvency).

• Situation pre-Supreme Court rulings

 Lawyers would have advised the couple that no legal action could be taken against the bank as lenders are not responsible for handing over bank guarantees (that is the developer´s duty). Such cases were quickly dismissed by judges at the time. Lawyers will have also advised them not to take action against a developer teetering on the brink of bankruptcy as in all likelihood all its assets are frozen or legally seized (lawyers would have verified this point). Bottom line, this couple will have lost all the savings (stage payments) they paid into the Spanish bank. Litigation was pointless as it was a case of throwing good money after bad. Normally off-plan deposits equated to approximately 40% of the value of a new-build property; a substantial amount.

• Situation post-Supreme Court rulings

 Following new jurisprudence from the highest court in the land, Mr and Mrs Fatebringer may now take legal action, despite never been handed a bank guarantee, directly against the bank that held their funds. They have a window of 15 years as from the first payment (which was in 2.003). It is likely the bank will fight them off in court but will lose eventually. To qualify for a payout the couple must comply with the points I lay above under the heading ‘The Damper’.

Conclusion

Litigation is a serious matter and should not be taken light-heartedly. Reckless litigation offered by ambulance chasers often leads to expensive legal bills.

Shop around, look for a reputable litigation law firm that has experience and request a preliminary assessment on your matter to determine success odds (fees may apply). A case-by-case approach ought to be taken, there are no one-size-fits-all solutions. Be wary of law firms claiming to guarantee 100% litigation success rate – no such thing exists. The outcome on legal procedures is always uncertain and caution is key.

All things said, the litigation prospects for thousands of off-plan buyers, who were previously barred from litigation, is looking brighter than ever. The success odds have dramatically improved through the recent actions taken by Spain’s Supreme Court. Thousands of property buyers now, for the first time, stand a good chance at court to recover all their monies plus legal interests if they are resolute and committed to success.

The gates of reckoning stand open, for now.

“Trust, like reputation, is hard to earn, but easy to lose.”

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

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, 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.

Legal services Larraín Nesbitt Lawyers can offer you

• Power of Attorney
• Property Litigation

Related articles

• Off-Plan Construction Guarantees – 8th November 2011
• Licence of First Occupation – 8th April 2013
• Bank Guarantees in Spain – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• How to Buy Commercial Property in Spain – 4th July 2014
• How to Buy Rural Property in Spain – 8th August 2014
• How to Buy Property in Spain Safely – 10th October 2014
• Taxes on Selling Spanish Property – 8th December 2014
• Supreme Court Rulings on Bank Guarantees – 8th April 2015
• House Hunting in Spain – Interview with The New York Times. June 2015
• Taxes on Buying Spanish Property – 8th July 2015
• Law 20/2015: Important new bank-guarantee legislation explained for off-plan buyers – 8^th September 2015
• Resurgent Spain: Málaga Sees Strong Sales – Interview with Mansion Global (The Wall Street Journal). December 2015
• How to inspect an off-plan property overseas – Interview with The Sunday Times. July 2017
• Off-Plan Bank Guarantees and Supreme Court Rulings – Payback Time – 8th June 2016

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.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

Regular legal-contributor Raymundo Larraín Nesbitt gives us an overview of the urban rental law in Spain (or LAU as it is known in Spanish) which is applied nationwide. This law rules on long term tenancy agreements, amongst other rental types.

Marbella-based Larrain Nesbitt Lawyers has over 16 year’s taxation & conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

Article copyrighted © 2016. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of May 2016

Introduction

The importance of the LAU (Spain’s Tenancy Act) cannot be understated as it constitutes the backbone of most tenancy agreements in Spain.

It should be noted I have greatly simplified the LAU for ease of comprehension but in truth its intricacies and nuances are far more complex than I care to explain. It is highly advisable that readers interested on the matter browse the section below on ‘related articles’ (at the end of this article) which are focus-specific and deal with tenant evictions for example.

To better understand its latest incarnation from 1994 it becomes necessary that I digress with a brief historic recap that helps to explain how we got here in the first place.

EDIT: 4th March 2019. Following new rental laws, some aspects of this article have changed significantly. i.e. the duration periods for long-term rentals.

Historic recap

Post-civil war Spain suffered from a chronic housing shortage. At the time families were large and needed all the protection they could muster from Authorities. This strong bias towards the protection of tenant rights became so deeply embedded in the psyche of lawmakers that it pervades all rental laws even to this very day.

As a general rule a tenancy agreement is ruled by the rental law that was in effect at the time of its signing. We can broadly distinguish the following rental laws:

•    Rental law of 1.964 (texto refundido).
•    Decreto Boyer of 1.985.
•    Rental law 29/1994 of 29th of November – Spain´s Tenancy Act (often abbreviated to LAU in Spanish).
•    Law 4/2013, of 4th of June which significantly amends the LAU of 1.994. More on these changes in my in-depth article New Measures to Bolster Spain’s Ailing Rental Market.

The law from 1.964 created some obscene anomalies called ‘alquileres de renta antigua’ which basically forced landlords to keep renting out to tenants during their whole lifetime at a mandatory fee which in some cases was shockingly ten times below the market price (sic) in prime locations in Madrid, Barcelona and elsewhere. Even worse, the widow and/or children could ‘inherit’ the tenant’s position and also be entitled to a ridiculously low-priced rental for the remainder of their lives. This created perverse surreal situations that would even make Kafka blush. Needless to say this was hugely detrimental to the interests of landlords which were afraid to rent out.

As newer rental laws were passed this tenant bias has been gradually watered down to within ‘reasonable’ limits more in line with the today´s market reality.

The law which is currently in force is the LAU from 1.994 with the amendments brought about in 2.013. It is this law that I will be analysing point by point going forward. This law still holds a pro-tenant whiff albeit to a much lesser extent than its predecessors.

Legal Framework

Urban rental laws are ruled by both the Civil Code (articles 1.542 et seq.) and by the LAU of 1.994.

The Civil Code acts only in a subsidiary manner on what is not expressly ruled by the LAU which has pre-eminence.

Scope of the law

The LAU deals with both long term and short-term rentals, among other rental types (i.e. commercial lets as well).

As a general rule, long term rentals are very regulated and tenants are very protected having a number of rights and entitlements. There is a clearly a pro-tenant bias as outlined in the historic recap section above. Lawmakers are drawn to protect the weak party, the tenant.

Arrendamientos para uso distinto del de vivienda (which includes the subclass known as 'seasonal lets') on the other hand have a much greater degree of flexibility and freedom to negotiate the tenancy´s clauses without being constrained by rules. This is because lawmakers regard both parties as equals and therefor leave to them to rule on their contractual relation exercising a minimum degree of intervention.

The afor goes on to explain why some landlords try to pass off long term rentals as if they were short-term rentals to circumvent all long term tenant´s rights. This seldom works out in practice and when the tenancy agreement is challenged at court it is labelled as a long term rental. More on this in a section below on the eleven-month contract myth.

Excluded lets

There are several excluded property types from the LAU. The only one I'm going to mention are luxury rentals. Luxury rentals are excluded from being ruled by the LAU and are not subject to all I write below. Luxury rentals are governed by their own clauses. A luxury rental is defined as a property over 300 m² or which monthly rental exceeds 5.5 times Spain’s minimum wage.

Ley de Arrendamientos Urbanos (LAU)

Rental deposit

We have to distinguish whether a dwelling is used, or not, as permanent abode.

a.    As a permanent abode

E.g. standard tenancy agreement to live in a property for several months

By law, the deposit is one-month´s rental and paid in cash. The parties are NOT free to negotiate a higher deposit. Demanding a two-month deposit, for example, is null and void. Normally in Spain´s 17 regions this deposit is paid into an escrow account that is safeguarded by the Administration to ensure tenants recover their deposit (less any damages).

For example, in the region of Andalusia you need to comply and submit model 806. Additionally, the Administration is legally compelled to refund a tenant his rental deposit (less damages) within one month after the tenancy agreement is terminated. If it takes longer delay interests accrue which currently are significantly higher than what you can expect from a high street lender.

In practice, largely due to ignorance, rental deposits are paid by tenants to landlords (not to third parties such as public Administrations) which may create serious issues down the line when the tenancy agreement is terminated and the tenant exercises his right to recover his deposit as some landlords are notoriously reluctant to refund them unless legal action is taken against them.

b.    Use other than a permanent abode

E.g. commercial premises, or a dwelling which purpose is not to be used as a permanent abode i.e. seasonal contract.

The law states it will be a minimum of a two-month deposit. The parties are free however to increase the amount.

I. Use of a Property as Permanent Place of Abode

Rental

As stated in the article´s introduction even today´s most recent rental law incarnation is somewhat pro-tenant. Specifically article 6 states that any agreement made contrary to Title II of the LAU will be null and void.

A tenant does not lose his legal position even if he stops living in the property, as long as he is not legally separated or divorced, and his spouse and or his underage children still continue living in it, he will still be regarded for all intents and purpose as a tenant.

•    Lease

This takes place when the tenant cedes his legal position in the contract to a third party who becomes the new tenant. It is only possible with the written authorisation of the landlord. Landlords can word a tenancy agreement to forbid leases.

•    Sublet

This takes place when the tenant in turn sublets rooms or section of the house to third parties. Only partial sublets are allowed, not whole. The landlord must give his prior consent in writing. The sublet must always be for a rental inferior to the main one. Subletters are not entitled to the mandatory or tacit contract renewals explained below, only tenants. A landlord can however word into the tenancy agreement to forbid sublets.

•    Duration

For tenancy agreements signed after the 5th of June 2.013 the following rules apply. Tenancy agreements signed before said date have a different set of rules which can be very convoluted.

If no period is specified it is over understood the rental will be for one year. A long term rental is not defined by renting to the same individual for a period of time equal or greater than12 months. This is a common blunder. A two-month rental can be for example regarded as long term by a judge. What matters is not the duration of a rental but the purpose which is given to a property. If the property is used as a permanent abode then it is regarded as a long term rental irrespective of whether a rental lasts 3 years, one year or six months.

a.    Mandatory renewal: Landlords are legally compelled to renew the rental for annual periods up to three years (before 2.013 it was five years). Tenants, at their own discretion, may opt on whether they choose to renew or not for a further year (up to a total of three years). In other words, landlords are at the expense of a tenant´s whim on whether he wants to stay in the property for a total of 3 years, landlords have no say.

•    Renewal notification period

Tenants must notify their landlords with at least 30 (natural) days of their intention to renew their contracts for a further 12 months.

•    Exception to mandatory rental renewal

After one year, landlords are given the opportunity to opt out of it providing one of the following cases is met:

Landlord notifies his tenant with two months’ notice he needs the property for himself or else for a first degree relative as a result of separation, divorce or marriage nullity declared by a legal ruling. If a landlord does not occupy the property himself or else a relative of his, the now ex-tenant is entitled at his choice to either compensation or else to return to his former home (costs of moving will be borne by the landlord).

b.    Tacit renewal (silent renewal): if after three years of rental none of the parties notifies the other giving at least 30 days’ notice then the rental is renewed for a further year (totalling four years).

•    Tenant wishes to terminate the rental agreement ahead of expiry date

A tenant can legally opt out of the tenancy providing more than six months have elapsed since the contract came into force giving his landlord at least 30 days’ notice. The parties are free to negotiate a compensation to the landlord in such a case on the lost rental.

Notwithstanding the spouse or partner of the tenant may opt to remain in the property in which case they must notify the landlord up to 30 days after the tenant leaves the property. The wife will continue to pay the rental in exactly the same conditions as before.

Rental fee

There is freedom to negotiate on its terms. If nothing is agreed, it will be monthly (a landlord cannot request more than one month´s payment ahead) during the first seven days of every month.

A landlord must give his tenant an invoice for every month´s rental – this is mandatory – unless payment is agreed, for example, by bank transfer in which case there is more than enough prove of payment.

The rental will be updated yearly according to a mutually accepted financial benchmark such as the IPC (Spanish Consumer Price Index) which offsets the effects of inflation bringing it in line with today´s values. This indicator is currently negative.

•    Improvements

If a landlord carries out refurbishment works that constitute an objective improvement of the property, i.e. installs a Jacuzzi, then he is entitled to increase the rental.

•    Utility expenses

As a general rule, all expenses subject of an individualised consumption meter reading (gas, water, electricity etc.) are borne by a tenant.

•    Taxes and Community fees

Normally a landlord is responsible for paying IBI tax (akin to the UKs Council tax) and the community fees. But it can be agreed otherwise if both parties accept.

•    Refurbishment & maintenance expenses

It is the landlord´s responsibility to pay for these. If these extend more than 20 days the tenant is entitled to a reduction in the rental in proportion to the surface he can no longer use as a re-sult of the ongoing works.

•    Damages

If a damage is due to normal wear and tear, i.e. leaking faucet or faulty washing machine, then it is the tenant who must pay for it. It is presumed that all household goods and kitchen appliances are handed over in perfect working order at the start of a rental. The onus to prove otherwise falls on a tenant. Articles 1.562 – 1.564 SCC. Which is why it is highly advisable a tenant carries out a thorough check of all the house (snagging list pointing out any flaws or deficiencies) prior to taking possession of the property. A tenant can categorically not withhold rental money as a result of, for example, a faulty household appliance or defective pool lights or engine. More on this in my article Renting in Spain: Top Ten Mistakes.

Pre-emption and Buyout rights

Tenants have a series of rights that landlords must respect when it comes to selling the property. These rights can be enforced at a law court (and frequently are).

i)    Tanteo (pre-emption right): the landlord who wishes to sell on a property is legally bound to notify his tenant of the sales price and other key sales conditions. The tenant has up to thirty days to notify his landlord on whether he wants to exercise his right of buying the property with these same conditions. If he is interested in buying it outright, a tenant is first in line and has priority to jump over any other buyer.

ii)    Retracto (buyout right): if the landlord failed to notify the tenant of his intention to sell on the property the tenant can file a law suit once the new buyer notifies him of the sale. The tenant will have thirty days as from the time the new owner notifies him to exercise his right to occupy the property. The tenant will need to come up with the money to buy the property in that period and lodge it before a law court.

Waiving pre-emption and buyout rights

Both landlord and tenant may agree that a tenant relinquishes his two rights. This is frequently agreed and built into tenancy agreements. Needless to say, this only benefits the landlord, not the tenant.

This can also take place when a single buyer buys all the properties in one building or when a landlord sells multiple properties within the same building. In these two cases a tenant’s preferential acquisition rights are waived as they could jeopardize a larger transaction

Lodging a Long Term Rental at the Land Registry – Advantages

Long term tenants are advised to lodge their long term tenancy agreements at the Land Registry for their own protection against third parties i.e. landlord defaults his mortgage and falls into arrears. His lender executes the contract and attempts to repossess the property. A tenant´s position is stronger if his tenancy agreement was already lodged at the Land Registry. He can in fact negotiate with the lender to leave ahead of the rental´s expiry date in exchange of a suita-ble compensation for his aggravation.

Contractual termination

Either party can denounce the tenancy agreement for breach of contract based on art. 1.124 of the SCC.

Reasons which allow a landlord to terminate the tenancy agreement ahead of the expiry date:

•    Lack of payment
•    No deposit fee paid
•    Non-consensual subletting or leasing
•    Damages caused to the property ex profeso or non-consensual works carried out.
•    Activities which are deemed bothersome, unhealthy, hazardous or illegal.
•    The dwelling ceases to be a permanent abode and is used for other purposes.

Reasons which entitle a tenant to terminate the tenancy agreement ahead of the expiry date:

•    The landlord fails to carry out the necessary maintenance or repair work to which he is obliged.
•    The disruption in the use of the dwelling caused by a landlord by way law or fact.

II. Use of a Property other than as Permanent Place of Abode

Broadly these refer to renting out a property to someone who is not going to use it as his permanent abode or residence.

Properties and uses include, but are not limited to, the following ad exemplum:

•    Arrendamientos por temporada (i.e. seasonal contract which can be either short or long term)
•    Commercial lets
•    Professional lets
•    Teaching outlets
•    Industrial outlets

Freedom of Negotiation

Lawmakers understand that both parties are in equal rights. For this reason, they do not believe that one of them is in need to be ‘tutored’ by way of laws; think of a businessman who rents out a commercial premise. The law doesn´t think that a tenant, who is a professional, is in a weak position and therefor is in no need of protection.

This translates into almost total freedom between the parties to adopt the clauses they think are best to rule on their contractual obligations so long as they do not oppose the laws, the morality or public order. Whilst the general practice is a two-month deposit for commercial premises (as per law) I stress there is leeway to negotiate, particularly on high-end commercial lets. For example, a beachfront pad located in a prime location such as Puerto Banus (Marbella) could set you back 12 months. Particularly if you are a non-resident tenant with no ties to Spain, a landlord will ask for more cast-iron financial guarantees (to hedge himself) as you may be perceived as a risky option.

In such cases the parties will be subject in first place to what they have contractually agreed, to the LAU in what they have not expressly ruled and finally and in last instance to the Spanish Civil Code.

The Eleven-Month Contract Myth

Early on in my career I heard of this ‘magic’ contract that was meant to be the universal panacea to all landlords’ griefs; behold the power of the eleven-month contract (roll drum)! This was a contract devised to supposedly deviously circumvent the LAU and its mandatory stipulations that (overly) protect tenants at the cost of landlords.

Well I´m sorry to break it out but eleven-month contracts are just poppycock. They are regularly quashed in Spanish law courts every day. Anyone who signs such a tenancy agreement deluding themselves into thinking they can magically skip all the tenant rights I have meticulously laid above to pass off the contract as short-term let or as an arrendamiento de temporada instead of a long term rental is in for a rough (and costly) ride.

It doesn´t matter one iota what the parties to a rental contract want to label or call it. What ultimately matters to a judge, who wields the power, is the use that is given to a property. If the property is used by a family, the kids go to school on a daily basis, the wife and husband work, they have hired high-speed internet services and or cable tv you can call it an eleven-month contract all you want but the judge will rule the property is ultimately being used as a permanent abode and therefore merits the full protection of the LAU. In which case all the rights I have painstakingly collated in the first roman numeral above will apply i.e. mandatory three-year renewal at the sole choice of a tenant amongst many others.

Private Holiday Rentals

Spain is divided administratively into 17 regions. Since 2.013 many have passed their own laws on holiday lets which, by definition, are short-term rentals.

Private holiday lets are ruled by these regional decrees and are expressly excluded from the LAU that I have described thoroughout this article. More on this can be gleaned from my in-depth article on the matter: Holiday Rental Laws in Spain. This article contains a full list, region-by-region, of all the holiday rental laws currently in force. Residential holiday lets and rural rentals are ruled by different regional laws.

As an example in the region of Andalusia:

•    Rural rentals are ruled by: Decree 20/2002: Andalusia’s Holiday Rural Rental Decree.
•    Residential property (private holiday rentals) are ruled by: Holiday Rental Laws in Andalusia (Decree 28/2016).

Each region in Spain has similar laws in place. It is advisable landlords acquaint themselves with them as some regions are fairly restrictive (i.e. Balears) and require a licence to rent out and impose hefty fines on landlords for non-compliance.

Energy Performance Certificate

Following new regulation, if you rent out in Spain you will need to hand over to your tenant what is known as an Energy Performance Certificate (or EPC). This includes both short-term (i.e. holiday rentals) and long term lets. Non-compliance may result in a landlord paying fines to the Autonomous Community where the property is located. Just follow this link to my blog post which explains in detail what an EPC is and how to get one.

Conclusion

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

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

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

In memoriam Andreea Tulin

Le dedico este artículo a nuestra querida compañera del máster Andreea Tulin. La mejor de entre todos y mejor persona aún. Tus compañeros no te olvidamos. D.E.P.

Verde que te quiero verde.
Verde viento. Verdes ramas.
El barco sobre la mar
y el caballo en la montaña.
Con la sombra en la cintura
ella sueña en su baranda,
verde carne, pelo verde,
con ojos de fría plata.
Verde que te quiero verde.
Bajo la luna gitana,
las cosas le están mirando
y ella no puede mirarlas

– Federico García Lorca. Romancero Gitano, Romance Sonámbulo.

Child prodigy, exquisite Spanish poet, playwright, and theatre director. Outstanding member of the Generation of 27. Assassinated at a young age by Nationalist forces shortly before the outbreak of the Spanish Civil War. His body was never found, his legend grows on.

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.

Legal services Larraín Nesbitt Lawyers can offer you

• Rentals (contract drafting)
• Rentals (advising on pre-existing lease agreements)
• Land Registry Search (Nota Simple)

Letting 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
• House Hunting in Spain – The New York Times. June 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
• Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
• Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016
• Renting in Spain - Landlord´s Taxation – 8th of January 2017
• Renting in Spain: Non-Resident Landlord's Rental Reliefs – 14th of January 2017
• Holiday Rental Home Taxation in Spain – 8th of July 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.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

As foreign buyers return to Spain in increasing numbers, some will be tempted by the dream of a rural idyll in the Spanish countryside, where some of the most beautiful scenery in Europe can be found. However, the risks of buying in a rural environment are significantly higher than in consolidated urban areas. Regular legal-contributor Raymundo Larraín Nesbitt explains.

Photo credit: Spanish Property Insight

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of April 2016

Introduction

As a result of publishing last month’s article on Holiday Rentals Laws in Andalusia (Decree 28/2016), which applies only to residential properties, I got asked to write up something on rural holiday rentals in Andalusia.

Decree 20/2002 is in fact a fourteen-year-old law so rural landlords should not be going overboard over it regarding fines for non-compliance. I stress I am not advocating for non-compliance, merely observing that this law was passed well over a decade now.

Due to the sheer length of this decree, this article is by no means exhaustive. In fact I have greatly abridged the decree focusing only on the points that will interest the vast majority of rural landlords. It is advisable landlords get hold of their own translated copies of this long decree as I will not be analyzing all the minutiae as it interests only a minority of people (specifically Annex III dealing with rural houses which goes into a wild level of detail on the requirements one must comply with i.e. size of toilets).

Andalusia’s Holiday Rural Rental Decree

Andalusia approved on the 29th of January 2002 this decree (sic). Andalusia’s Holiday Rental Law was officially published in the BOJA on the 2nd of February of the same year. This decree has been amended several times over the last decade by numerous laws. The most up-to-date version is this one which reflects all the legal changes:

Decreto 20/2002

The official name is Decree 20/2002, de Turismo en el Medio Rural y Turismo Activo.

This includes the following types of rural property:

• viviendas turísticas de alojamiento rural (better known by its acronym VTAR).
• casas rurales.
• complejos turísticos rurales.

The best way to go about it is simply analysing point by point what it establishes.

Obligation to Register your Rural Property for Rental Purposes

In compliance with this Decree, and with Law 13/2011, of Tourism in Andalusia, landlords need to register before Andalusia’s Tourist Registry (or ATR going forward).

You can download and fill in the form supplied by the ATR called ‘Declaración Responsable‘ and hand it over at one of the ‘Delegaciones Territoriales de Turismo’ once completed. Registration is free unlike in other regions of Spain. More details on registration in a section further below titled ‘How to Register your Holiday Rental in Andalusia’.

If your command of Spanish is low, you can hire a lawyer to do this on your behalf in exchange of a reasonable fee.

Excluded Properties

The following properties are excluded from being regulated by Decree 20/2002:

• Properties which are lent to friends or family without an exchange of money (free).
• Properties that are let to the same individual for a continuous period of time exceeding two months. In which case it will be regarded as a standard rental agreement subject to Spain’s Tenancy Act. More details in my in-depth article: Spain’s Tenancy Act (LAU).
• Residential properties, located in what is legally classified as urban land, are expressly excluded as they are subject to their own legislation: Decree 28/2016. You can find more details in my in-depth article: Holiday Rental Laws in Andalusia (Decree 28/2016).
• Apartamentos Turísticos which are ruled by Decree 194/2010.
• Villages with a population census over 20,000 will not be considered rural for the purpose of this decree.

Holiday Rural Rentals: Definition

Article 9 defines them. They will comply with the following three points:

• To have the appropriate architectonic rural characteristics of the region they are located in.
• To be integrated with the natural surroundings.
• To meet the minimum requirements set out in this Decree for each rural type available.

Types of Rural Lodgements

• Rural houses (casas rurales).
• Rural hotel lodgments and rural tourist rentals (establecimientos hoteleros y apartamentos turísticos rurales).
• Rural tourist resorts (complejos turísticos rurales).
• Other.

ANNEX I: Specialization of Rural Properties

Rural properties can be classified in different groups depending on their specialization:

• Agro tourism. Exploitation of agricultural and livestock resort which lodgers can participate in its activities.
• Rural hostel. Devised for short-term to explore and enjoy the rural surroundings and nature. It will have kitchens for the use of lodgers besides being able to offer its own food catering. Rooms for up to three people will be allowed in bunk beds. A ratio of one toilet for every 7 lodgers.
• Nature classes. Thought to educate tourists on Nature’s ways. Group orientated.
• Forest housing. Linked to the exploitation of forests, mountains, lakes and water related natural resources.
• Mill.
• Cave house.
• Huts. Wood or straw thatched dwellings.
• Cortijo house. Used to exploit the surrounding fields i.e. plantation.
• Farm school.
• Hacienda. A more complex and larger structure than a cortijo i.e. olive plantation
• Refugio. Structure devised for mountain hikers to dwell in a few nights in hard to reach locations in the wilderness.
• Other. This includes all rural property that do not qualify for one of the previous categories.

ANNEX II: Mandatory Minimum Structural Requirements of Rural Lodgings

• Access to wheeled vehicles must be enabled with visible signposts. Brochures with directions on how to get there must be supplied to tourists. If the landlord cannot do this he must provide himself the means of transport to and from the lodging premises.
• Drinkable water. Not inferior to 200 litres per lodger if not connected to the mains grid.
• Electric energy.
• Fully stocked first aid kit.

Rental Types

As mentioned in the article’s introduction I will skip whole sections of the Decree and focus only on the two typical rural properties rented out by expat landlords.

1. Rural Houses (casas rurales)

• Independent structures.
• No more than three dwellings within the same building as a limit.
• No more than 20 lodgers allowed at any time.
• They will be classified in two categories: basic and superior. Superior has obviously more stringent requirements to meet.

Annex III holds a full list of requirements rural houses must meet to be rented out legally. For reasons of space I will not be including it. It is strongly advised that landlords download Annex III and have it fully translated. Annex III can be found in pages 21 to 24 of this PDF link: Decreto 20/2002.

2. Rural Rentals (viviendas turísticas de alojamiento rural or better known by its acronym VTAR)

• Architectonically independent stuctures such as labour house, tool huts, barns, cowsheds, stables etc.
• Offered to the public in general to be rented one or more times a year on a short-term basis.
• To offer strictly only lodging services (not additional services such as restaurant facilities or daily change of laundry and bed linen)
• No more than three dwellings allowed in the same building.
• Maximum of twenty vacancies offered.
• To be adequately furnished.
• The lodging cannot exceed 3 months within a calendar year.

Registration Form

• All lodgers, not just the one making the reservation, will be fully identified in compliance with current Security laws (popularly dubbed as ‘Gag’ Law). Lodgers will supply a copy of their personal ID/passport. Like in hotels, all guests will be required to fill in and sign a registration form on entry. In compliance with art 7.2 this registration form must be then sent to the Police or Guardia Civil for every guest over the age of 16 years old within the next 24 hours of the accommodation following Security Laws from 2003 (Orden INT/1922/2003, de 3 de julio, sobre libros-registro) and from 2015. You can send a copy of the filled in and signed registration form personally, by fax or else by e-mail. Registration forms are standardized by law; click here for a sample copy.
• Online registration: follow this link to submit by e-mail to the Guardia Civil a copy of your completed Registration Form.
• Registration forms must be stored by landlords for a period of up to three years for the inspection of the Security Forces.

How to register your Rural Holiday Rental in Andalucía – Inscription before Andalusia’s Tourism Registry (ATR)

All landlords that wish to rent out their rural properties in Andalusia must register their property before the ATR prior to offering and advertising rentals or else face being fined for clandestine activity.

You can self-register here:

Enrolment at Andalusia’s Tourism Registry.

Download, print and fill in the form supplied by the ATR called ‘Declaración Responsable para el acceso o ejercicio de la actividad’; specifically the annex on page 7. Once done, hand it over physically at one of the ‘Delegaciones Territoriales de Turismo’ in the region where your property is located. It can also be completed online if you have a digital certificate enabled. Unlike in other regions of Spain registration is free in Andalusia. You can find a translated version of the form in English here.

• Complete the Declaración Responsable meeting the requirements outlined above in Annex II & III depending on your rural property type.
• Passport copy of landlord and/or NIE number will be required.
• Property details, cadastral reference, number of potential guests. Supply copy of last IBI receipt that mentions ten cadastral number. More on IBI tax in my article Non-Resident Taxes in Spain.
• Landlord’s personal details and an address for official notifications.
• Details of management agency or designated person if landlord appoints someone to act on his behalf. Any change in details must be communicated so the ATR remains accurate at all times.
• Dates on when the rural rental facility is set to open.
• Mandatory insurance policies (if applicable).
• Details of this inscription will be passed on to the local town hall.

Fines and Sanctions

They are divided into three categories:

a.- Light offence. Can be either a written warning or a sanction with fines up to €2,000.
b.- Serious offence. Sanctioned with fines ranging from €2,001 up to €18,000. The premises may be shut down temporarily at the authority’s discretion (for periods less than 6 months), the rental licence may be revoked temporarily.
c.- Very serious offence. Sanctioned with fines ranging from €18,001 up to €150,000. The premises may be shut down temporarily at the authority’s discretion (for periods spanning between 6 months to 3 years), the rental licence may be revoked indefinitely.

Clandestine Activity

If the Authorities (La Junta) catch you red-handed renting out a rural non-declared property (that is not registered at the ATR) this may be regarded as a serious offence.

Conclusion

If you own rural property in the region of Andalusia, and plan to rent it out as a tourist accommodation, make sure your property is first registered before the ATR. And to close, do not forget to declare and pay tax in Spain on your rural rental income (you can read my article Non-Resident Taxes in Spain for more information on your tax liabilities as landlord).

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.

Legal services Larraín Nesbitt Lawyers can offer you

• Registration of Holiday Rental Homes
• Holiday Rental Accounting Service
• Land Registry Search (Nota Simple)
• Rentals
• Fiscal Representation (Non-Resident Income Tax)

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
• House Hunting in Spain – The New York Times. June 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
• Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
• Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016
• Renting in Spain - Landlord´s Taxation – 8th of January 2017
• Renting in Spain: Non-Resident Landlord's Rental Tax Relief – 14th of January 2017
• Holiday Rental Home Taxation in Spain – 8th of July 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.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

This is the second of a two-part series in which lawyer Raymond Nesbitt explains the process for inheriting assets in Spain as a non-resident, and provides an outline on Spain’s Inheritance Tax (IHT).

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8^th of March 2016

Introduction

The following article is my second part to my abridged article dealing with Spanish Inheritance Tax for Non-Residents (Part I) (IHT going forward). Because of the sheer length of the original article, I was forced to split my article into two parts. Not everyone is interested in this level of detail so it makes sense to remove content from my original article and create a second part with all the minutiae.

This second part deepens in the study of IHT focusing specifically on tax allowances and deductions; both at a national and regional level. Tax allowances are hands down the key to paying little to no Spanish Inheritance Tax for the majority of beneficiaries (including European non-residents).

Feel free to add inheritance tax-related queries below and I will do my best to address them. Please do NOT ask how much Spanish Inheritance Tax you stand to pay as the answer is not straightforward and often requires an elaborate study which escapes the purpose of this forum.

Value of Real Estate for Inheritance Tax Purposes

The Tax Office values inherited real estate according to the highest amount of the following three:

• Cadastral value of the property.
• Acquisition value of the property.
• Tax Office’s assessed fiscal property value.

The cadastral value is the assessed value local Tax Authorities give to a property. It is usually well below the market value (on average by 30% to 50% depending on when it was last revised). This rateable value is used as the taxable base to calculate a series of property-related taxes. You will find the cadastral value of a property in one of your local tax bills (i.e. IBI).

The acquisition value is the sales price of the property which is reflected in the Title deed (when it was bought). Under normal market conditions, real estate assets appreciate over time so this value should be below the current market price.

The Tax Office’s assessed fiscal value is attained by multiplying the cadastral value by a legal coefficient, which is updated every now and then, to bring it more in line with inflation.

Bottom line, all three values above are normally below the current market price; the price at which property actually sales in estate agencies. This translates in practice into paying less tax in real terms.

Testator’s Personal Debts

They are tax-deductible. They must be witnessed in a Notary Public deed or else in a private document (the latter is unadvisable for blatant reasons as it is very difficult to prove). Example: Mr. JC Denton acknowledges a debt of €10,000 by means of a Spanish Notary Public deed to a friend. This 10k can be deducted by Denton’s heirs offsetting it against their inheritance tax liability (they pay less tax).

Encumbered Property: Deductible Liens, Charges, Taxes

In my professional experience, as a conveyance lawyer, almost every property acquired by non-residents is mortgaged. The only exception is cash buyers, which are a frank minority.

The Tax Inheritance Act allows that charges, debts, taxes and mortgage liens against a Spanish property are deductible for tax purposes; it is only the free equity that is taxed. Examples:

• Community of Owners outstanding fees.
• Lender mortgages.
• Lifetime loans.
• Town hall taxes (i.e. IBI, rubbish collection).
• Regional taxes.
• State taxes.
• Social Security debts.

All the above are tax-deductible for the purpose of IHT.

Only this first measure vastly reduces a heir’s IHT liability.

So for example, on a property worth £300,000 with a £200,000 mortgage lien against it, only the free equity, the £100,000, would be taxable for inheritance purposes.

Deductible Expenses

Some expenses are tax-deductible such as: death-related medical fees, funeral and burial expenses (within reason).

Tax Categories

Giftees and inheritors are grouped into four categories for tax purposes. Depending on the relationship with the deceased, allowances are conceded. As a general rule, the closer the kinship, the more generous the allowance.

Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents and great-grandparents.
Group III: Relatives in second and third degree: in-laws, brothers/sisters (siblings), nephews/nieces, aunts and uncles.
Group IV: Relatives in fourth degree, or without any relationship: a friend, common law partners.

State Allowances

Allowances are useful to reduce the taxable base (you pay less tax).

State allowances apply to both resident and non-residents.

Group I: there is an allowance available (between husband and wife, or direct line descendants and ascendants) which is a little under €16,000. A very far cry from the UK’s spouse exemption of over £300,000.
Group II: if an inheritor is a direct line descendant under the age of 21, there is an additional deduction of €3,990 for each year they are under 21. The total deduction is restricted to €47,858 per child or grandchild.
Group III: for more distant relatives the exemption is €7,933. There is no exemption for beneficiaries who are not related, including unmarried couples unless they can be registered.
Group IV: naught, nada.

A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death. ‘Main home’ is a legal term which implies you have lived in the dwelling for the previous three years. The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death.

Assuming that all the conditions are met, the value of the house can be reduced by 95% on calculating the tax base liable to succession tax, subject to a maximum reduction in value per inheritor of €122,606. This only applies to a principal private residence owned by a Spanish resident. To clarify: if you are non-resident, you cannot benefit from this allowance as, by definition, it must be your main home and therefore you must be resident in Spain.

Regarding life insurance covers, beneficiaries may deduct up to €9,195.

And last, not strictly a tax allowance, but always worth noting, is the often unfairly neglected art. 20.3 of the Inheritance Tax Act which states that if the same property is inherited twice, or more, within a time frame of ten years, the Spanish Inheritance Tax paid on the first transmission is fully deductible on the second, and subsequent, transmissions. Meaning almost no tax would be paid providing the second death is in the following ten years.

This is perhaps better understood with an example: husband and wife own a Spanish property jointly; they have two children. Husband passes away and bequeaths his 50% over to his surviving spouse. IHT has to be paid by his wife on the 50% she inherits from her late husband. If the wife should pass away within the next ten years, her inheritors (the children, presumably) do NOT have to pay Spanish inheritance tax on the 50% that belonged to their late father as the IHT that was paid by their mother is fully deductible.

Regional Tax Allowances

In addition to the above stingy state allowances, each of Spain’s’ 17 autonomous regions have ruled on their own tax allowances. It used to be the case until last year that only residents in Spain could benefit from these – which was an injustice I criticized in all my articles over the last decade. A landmark ruling of the European Court of Justice (ECJ, going forward) of 3rd of September 2014 overturned this. Regional allowances now apply to both residents and non-residents alike (but must be resident in the E.U. or E.E.A.). As a recap:

• EU/EEA-residents: (non-resident in Spain) may benefit from both state and regional allowances post ECJ’s ruling in equal footing to those who are resident in Spain.
• Non-EU/EEA residents (rest of the world): there are no changes. State law still applies to them unabated. They do not benefit from regional allowances.

In a nutshell, the ECJ’s ruling put an end to (fiscal) discrimination between residents and non-residents in a wide array of matters; most notably on inheritance and gift taxation. As a consequence of this key European ruling, the Kingdom of Spain was forced to grant non-residents the same lenient regional tax allowances that residents already enjoyed on taxation matters. For more details on this matter, please read my in-depth article: Changes to Spain’s Inheritance and Gift Tax Law.

This change translates in practice into paying fewer taxes. So in addition to the niggardly state allowances (European) non-residents may now also benefit of the much more generous regional allowances which in not few instances almost suppress the IHT liability bringing that tax bill to zero (with the support of a lawyer, of course).

When one of the parties is non-tax resident in Spain (but resident in EU or EEA) the above mentioned changes will bear a dramatic impact on the beneficiary’s taxation; significantly decreasing or even suppressing the tax altogether providing the estate is located in one of the Autonomous Communities outlined in this article’s introduction with lavish allowances on inheritance and gift taxation. In other words, for clarity’s sake, a EU-resident beneficiary stands to pay less tax now under this new law as from the 1st of January 2015. Take careful legal advice as these tax allowances differ significantly from one region to the next, allowing for some very interesting tax planning.

I am not even going to attempt collating the full list of all available allowances throughout the 17 regions in Spain as it is much too convoluted, subject to change from one year to the next and would add considerably to the length of an already long article.

I will only be listing the allowances on the six most popular regions in Spain where English like to buy property in (typically coastal areas). There is no point in me listing the remaining eleven regions as they garner little to no attention from non-residents. The only reason I am doing this is because regional tax allowances are hands down the key to paying little to no Spanish inheritance tax for the majority of beneficiaries (including European non-residents).

1. Andalusia.
2. Balearic Islands.
3. Canary Islands.
4. Catalonia.
5. Murcia.
6. Valencian Community.

As mentioned in this article’s introduction, I have split the six regions into two tiers depending on how accommodating they are with IHT exemptions:

Tier 1: IHT tax-friendly. They improve significantly on state allowances as well as introducing their own unique exemptions to the point of almost suppressing inheritance tax. Prototype region is Madrid.
Tier 2: IHT regional exemptions are found wanting. Prototype region is Murcia.

I have considerably abridged the below allowances for reasons of space constraint (there are plenty more I do not list). The allowances I quote below are always per inheritor (unless specified otherwise). So if there are more than two beneficiaries, each of them benefit individually from them

1. Andalusia (Tier 2)

EDIT 8th September 2016: New legal changes have updated this section for the region of Andalusia. Please read the following: Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 2016

EDIT 21st September 2017: new changes in inheritance tax suppress inheritance tax for 99% of taxpayers. Effective as from 1st January 2018. More on this here: Andalusia to slash Inheritance tax for inheritances under 1 million euros – 21st September 2017

EDIT 8th July 2019: New landmark changes in Inheritance and Gift tax law in the region of Andalusia have now made it a tier one region for tax purposes. More on this here: Andalusia, now a tier 1 region for low taxation in Spain – 3rd July 2019.

– No IHT paid on the estate itself on compliance with the following three requirements, per inheritor:

• Inheritance taxable base (per inheritor) < €175,000.
• Heir is classified in Groups I & II.
• Heir’s pre-existing net wealth in Spain < €402,678.

To clarify, if you inherit as much as one euro cent over the quoted €175,000 (per inheritor) you pay inheritance on the full amount (the exemption does not apply).

– Main (family) home: 99.99% exemption on deaths occurred since the 1st January 2003, subject to a maximum reduction in value per inheritor of €122,606. Applies only to beneficiaries which were already living in the family home at the time of death. Only applies if beneficiaries do not sell the property within the next five years from the death:

• Surviving spouse
• Descendants (natural or adoptive children, grandchildren)
• Ascendants (parents, grandparents)
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Beneficiaries are disabled:

• Groups I & II: physical disability >33%: no IHT paid on taxable base < €250,000.
• Groups III & IV: physical disability >33 % and pre-existing net wealth in Spain is <€402,678: no IHT paid on taxable base < €250,000.

– Further exemptions on acquiring family business, companies, company shares etc.

2. Balearic Islands (Tier 1)

– The following allowances improve upon the state ones:

Group I. Beneficiaries aged under 21 y.o.: €25,000. There is an additional deduction of €6,250 for each year they are under 21. The total deduction is restricted to €50,000 per child or grandchild.
Group II. Beneficiaries aged 21 y.o. or over, spouses or ascendants: €25,000.
Group III: €8,000.
Group IV: €1,000.

– Beneficiaries are disabled:

• Physical disability >33%, <65%: €48,000.
• Physical disability > 65 %: €300,000.
• Psychic disability > 33%: €300,000.

– Main home: up to €180,000 exemption per inheritor as long as they don’t sell the property within the next five years from the death. Applies to the following beneficiaries:

• Surviving spouse
• Descendants
• Ascendants
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Life insurance cover: exemption capped at €12,000.

– Further exemptions on acquiring family business, companies, company shares etc.

3. Canary Islands (Tier 1)

– The following exemptions improve upon the state allowances:

Group I. Beneficiaries aged:

•    <10 y.o. = 100% capped at €138,650.
•    >10 y.o.; <15 y.o.= 100% capped at €92,150.
•    > 15 y.o.; < 18 y.o.= 100% capped at €57,650.
•    > 18 y.o.; < 21 y.o. = 100% capped at €40,400.

Group II.

• Surviving spouse: €40,400.
• Natural or adoptive children: €23,125.
• Remainder of descendants: €18,500
• Ascendants or adoptive parents: €18,500.

Group III: €9,300.

Group IV: nil.

– Beneficiaries are disabled:

• Physical disability >33%; <65%: €72,000.
• Disability (physical or psychic) > 65 %: €400,000.

– Group II (i.e. surviving spouse) beneficiary is aged 75 years old or over: exemption of €125,000 (incompatible with the above disability allowances).

– Life insurance cover: 100% exemption capped at €23,150.

– Main home: 99% exemption capped at €200,000 pro rata per each inheritor. Applies to the following beneficiaries:

• Surviving spouse
• Descendants (natural or adoptive children, grandchildren)
• Ascendants (parents, grandparents)
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Further exemptions apply on acquiring family business, companies, company shares etc.

4. Catalonia (Tier 1)

– The following exemptions improve upon the state allowances:

Group I. Beneficiaries aged under 21 y.o.: €100,000. There is an additional deduction of €12,000 for each year they are under 21. The total deduction is restricted to €196,000 per child or grandchild.
Group II.

• Surviving spouse: €100,000.
• Natural or adoptive children: €100,000.
• Remainder of descendants: €50,000
• Ascendants or adoptive parents: €30,000.

Group III: €8,000.
Group IV: nil.

– Beneficiaries are disabled:

• Disability (physical or psychic) >33%; <64%: €275,000.
• Disability (physical or psychic) > 65 %: €650,000.

– Group II (i.e. surviving spouse) beneficiary is aged 75 years old or over: exemption of €275,000 (incompatible with the above disability allowances).

– Life insurance cover: 100% exemption capped at €25,000. Only applies if beneficiary is surviving spouse, descendants or ascendants.

– Further exemptions on acquiring family business, companies, company shares etc.

– Main home: 95% exemption capped at €500,000 of property value pro rata per inheritor, maximum exempt is capped at €180,000 per inheritor. Subject to the house not being sold within the next five years as from the death of the deceased. Applies to the following beneficiaries:

• Surviving spouse
• Descendants (natural or adoptive children, grandchildren)
• Ascendants (parents, grandparents)
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Further exemptions on acquiring family business, companies, company shares etc.

5. Murcia (Tier 2)

None worth mentioning!

Exemptions centred on acquiring family business, companies, company shares etc.

6. Valencian Community (Tier 1)

– Improvement on state allowances:

Group I. Beneficiaries aged under 21 y.o.: €100,000. There is an additional deduction of €8,000 for each year they are under 21. The total deduction is restricted to €156,000 per child or grandchild.
Group II.

• Surviving spouse: €100,000.
• Natural or adoptive children: €100,000.
• Remainder of descendants: €100,000
• Ascendants or adoptive parents: €100,000.

Group III: nil.
Group IV: nil.

– Beneficiaries are disabled (per inheritor):

• Disability (physical) >33%: €120,000.
• Disability (physical) >65 %: €240,000.
• Disability (psychic) >35%: €240,000.

– Main home: 95% exemption, capped at €150,000 per inheritor. Subject to the house not being sold within the next five years as from the death of the deceased. Applies to the following beneficiaries:

• Surviving spouse.
• Descendants (natural or adoptive children, grandchildren).
• Ascendants (parents, grandparents).
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Further exemptions on acquiring family business, companies, company shares etc.

Taxation Example

Mr. Geralt Rivia and wife Triss Merigold jointly own a summer holiday property in the Community of Valencia valued at €400,000. They have two children, aged 16 and 25. They have Spanish mirror wills leaving their assets to their two children (beneficiaries). The house has an outstanding mortgage of €180,000. All four live in England (tax domiciled in the UK), so they are non-residents for Spanish tax purposes. Mr. Rivia passes away.

He bequeaths his 50%, which amounts to €200,000, to his two children. First of all we must deduct half of the mortgage (€90,000). That leaves €110,000 split between the two children. Once we apply all the above listed deductions, allowances and exemptions the IHT liability is (European non-residents benefit from lenient regional allowances in addition to state allowances):

• Child aged 16: nil.
• Child aged 25: nil.

You may wonder, would the outcome have been the same if the mortgage was fully paid up? Answer is yes.

What about if both children were over 21 y.o.? Answer is still yes, the IHT bill for both would still be nil.

Regardless, even if no IHT is due, a Spanish lawyer must still be hired to file and lodge with the Tax Office Spanish Inheritance Tax so as not to be fined and change 50% of the property ownership over to the two children at the Land Registry.

The case is real. I have made up the names of the two parents. In real life they were duped into incorporating a UK Limited Company to “shield” 100% their two beneficiaries (the children) against Spain’s IHT. They paid £5,000 in legal fees to a UK-based company for the ‘privilege’. This is a clear case of being mis-sold a legal service. The truth is this couple did not need a UK Limited Company; they only needed to prepare two Spanish mirror wills, period.

Furthermore, from a Spanish perspective this structure would not be exempt from IHT. Moreover, I do not claim to be an expert in UK tax law, God forbid, but this scheme would see to assume that the UK’s IHT does not tax the change of ownership of shares in a UK Limited Company. A company that is not actually trading as it has no real activity; it is just a single property investment company.

Had the property been worth substantially more or had the property been located elsewhere in Spain, in what I call a ‘tier 2’ region, then indeed it may have been worth considering a holding company or else exploring other (legal) options to mitigate the IHT exposure of their two children.

Bottom line, corporate structures are a legal tool that may or may not be beneficial depending on each individual case – they are not a universal tax panacea to be sold to everyone. Request a tailored estimation of what your appointed beneficiaries stand to pay for IHT before you act rashly setting up companies or else taking on complex equity release schemes. More on these matters further below and also in my conclusion to this article.

I. Inheritance Rules

a) Deceased is non-tax resident.

If the deceased was resident in a Member State of the European Union or else in the European Economic Area (non-tax resident in Spain) the beneficiary will now benefit from:

• The regional tax allowances where the majority of the assets of the deceased are located in.
• If there are no assets in Spain, the rules of the Autonomous Community where the beneficiary lives apply.

b) Deceased is tax resident and beneficiary is non-tax resident.

If the deceased was resident in Spain and the beneficiary is resident in a Member State of the European Union or else in the European Economic Area (non-tax resident) he will benefit from:

• The regional tax allowances where the deceased lived.

II. Gift Rules

a) Immovable property located in Spain (i.e. real estate). If a non-tax resident is donated an immovable asset (located in Spain) he will now be entitled to the regional tax allowances of the Autonomous Community where it lies.
b) Immovable property located outside of Spain (i.e. real estate). If a tax resident is donated an immovable asset located in a Member State of the European Union or else in the European Economic Area, other than Spain, he will be entitled to the tax allowances of the Autonomous Community where he lives in Spain.
c) Movable property located in Spain (i.e. a painting). If a tax resident in a Member State of the European Union or else in the European Economic Area is gifted a movable asset located in Spain he is entitled to apply the tax allowances and gift rules of the Autonomous Community where that asset spent most of the days during the previous five years.

“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin.

Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

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

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, taxation, litigation and conveyancing. 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.

Legal services Larraín Nesbitt Lawyers can offer you

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

Related articles

• New EU Regulation to be Passed on Succession and Wills –18th May 2010
• Non-Residents: Six Advantages of Making a Will in Spain – 8th August 2012
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• Taxes on Selling Spanish Property – 8th December 2014
• 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
• Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 2016
• Which beneficiaries are hit worst by Spanish Inheritance Tax (IHT)? – 2nd June 2017
• Non-Resident: Why you need to make a Spanish will – 24th June 2017
• Holiday Home Taxation in Spain – 8th of July 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. No delusional politician was harmed on writing this article. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

This is the first of a two-part series in which lawyer Raymond Nesbitt explains the process for inheriting assets in Spain as a non-resident, and provides an outline on Spain’s Inheritance Tax (IHT).

By Raymundo Larraín Nesbitt
Lawyer – Abogado
21^st of February 2016

Inheritance tax is one of two taxes (the second one being plusvalia tax, if you inherit property in Spain) that beneficiaries need to pay on inheriting an estate in Spain.

Introduction

Death and taxes are uncomfortable matters that most people loath to think about and put away at the back of their minds. I understand and share this reluctance to some extent but at some point, sooner or later, it affects us all. If you own assets in Spain, you should plan ahead for your demise which will make things considerably easier on your appointed heirs at a time of bereavement. The following article supplies tips on how to streamline the succession procedure in Spain saving your heirs time, money and hassle. My article is tailored to cater to British and Irish nationals but may also apply to other nationalities.

The initial idea behind it was to keep it short and simple; unfortunately over time it grew considerably longer than I anticipated so I apologise in advance for the wall of text. I have split my original article into two parts; the second article deals with state and regional tax allowances: Spanish Inheritance Tax for Non-Residents (Part II). As it is a long winding article I strongly advise readers to skip through sections they can’t be bothered with and focus only on what may interest them. This article was not written expecting people to read through it entirely, as would normally be the case, but rather to focus on specifics.

This article does not provide Spanish inheritance tax avoidance strategies – which doesn’t mean there are plenty. I simply don’t want to get ahead of myself and wander off topic. I’ll leave these strategies for another article.

The topic of inheritance tax in Spain is a fairly complex and technical one, allowing for multiple articles on the matter (see my full list of inheritance tax-related articles at the bottom). Besides a national legal framework (Inheritance Tax Act of 1987 and Regulation 1629/1991), which acts as a backbone, each of Spain’s 17 regions (Autonomous Communities) are also empowered to rule on some aspects enacting their own laws i.e. on applying their own tax allowances, which differ significantly from one region to the next, or else on applying their own tax rates (within limits).

There’s an ongoing trend to abolish Spanish Inheritance Tax (IHT, going forward) fostered by Spain’s conservative party. These trends are always very popular amongst voters. Many Autonomous Regions have jumped onto the band wagon and are now applying reductions on IHT to such an extent which in practice translates to almost suppressing it i.e. Madrid, Basque Country, La Rioja, Navarre, Catalonia, Valencia, Balearic and Canary Islands.

As examples of this tendency the Canary Islands have just approved with effects as from the 1st of January 2016 a drastic cut to inheritance tax for non-residents which will result in taxpayer’s saving over €30 million per annum. You can read further in English here. You can also read here how some political groups have been campaigning collecting signatures throughout February 2016 to suppress inheritance tax in Andalusia. EDIT: 8th September 2016. New regulation has recently been passed in Andalusia which greatly reduces the inheritance tax burden. More details in my article.

Other regional communities, despite not having suppressed IHT, apply their own tax allowances in addition to those set by the Government in the above laws. We can glean from the above there are two tiers of regions in Spain when it comes to inheritance tax; some are more tax-friendly than others (to the point of suppressing this tax). In a section further below (under the heading “Regional Tax Allowances”) I give a full breakdown of these exemptions in the six most popular regions with English expats (coastal areas).

For those individuals holding large estates in Spain, it is your responsibility to contact a Spanish lawyer and do some careful tax planning to mitigate your heir’s tax bill (or even suppress it). I strongly advise that beneficiaries, on inheriting assets in Spain, appoint a Spanish lawyer to oversee the succession procedure and file IHT on their behalf. You cannot realistically attempt to do this on your own as it is overtly intricate (even for seasoned experts).

Feel free to add inheritance tax-related queries below and I will do my best to address them. Please do NOT ask how much Spanish Inheritance Tax you stand to pay as the answer is not straightforward and often requires an elaborate study which escapes the purpose of this forum.

IHT Frequently Asked Questions

What is Spanish Inheritance Tax (IHT)?

The full name of this tax in Spanish is ‘Impuesto de Sucesiones y Donaciones’ (you will often see it abbreviated as ‘ISD’). I will simply call it IHT, in line with English terminology, for the sake of this and other articles. This tax actually rules on both inheritance and gift tax. So anyone who inherits an asset in Spain or else is gifted one is personally liable to pay for this tax. This article will focus almost exclusively on the inheritance side to keep it simple and not be lead astray. But it should be noted that the same tax rates listed below apply to both.

Who is Liable for Spanish Inheritance Tax?

Broadly anyone who inherits assets or rights in Spain is liable to pay Spanish Inheritance Tax; regardless if they are resident or non-resident.

• Residents: are liable for IHT under personal obligation (taxpayer’s fiscal residency is in Spain).

• Non-Residents: are liable for IHT under real obligation (location of assets or rights bequeathed/inherited is in Spain).

What Law Applies?

This is a tricky question. In general, both the state law and the regional law (in Spain) where the deceased had his residence over the previous five years or where the majority of the assets are located apply. So both state law and regional laws apply in tandem.

Where is IHT Filed?

This depends on whether the deceased, or the beneficiaries, are tax resident in Spain.

If both the deceased and beneficiaries are non-residents, IHT needs to be filed in Madrid.

If either the deceased or the beneficiaries are tax resident, IHT can be filed at the local Tax Office. Each of Spain’s 17 autonomous regions has one.

Due to a legal change last year, brought about by a ECJ’s landmark ruling, non-resident Europeans will be taxed by the Autonomous Community tax rate of the place where the higher value property inherited is located.

Deadline to File IHT

The deadline to file and pay Spanish Inheritance Tax (IHT) is six months as from the time of death of the testator.

Fines, Penalties and Surcharges for Late Payment

Payment after the six-month deadline will attract fines, penalties (delay interests) and surcharges (which mount over time).

Surcharges are 5%, 10% and 15% if paid in the next 3, 6 and 12 months as from the six-month deadline. If you pay after 12 months you have a flat surcharge of 20% plus delay interests which mount exponentially. Additionally there are fines for not submitting the right amounts inherited (under-declaring).

Extension to File IHT

You can request a one-time extension, within the first five months, for a further six months. So in total, you would have 12 months as from the death of the testator to file and pay inheritance tax.

You can also request to pay the tax in instalments.

Does Drawing up a Spanish Will reduce Heir’s Inheritance Tax Burden?

Categorically no.

I am unsure where the rumor mill originated but I repeat for the avoidance of doubt that making a Spanish will means not one iota to the amount of inheritance tax payable, nada.

That said, making a Spanish will is highly advisable and I repeat this advice throughout this article like a mantra. It is worthwhile because it streamlines the inheritance procedure in Spain and avoids attracting all the following under normal circumstances (by that I mean filing IHT within the six-month deadline) thus saving time, money and hassle:

•    Avoids fines for late payment of filing IHT.
•    Avoids surcharges for late payment of IHT.
•    Avoids delay or penalty interests for late payment of IHT.
•    Avoids paying for two sets of legal fees.
•    Avoids expensive sworn translations.
•   Avoids your heirs wasting unnecessary time following redundant legal procedures which could have easily been avoided altogether.
•    Avoids them extra hassle at a time of bereavement.

All the above points are detailed below so I will not go into them just now. Be very wary of any company or individual that advises you not to make a Spanish will. You can read further in my blog post: Non-Resident: Why you need to make a Spanish will – 24th June 2017.

In my professional experience (over a decade) people that give this flawed advice have vested interests of their own in selling you a legal or financial service which may not be above board (i.e. tax evasion which is a criminally pursuable offence in Spain for amounts defrauded in excess of €120,000). There are good reasons why Spanish registered professionals (lawyers, accountants, economists) strongly advocate non-residents to make Spanish wills (exclusive to their Spanish assets).

Frozen Spanish Assets

It is important to note that all Spanish assets belonging to the testator are frozen legally at the time of his death. This means that Spanish bank accounts cannot be accessed (you cannot withdraw funds) nor can you sell his house for example.

In order to release these assets and rights, inheritors must first settle the death duties (file and pay IHT). Only then, as described below, will heirs have unfettered access to bank accounts and be able to sell on the property.

Can you Inherit Debts in Spain?

Yes. On inheriting assets and rights you may also acquire all the debts the deceased had in Spain; in which case you become personally liable with all your assets. Which is why your Spanish lawyer must ensure your liabilities do not outstrip the assets and rights, in which case it is advisable to refuse the inheritance altogether as a heir would be making a loss on accepting it.

Inheritance Scenarios: Step-by-Step Guide

Three inheritance scenarios unfold dependent on whether a Spanish will was made, or not, by the deceased.

I. Deceased made a Spanish Will.

This is the best, or most advantageous scenario, from a beneficiaries’ point of view as it saves them considerable time, money and hassle. More on the perks of drafting a Spanish will in my article: Non-residents: Six Advantages of Making a Spanish Will.

A. A beneficiary/heir must first gather the following three documents:

• Original Death Certificate. If the death took place in Spain there should be no problem attaining it. If the testator died in the United Kingdom then this document needs to be translated into English by a sworn translator and have the Apostille seal of the Hague Convention affixed.
• Certificate of Last Will. This document can be attained from the Ministry of Justice in Madrid. It will normally be your lawyer who will procure it (takes a couple of weeks). This document basically confirms there is no other Spanish will. A full explanation in English on what this document is and how to attain it here.
• Notarised copy of the testator’s Spanish will.

B. The Spanish lawyer – Deed of Inheritance Acceptance

Once you have all three documents above, your lawyer in Spain can now draft what is known as a Deed of Inheritance Acceptance (‘Escritura de Aceptación de Herencia’) which is witnessed by a Spanish Notary Public. Getting a lawyer involved from the outstart is essential as you cannot possibly hope to complete this procedure on your own. This deed is basically a formal acceptance that appoints you officially as heir to the testator’s assets in Spain.

With this deed you are now able to file, pay and lodge the death duties.

C. Filing and paying IHT

Anyone who had the good sense of making a Spanish will, ensures his heirs will file IHT on time in Spain thus avoiding fines, penalties and surcharges for late payment. Anyone who did not make a Spanish will (see two sections below) will in all likelihood force his inheritors into paying all three (besides many more expenses detailed below). Bottom line: make a Spanish will if you own assets in Spain, you will save your heirs much time, money and hassle.

As from the time of signing the Deed of Inheritance Acceptance you have 30 working days to file and pay inheritance tax (tax model 650). Depending on which region in Spain the assets are located, non-residents now benefit from lenient regional tax allowances besides state allowances (see below section on Tax Allowances).

Once IHT has been paid you now have unfettered access to the deceased’s bank accounts (they will request a copy of the Deed of Inheritance Acceptance as well as prove of having settled IHT).

You may now also change the ownership of property at the Land Registry (takes one month plus). Likewise, they will also request a copy of the Deed of Inheritance Acceptance plus a copy of having settled IHT. The change of ownership at the Land Registry enables you to sell on the property (more on this in my article Taxes on Selling Spanish Property).

Be aware that you have now officially become the new owner of the Spanish property and are therefore liable for the following annual Non-Resident Taxes in Spain.

II. Deceased has only a UK Will (no Spanish will).

This is a scenario you categorically want to avoid for your heirs at all costs. It entails for your loved ones spending greater time, money and hassle. It has no associated advantage and numerous drawbacks.

The reason being is that Probate, in my experience, will exceed the six-month deadline to file IHT. Moreover it will exceed 12 months. This means that your beneficiaries (the people you name in your will to inherit your assets) will attract penalties and surcharges for late payment from the Spanish Tax Office on top of the Spanish Inheritance Tax which will add greatly to their tax bill. The translation of an English will into Spanish costs more than if the deceased had made a Spanish will in the first place…

But it gets worse, because heirs will also need to follow an expensive legal procedure in England & Wales, Scotland or Ireland that could have been easily avoided had the testator made a Spanish will. This is because a solicitor must be hired in the United Kingdom (or Ireland) to follow probate besides a Spanish lawyer; so you are effectively forcing your heirs to pay for two sets of legal fees when only one was required! I am sure the lawyers involved are indebted to your boundless generosity (and lack of judgement).

As can be gleaned from my explanation, on completing step A below, you will now have to follow exactly the same steps as if the deceased had made a Spanish will in the first place. The only difference is that you have added a redundant extra step (A) to your heirs which will prove extremely time-consuming, expensive and will attract penalties and surcharges on the Spanish side for late payment of IHT – not a smart choice any way you look at it.

A. Grant of Probate (England) or Confirmation (Scotland).

You must first obtain what is known as a Grant of Probate (England & Wales, Northern Ireland) or Confirmation (Scotland). You will require the assistance of a UK solicitor to act on your behalf. This document requires to be officially translated into Spanish by a sworn translator (or at a Spanish consulate) and requires the Apostille seal of the Hague Convention affixed for it to be valid in Spain.

B. Same steps as outlined above in section “I” for a Spanish will.

III. Intestacy – Deceased Dies without a Will.

A. If the deceased is English, Welsh or from Ireland (north or south) his heirs must appoint a solicitor, who will need to obtain a Grant of Letters of Administration.

If the deceased is Scottish, his heirs must appoint a Scottish solicitor, who will need to obtain Confirmation in Scotland.

Once you have this document, it must have affixed the Apostille seal of the Hague Convention affixed. This document then needs to be translated into Spanish, by a Spanish consulate or by an official translator (‘traductor jurado’), for it to be valid in Spain.

B. Same steps as outlined above in section “I” for a Spanish will.

 Spanish Inheritance Tax (IHT)

The following points provide an overview on how much inheritance tax you stand to pay.

Tax Categories

Giftees and inheritors are grouped into four categories for tax purposes. Depending on the relationship with the deceased, allowances are conceded. As a general rule, the closer the kinship, the more generous the allowance.

Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents and great-grandparents.
Group III: Relatives in second and third degree: in-laws, brothers/sisters (siblings), nephews/nieces, aunts and uncles.
Group IV: Relatives in fourth degree, or without kinship: a friend, common law partners, mistress.

Tax Allowances (National & Regional)

Please follow this link to the second part of my article on Spanish Inheritance Tax dealing specifically with tax allowances:

Spanish Inheritance Tax for Non-residents (Part II)

Not everyone is interested in this level of technical detail, so to keep this article short and snappy it makes sense to remove the content from this article and post it in a separate article. Tax allowances are hands down the key to paying little to no Spanish Inheritance Tax for the majority of beneficiaries (including European non-residents).

National Tax Rate

Once we have deducted the above tax allowances, national and regional, which reduce the taxable base we then apply the corresponding tax rate. Bear in mind the following is the national tax rate. If an Autonomous Community in Spain has exercised its competence over the matter they will have their own tax scale which will differ slightly from the one shown below. The tax rate follows a sliding scale; the more you inherit, the more you stand to pay.

Multiplicand

The above applicable tax rate must then be multiplied by a multiplicand depending on which group a beneficiary is classified in as well as his pre-existing net wealth (in Spain).

What beneficiaries are likely the worst off with Spanish Inheritance Tax (IHT)?

Beneficiaries included in one or more of the following categories below will likely be landed with a hefty IHT tax bill:

•    Beneficiaries classified in Groups III & IV for IHT purposes (distant relatives or else with no family ties i.e. friends, mistress, common law partners).
•    Large estate inherited. It is difficult to give a precise number as it is in relation with multiple factors.
•   Pre-existing net wealth in Spain of the inheritor is large (see multiplicand table above for the minutiae). The worst-case scenario is an inheritor classified in Group IV who already has a pre-existing net wealth in Spain of over €4,020,770.98 (over £3,000,000) and who inherits over €797,555. In such a case, the inheritor would be applied an extreme tax rate of 81.6% (34%*2.4). This is clearly a problem that only affects someone who was already a multimillionaire before inheriting; not exactly a problem that affects us all (unfortunately!).
•    The assets or rights inherited are located in what I label as a ‘tier 2’ region for IHT purposes; meaning the regional exemptions are negligible or non-existent.
•     Aged between 21 and 65 years old (because multiple lavish exemptions would not apply to that age group).
•    Beneficiaries are non-resident in the EU or EEA (this is because lenient regional tax allowances do not apply to those resident outside the European Union or European Economic Area).

If you plan to leave an estate in Spain to your loved ones, and your appointed beneficiaries qualify for a combination of one or more of the above then you (NOT the beneficiary!) should consider contacting a lawyer to do some serious estate planning to mitigate their inheritance tax exposure – they will be forever grateful.

Double Taxation Treaty and Inheritance Tax Relief

Absurdly neither the United Kingdom nor Spain have included this matter in article two of their double taxation treaty when it affects thousands of British citizens every year. British nationals alone account for almost 800,000 residents in Spain (source: BBC). Spain is the second most popular destination worldwide for British to settle in after Australia (minus the white sharks).

For some bizarre reason (only privy to politicians) Spain has only signed such a treaty with the following three countries: France, Greece and Sweden.

Which indeed makes perfect sense because – as we all know – Spanish costas are crawling with Greek, French and Swedish nationals, not. I’ll leave that bullet for politicians to dodge.

This translates in practice into having to pay for inheritance tax both in the UK and Spain. My article only covers the Spanish side of succession.

Dispelling Spanish Inheritance Tax Myths

Over the last eight years a few rogue companies have been set up with the sole purpose of putting the fear of God into British to entice them to incorporate corporate structures on top of the Spanish real estate or else buy into obscure equity release schemes to avoid Spain’s IHT (the latter led to hundreds of senior citizens losing their homes to these cunning predators). Truth is most people didn’t even need them in the first place. On average inheritors pay 15% on Spanish Inheritance Tax, a far cry from what’s been shouted from the rooftops.

For a full comprehensive list of IHT-related tax myths peddled by unscrupulous non-regulated outfits or IFAs (Independent Financial Advisors) with a vested interest to coax fellow British into incorporating expensive (and often unnecessary) corporate structures, or else set up devious equity release schemes, to elude Spanish Inheritance Tax please read my article Dispelling Spanish Inheritance Tax Myths which debunks them.

Before you hire an IFA in Spain make sure it is registered by the CNMV (Spain’s equivalent to the UK’s Financial Conduct Authority; what used to be the FSA). Just follow the link I provide and you can find out if they are registered in English. Regulated IFAs have mandatory professional indemnity cover. If the IFA is not registered at the CNMV, steer well clear from them.

Some of my all-time favourite IHT sales pitch poppycock:

•    “Spanish Inheritance Tax legal fees can be at least 40 to 50%”.
•    “Your heirs will be hit by a 40% plus Inheritance Tax Bill.”
•    “Heirs will be forced to sell the property in Spain (to pay off Spain’s extreme inheritance tax).”
•    “The financial debt of your heirs is maybe as much as 50% of the value of your property.”
•    “Want to avoid Spanish Inheritance Tax extreme 82% tax rate?”
•    “If you incorporate a UK Limited Company and place the Spanish real estate inside you will be 100% shielded against Spain’s ISD/IHT. After death, only the shares are reorganised, the company owns the asset, and so it doesn’t change hands. This falls outside Spanish Inheritance Tax.”

Ten Key Points to Keep in Mind on Spanish IHT

• Non-residents should make two wills; one in their home country ruling on their national assets and a second Spanish will which will rule exclusively on their Spanish estate. Making a Spanish will has a number of advantages which saves your heirs time, money and hassle at a time of bereavement (for a full list of perks please read my in-depth article: Seven Advantages of Making a Spanish will).
• Preparing a Spanish will does NOT avoid nor reduce heirs paying Spanish Inheritance Tax; this is a widespread misconception that should be cast away. It does however significantly reduce the overall succession expenditure burden for heirs, as it avoids attracting: penalties, fines, surcharges, paying for two sets of legal fees, paying for unnecessary sworn translations as well as streamlining the whole procedure, as explained above.
• The Statutory limitation on IHT in Spain is 4 years, six months and one day (sic). It is not four years as many people mistakenly post on internet.
• From the moment of death, heirs have a maximum of 6 months to pay the death duties. You may however request a one-time extension of a further 6 months, in writing, within the first five months. So the total deadline to file and pay IHT would be 12 months. If you file IHT after the above deadline you will incur in penalties and/or surcharges that add up considerably to your tax bill. Those who do not make a Spanish will force their beneficiaries to pay additional fines, penalties and surcharges, increasing their tax bill, which could have been easily avoided with some careful tax planning (i.e. on making a Spanish will). You can request to pay IHT in instalments.
• Residents and non-residents are liable to pay Spanish Inheritance Tax.
• There is no blanket exemption between husband and wife, or spouses.
• Unlike the UK, where it is the estate that is taxed, in Spain it is the appointed beneficiary who is liable to pay and settle IHT.
• Until the death duties are settled, all Spanish assets belonging to the deceased will be ‘frozen’ i.e. money cannot be withdrawn from bank accounts, houses or other assets cannot be sold on (as they officially still belong to the deceased). Heirs cannot bank on the Spanish estate itself to foot the tax bill – won’t happen.
• Any document signed by a foreign public official, needs the Apostille of the Hague Convention of 1961 affixed before it is valid in Spain.
• Any document written in English (or any other language) needs to be translated by a sworn translator into Spanish before it is valid in Spain.

Conclusion

Ideally non-residents should make two wills; one in their home country ruling on their national assets and a second Spanish will which will rule exclusively on their Spanish estate. As explained above, preparing a Spanish will – exclusive to your Spanish assets – will save your heirs considerable time, money and hassle at a time of bereavement.

Spanish wills can be drawn up in Spain (Notary Public) or else at a Spanish consulate in the United Kingdom. A Spanish lawyer can assist you making one, double-column, in English and Spanish. Make sure your Spanish will is fully compliant with the new European Regulation 650/2012 if you have an old Spanish will. More on this in my article: Spanish Wills and Probate Law In Light Of European Regulation 650/2012.

I stress that all actions to mitigate IHT exposure must be carried out in life by the person who will die and leave assets and/or rights to his heirs. The ones who will pay IHT are the heirs, as they are personally liable, NOT the person who dies nor his estate (as in the UK). Beneficiaries can do next to nothing to mitigate their tax bill; it must be the one leaving the assets who must do the brunt of the work to reduce his heir’s tax bill. And this may require planning ahead.

Appointed heirs or beneficiaries must retain a Spanish lawyer to act on their behalf. This is not a legal procedure one can realistically attempt to achieve on his own.

For large estates, I recommend tax planning is carried out well in advance (even before buying a property in Spain) to significantly mitigate your tax bill. I only advise corporate structures, for tax mitigation purposes, on amounts on or above €600,000 (£500,000) threshold as company incorporation and running expenses may be high even negating any potential fiscal advantage sought. In any case these require a case-by-case approach as there are no one-size-fits-all solutions.

Inheritance tax planning in Spain is a complex matter, so please seek legal advice from a qualified lawyer and be suspicious of anyone advocating property ownership through corporate structures is “always beneficial” – not the case and in fact may be even be counterproductive and a complete waste of money. Be wary of foreign non-regulated companies selling one-trick ponies to circumvent Spanish Inheritance Tax offering bespoke “100% protection” against it.

If you fear Spain’s Inheritance Tax (IHT/ISD) you should first ask for an estimation from a law firm before you do anything rash such as setting up a Spanish company or a UK Limited Company to place it on top of the Spanish real estate. You may be (pleasantly) surprised to learn how little you have to pay given the rampant scaremongering going on. Inheritance tax varies widely within Spain’s seventeen Autonomous regions (in some it’s not even taxed!). Truth is that corporate structures are neither needed nor recommended for the vast majority of people.

“In this world nothing can be said to be certain, except death and taxes” – Benjamin Franklin.

Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

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

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, taxation, litigation and conveyancing. 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. 

Legal services Larraín Nesbitt Lawyers can offer you

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

Related articles

• New EU Regulation to be Passed on Succession and Wills –18th May 2010
• Non-Residents: Six Advantages of Making a Will in Spain – 8th August 2012
• Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
• Taxes on Selling Spanish Property – 8th December 2014
• 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
• Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 2016
• Which beneficiaries are hit worst by Spanish Inheritance Tax (IHT)? – 2nd June 2017
• Non-Resident: Why you need to make a Spanish will – 24th June 2017
• Holiday Home Taxation in Spain – 8th of July 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. No delusional politician was harmed on writing this article. Voluntas omnia vincit.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

Lawyer Raymundo Larraín Nesbitt explains the new regulations governing holiday rentals just introduced in Andalusia. He gives us an overview of the Decree in force, the requirements landlords must meet, how to register your holiday rental in Andalucia and explains the steep sanctions for non-compliance.

Register through us in only 24 hours: Registration of Holiday Homes (Andalusia)

Marbella-based Larrain Nesbitt Lawyers has over 16 year’s taxation & conveyancing experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of February 2016

Introduction

Since 2013 I have highlighted the ongoing trend in all regions of Spain to pass legislation on private holiday rentals:

• New Measures to Bolster Spain’s Ailing Rental Market
• Holiday Rental Laws in Spain

Anyone who has read my articles here will know I am not in favour of these tourist rental laws because they have not been drafted with consumer’s best interests in mind, but rather with those of the hotel industry that fought tooth and nail to regulate this sector, and thwart what they call “unfair competition”.

Spanish politicians, and particularly those in Andalusia, have taken a string of controversial decisions in the last few years in the face of an anemic post-crisis recovery (i.e. the infamous worldwide asset declaration requirement (Model 720), stringent regional Holiday Rental Laws in various Spanish regions, the empty home expropriation decree for ‘social reasons’, a disappointing ‘Golden Visa’ residency investor scheme, draconian anti-money laundering laws etc.). These laws are proving to be highly unpopular with expatriates to the point of driving many away. Unsurprisingly many town halls are reporting of late that foreign population has taken a sharp dip in their census over the last few years (for example, the Marina Alta region of Valencia has lost a third of its foreign population). Maybe some expats have chosen to live under the radar to avoid complying with Tax Model 720 worldwide asset declaration, others have simply had enough and packed their things and gone back to their home country.

If Spain had truly a modern diversified economy these unpopular laws wouldn’t be such a big deal after all, and we could shrug it off. But the sad fact is that Spain’s GDP is unhealthily over-reliant on the Tourism and Construction sectors (over 20%), and this fact, coupled with huge unemployment levels that reach alarming all-time highs in Andalusia, make for a bleak picture. Perhaps regional politicians would do well to ponder carefully on the far-reaching consequences of decisions taken on the hoof. In my humble opinion there are many countries out there that are doing a sterling job at attracting foreign investments by adopting superb fiscal measures (chiefly Portugal). Spain should take a good hard look at itself and abandon its self-complacent attitude and start embracing competitive measures that would renew the market’s interest (especially amongst British, traditionally our largest market by far). Spain has all the makings to become the hotspot; all it requires is competent down-to-earth politicians passing tax-friendly laws that attract foreign investments. Is this too much to hope for?

In February 2016, after a long struggle, Andalusia finally passed its own regional holiday rental law in the wake of much upheaval. This article serves as a gentle reminder on this new law to all those landlords who are currently letting out property in the region of Andalusia or intend to in the near future. I strongly advise to heed the guidance I provide below and not to ignore this new piece of legislation. The fines for non-compliance are very steep (ranging from £1,500 to £115,000).

Anyone who thinks the Junta de Andalucía will not hound infractors and fine them harshly is deluding himself. The whole purpose of this legislation was geared from the outstart towards sanctioning offenders as those behind it had an axe to grind. Moreover in other parts of Spain town halls are already levying substantial amounts on the back of similar new laws. They are using new technology (‘web crawlers’) that methodically and relentlessly trawl internet to come up with non-regulated rentals that are advertised over the web. Authorities cross-reference this information against their public records and unregistered properties are brought to light as a result. Not to mention that at a time where Administration’s coffers are bereft post-crisis this represents a golden opportunity to hunt, apologies, I meant raise taxes and prop up politicians’ dwindling coffers (because gold statues and palaces don’t pay for themselves you know). God bless them all.

In Barcelona, for example, in two unrelated recent cases they have levied fines of £24,000 (source) and £70,000 on the same token (source).

A positive side effect of this law will be to bring into the open all the undeclared tourist rentals. So if after reading my article you become a law-abiding citizen registering your properties to rent them out as tourist accommodations make sure you are filing and paying your Non-Resident Taxes in Spain as well! It would be a faux pas to register them and not declare and pay tax on your rental income in Spain. EDIT 11th April: newspaper article from El País:  Taxman turns attention to hidden internet property rentals.

Let this article act as a stern warning to all landlords in Andalusia: The Taxman Cometh!

Andalusia’s Holiday Rental Decree

Andalusia approved on the 3rd of February this new decree which had sparked much controversy and debate. The final version has dropped some of the more contentious points but still retains many which are highly questionable in my humble opinion. Andalusia’s Holiday Rental Law was officially published in the BOJA on the 11th of February. Link to the new law:

Andalusia’s Holiday Rental Law.

The official name is Decree 28/2016, of 2nd of February of Tourist Holiday Rentals (viviendas con fines turísticos). The best way to go around it is simply analysing point by point what it establishes.

Obligation to Register your Property: as from the 11th of May 2016

In compliance with this Decree, and with Law 13/2011, of Tourism in Andalusia, landlords may register as from the 11th of May 2016 onwards, day on which this new Decree will come into force. Mr. Rafael Salas Gallego, Malaga’s Tourism Director, has confirmed the registry will not be operative before the 11th of May. So landlords now have a three-month deadline to gather all their paperwork and may start registering themselves as from the 11th of May onwards before Andalusia’s Tourist Registry (or ATR going forward). The Junta de Andalucía has promised public awareness campaigns to clarify on this new law.

You can download and fill in the form supplied by the ATR called ‘Declaración Responsable’ and hand it over at one of the ‘Delegaciones Territoriales de Turismo‘ once completed. Registration is free unlike in other regions of Spain.

If your command of Spanish is low, you can hire a lawyer to do this on your behalf in exchange of a reasonable fee.

Excluded Properties

The following properties are excluded from being regulated by this decree:

• Properties which are lent to friends or family without an exchange of money (free).
• Properties that are let to the same individual for a continuous period of time exceeding two months. In which case it will be regarded as a standard rental agreement subject to Spain’s Tenancy Act. More details in my in-depth article: Spain’s Tenancy Act (LAU).
• Rural properties, located in what is legally classified as rural land, are expressly excluded as they are subject to their own legislation: Decree 20/2002. I have covered this in an in-depth article: Andalusia’s Holiday Rural Rentals.
• Landlords, or property management companies, that own or rent three or more properties, personally or through corporate structures, each located within a radius of 1 km from the reception office in the same unit (i.e. building, urbanization, condominium) will be excluded from this new decree (this is very bad news). They will be subject to the much harsher Decree 194/2010 (Apartamentos Turísticos) which basically equates these properties to a hotel. This has very serious restrictions on use i.e. landlords cannot use the property themselves for more than two months a year, they must cede the management of the units to a professional company for a minimum period of ten years etc.

Definition of Holiday Rental – What Properties are Included

The decree is rather vague on this point. Any property that complies with the following points will fall under the remit of this new regulation:

• The property is located in land classified as ‘residential’ (in other words, rural and tertiary land are excluded as they are each subject to their own legislation on rentals).
• The property is rented out to tourists regularly on a short-term basis (days, weeks, months).
• Reservation system is enabled. Reservations can be made.
• The property will be regarded to be rented out touristically when the landlord advertises it using specialized media. By specialized media it is understood companies who intermediate between landlord and tenant in exchange of a commission such as: travel agencies, real estate agencies, holiday rental websites (i.e. Airbnb, HomeAway, Tripping, Tripadvisor, Flipkey, VRBO etc.).

Examples of Private Holiday Rentals

All the following landlords fall under the remit of this new law and must comply with its terms or face hefty fines.

1. Mr. Raistlin Majere, and loving wife Claire, own a duplex in a beachside urbanization in Estepona and rent their property out three months a year advertising through HomeAway and similar niche websites.
2. Mr. Aedan Cousland owns a luxury villa in Benahavis, Marbella, which he rents out to affluent Arabs only during the summer season for a substantial return. He advertises only through upscale real estate agencies.
3. Mrs. Morrigan Flemeth and husband Alistair own and live in a Guest House in Fuengirola renting out rooms to tourists all year round. They advertise over internet.
4. Mr. Loghain McTir, UK resident, owns and rents three high-end properties through a management agency. Two of the properties are located frontline in Puerto Banús and the third one in the prestigious Sierra Blanca estate.

Rental Types

Properties can be let as a whole or else by rooms (like in a Guest House).

If it’s the whole property that is being rented out, no more than 15 lodgers will be allowed simultaneously at any time (think of a large villa).

If the property is being rented out by rooms, it is mandatory the landlord lives in the property himself. No more than 6 vacancies can be offered and each individual room cannot exceed four lodgers.

Lodging Requirements

Some requirements from the draft decree have been dropped i.e. wi-fi; which is now a moot point as it is no longer required.

• The property must have attained what is known as a Licence of First Occupation (LFO, for short). It is also known in some parts of Spain as First Occupancy Licence, Habitation Certificate, Habitation Licence, Licencia de Primera Ocupación, Cédula de Primera Habitabilidad, Cédula de Habitabilidad or Cédula de Ocupación. A LFO is a licence issued by the town hall (ayuntamiento) once the building works have been completed, which allows the purchaser to dwell in the property legally. The property developer is responsible for applying for this licence, once the Certificate of End of Construction has been issued. It ensures the property is above board complying with all planning, health & safety and disabled access laws both at a national and regional level. It is also very important as it is required by utility companies to supply the property with water, electricity, gas and telephone connection.
• Rooms must be ventilated and have blinds or shutters to obscure them when necessary.
• Rooms will have the appropriate furniture required for use by lodgers and in proportion to the number of lodgers per room.
• Air conditioning unit affixed in every bedroom including living room (as a fixed fixture, not as a portable device unit) when the property is offered between the months of May and September (inclusive). Landlords will be given one year to adapt the rooms to this requirement as from the time this law is passed (11th of May 2017).
• When properties are let during the winter season (October through to April, inclusive) a heater must be made available in every bedroom including living room (as a fixed fixture, not as a portable device). Landlords will be given one year to adapt the rooms to this requirement as from the time this law is passed (11th of May 2017).
• First aid kit.
• Landlord must provide physical or electronic brochures of the closest amenities, medical treatment facilities, parking spaces, restaurants, shopping centres as well as plans that detail use of urban transport, map of the surrounding area and general tourist guides.
• A complaints book will be made available as well as installing a large visible sign informing lodgers that a complaint book is available. Sample complaints form click here.
• Mandatory cleaning service at the start and end of every new accommodation.
• Clean sheets and bed linen as well as supplying a spare set.
• Provide lodgers with a working contact phone number of person to be held accountable for any complaint or query raised so the situation is addressed immediately.
• Provide instruction booklets to use household and kitchen appliances.
• Inform lodgers on property use restrictions (such as no smoking areas or pet restrictions) as well as on Community of Owners internal bylaws.

Holiday Rental Agreement & Registration Form

i. Holiday Rental Agreement

• It will have the details of the landlord, including a working telephone number as outlined in the previous section above to address complaints, the property’s unique alphanumeric code on being registered at the Junta de Andalucia, the reservation dates (arrival and departure dates), numbers of lodgers and total price of the holiday rental.
• If the agreement does not specify it, it is presumed the rental starts at 16.00 and ends at 12.00pm.
• The landlord, or person designated by him, will show the lodgers around explaining how the kitchen and household appliances work as well as providing them with security cards and access codes to the premises. If the tourist accommodation is included in what is known as a Community of Owners, the landlord must supply his guest a copy of the internal bylaws ruling the community so he adheres to them during his lodging.
• A copy of the signed Holiday Rental Agreement will be stored by the landlord for up to one year to provide it for inspection by the relevant Authorities.

ii. Registration Form

• All lodgers, not just the one making the reservation, will be fully identified in compliance with current Security laws (popularly dubbed as ‘Gag’ Law). Lodgers will supply a copy of their personal ID/passport. Like in hotels, all guests will be required to fill in and sign a registration form on entry. In compliance with art 7.2 this registration form must be then sent to the Police or Guardia Civil for every guest over the age of 16 years old within the next 24 hours of the accommodation following Security Laws from 2003 (Orden INT/1922/2003, de 3 de julio, sobre libros-registro) and from 2015. You can send a copy of the filled in and signed registration form personally, by fax or else by e-mail. Registration forms are standardized by law; click here for a sample copy.
• Online registration: follow this link to submit by e-mail to the Guardia Civil a copy of your completed Registration Form. Alternatively you can also use this other link (scroll down for the links).
• Registration forms must be stored by landlords for a period of up to three years for the inspection of the Security Forces.

Price and Reservation

• Price offered will be per night and all-inclusive. This means it must include all the following: utility consumption (water, electricity, heating, A/C), cleaning of (bed)room at the start and end of every new lodging, clean bed linen, taxes. The bill will give a detailed breakdown of all expenses including any extras requested by the guest (like in hotels).
• It is compulsory for a landlord, or person designated by him, to hand invoices to a guest for every payment made including the initial reservation fee (even if it is just for one night’s accommodation).

Following article 8.2, and for the avoidance of doubt, landlords can decide freely upon the rental terms on the following points (so long as the tenant agrees): price, bookings, reservation deposit and cancellations.

If a landlord does NOT word these terms in a short-term tenancy agreement then by default the following rules will apply:

• Unless agreed otherwise, the maximum reservation fee is 30% of the total price.
• If cancellation of the reserve is done over ten days in advance the landlord can pocket 50% of the reservation fee in compensation.
• If the cancellation is done under 10 days then the landlord is entitled to pocket the full amount of the reservation fee.
• If it’s the landlord that cancels he may do so without penalty over ten days in advance.
• If the landlord cancels under ten days he must pay a compensation to his guest of 30% of the final agreed total price.
• If the cancellation is due to a force majeure, then both landlord and guest are exempt of awarding compensation. Examples of such admitted by law courts are flash floods, earthquakes, strong winds, general strikes.

How to register your holiday rental in Andalucia – Inscription before Andalusia’s Tourism Registry (ATR)

All landlords that wish to rent out their properties in Andalusia must register their property before the ATR.

You can self-register here (as from the 11th of May 2.016 onwards):

Enrolment at Andalusia’s Tourism Registry.

Download, print and fill in the form supplied by the ATR called ‘Declaración Responsable para el acceso o ejercicio de la actividad‘; specifically the annex on page 7. Once done, hand it over physically at one of the ‘Delegaciones Territoriales de Turismo‘ in the region where your property is located. It can also be completed online if you have a digital certificate enabled. Unlike in other regions of Spain registration is free in Andalusia.

You will need to supply the following details:

• Property details, cadastral reference, number of potential guests according to its Licence of First Occupation.
• Landlord’s personal details and an address for official notifications.
• Details of management agency or designated person if landlord appoints someone to act on his behalf. Any change in details must be communicated so the ATR remains accurate at all times.
• Details of this inscription will be passed on to the local town hall.
• Once the property is duly registered before the ATR each dwelling will be assigned a unique alphanumeric code which – by law – must appear in all publicity offering the property to let (art. 9.4) i.e. internet webs, estate agency brochures, glossy magazine rental advertisements etc.

You will then be assigned a unique alphanumeric code i.e. VFT/MA/00001.

It goes without saying that any property let in Andalusia that does not sport said unique ATR code will be easy to spot and may result in heavy fines.

Fines and Sanctions

They are divided into three categories:

a.- Light offence. Can be either a written warning or a sanction with fines up to €2,000.
b.- Serious offence. Sanctioned with fines ranging from €2,001 up to €18,000. The premises may be shut down temporarily at the authority’s discretion (for periods less than 6 months), the rental licence may be revoked temporarily.
c.- Very serious offence. Sanctioned with fines ranging from €18,001 up to €150,000. The premises may be shut down temporarily at the authority’s discretion (for periods spanning between 6 months to 3 years), the rental licence may be revoked indefinitely.

If the landlord is sanctioned two or more times for very serious offences within a three-year period, the property will be struck off the ATR indefinitely.

Statutory Limitation of Sanctions

• Light offences: six months.
• Serious offences: one year.
• Very serious offences: two years.

The statutory limitation starts as from the time the sanction is imposed by the Administration. The time can be interrupted by the initiation of legal proceedings. If the administrative procedure is paralyzed for more than one month for reasons unrelated to the offender, the statutory limitation will be renewed once again (eventually time-barring the sanction).

Clandestine Activity

If the Authorities catch you red-handed renting out a non-declared property (that is not registered at the ATR) this will be regarded as a serious offence attracting fines ranging from £1,500 up to £14,000.

Conclusion

If you own property in the region of Andalusia and plan to rent it out as a tourist accommodation make sure your property is first registered before the ATR. Do not chance it thinking they won’t catch you as one of the requirements to advertise rentals is to publish the unique alphanumeric code supplied by the ATR in all advertisements (article 9.4). Any offering made going forward that lacks said ATR code and you will be done for. Let alone the unbridled use of web crawlers to hound non-compliers which is proving most effective.

Bottom line, always be on the right side of the law. Hire a lawyer to ensure your property is registered to let and fully compliant with all the minutiae. Ensure you acquire all the gadgets the Andalusian law requires for each room listed above (A/C units, first aid kits etc) to avoid sizeable fines. And to close, do not forget to declare and pay tax in Spain on your rental income (you can read my article Non-Resident Taxes in Spain for more information on your tax liabilities as landlord).

“Politics: the art of creating new problems where none existed.”

Registration fees (per property): on application

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

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

Legal services Larraín Nesbitt Lawyers can offer you

• Registration of Holiday Homes (Andalusia)
• Holiday Rental Accounting Service
• Land Registry Search (Nota Simple)
• Rentals
• Fiscal Representation (Non-Resident Income Tax)

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
• House Hunting in Spain – The New York Times. June 2015
• Resurgent Spain: Málaga Sees Strong Sales – Mansion Global (The Wall Street Journal). December 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
• Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
• Urban Rental Law in Spain – Spain's Tenancy Act – 8th May 2016
• Renting in Spain - Landlord´s Taxation – 8th of January 2017
• Renting in Spain: Non-Resident Landlord's Rental Tax Relief – 14th of January 2017
• Holiday Home Taxation in Spain – 8th of July 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. No delusional politician was harmed on writing this article. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

THE VIEWS EXPRESSED ARE THE AUTHOR’S ALONE

Solicitor Raymond Nesbitt explains the legal consequences of animal cruelty in Spain.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of January 2016

Photo credit: Joachim S. Müller via Foter.com / CC BY-NC-SA

Introduction

This has been a pet article of mine (pun intended) that I have wanted to write for quite some time now. Unfortunately, I haven’t been able to do so until Spain’s Criminal Code was amended last year by Law 1/2015 punishing animal cruelty, for the first time, with jail terms.

Spain’s historical disposition towards animal’s rights has been, let us say, somewhat hazy at best; to put it mildly and avoid ruffling feathers. This situation has changed dramatically post-Constitution as new open-minded generations, imbued by democratic ideals, seize power to shape laws in line with the core values that behove a modern society.

Animal Cruelty – Laws

There are three tiers of laws in Spain:

1. National level: common to all 17 autonomous regions, which make up Spain, is the Criminal Code (article 337 explained below).
2. Administrative level: each of Spain’s 17 autonomous regions has (schizophrenically) also passed its own legislation on animal cruelty.
3. Local level: Spain has over 8,000 town halls. Each town hall is also empowered (did you even doubt it?) to pass its own regulation on the matter (ordenanza municipal). EU residents, which are ‘empadronados‘ or registered at the municipality’s census, can vote to elect mayors which can pass such laws. Just saying…

Ideally, as in it’s a matter of common sense and not rocket science, we should have a common law that works throughout the whole nation so people don’t lose the plot on choosing from umpteen million laws – I’ll await with bated breath.

Criminal Code – Article 337

Punishment ranging from three months up to one year in prison for those found guilty of mistreating animals unjustifiably in any manner or else inflicting them injury or submitting them to sexual abuse (sic).

Animals object of protection are:

1. Domesticated or tamed animals.
2. Animals that are normally domesticated i.e. stray cats and dogs.
3. An animal that temporarily or permanently lives under human control.
4. Any animal that does not live in wilderness.

The criminal punishment will be significantly aggravated when one of the following concurs:

1. The use of weapons or instruments harmful to an animal’s well-being.
2. Viciousness concurring in the offender.
3. If the animal loses an extremity or vital organ as a consequence of the torture inflicted.
4. The animal abuse takes place before an underage.

Death of an animal can lead to serve a sentence of up to 18 months in jail.

Abandoning Domesticated Animals

This is a despicable spectacle that takes place every summer break. Many of those animals that were gifted during the height of the Christmas season are abandoned to their own devices by their masters during the summer holidays.

Spain’s Criminal Code now punishes those that purposely abandon domesticated animals to their own luck with fines ranging from one to six months.

A Note on Jail Terms

It should be noted that a judge, at his sole discretion, may commute a prison sentence when the offender has no prior felony record and the sentence is two years or less. Normally the defendant is ordered to perform community service instead. Historically there has been only one exception to this rule which involved a popular folk singer. On analysing animal cruelty it can be surmised from the above that most sentences will be for less than two years. So it is unlikely first-time offenders will be jailed unless they have a previous criminal record (which hasn’t been struck off).

Administrative Sanctions

Spain, being Spain, has 17 autonomous regions which legislation on animal cruelty varies considerably from one to the next. The most advanced one is that of Catalonia with Madrid’s being the oldest (1990).

Fines, for animal cruelty, vary significantly ranging from a few thousand euros in Navarre up to over a hundred thousand euros in Aragon.

Local Town Hall

You can acquaint yourself with your local regulation on animal cruelty on visiting your town hall.

How to Report Animal Cruelty

Just make a police report (denuncia), either physically or over the phone, in the territory over which the police force is competent. It doesn’t have to be the SEPRONA (Guardia Civil); although they are normally more sensitive towards these reports as they are tasked to protect and overview wild nature and I know for a fact they are fond of animals.

Evolution of Animal Rights

It is clear to those that practice law that lawmakers are gently, albeit relentlessly, nudging the idea of equating the protection of animal rights to closely resemble that of human rights. Even the circumstances which aggravate punishment closely mimic those that deal with humans in other sections of the Criminal Code. It is truly commendable that the sensitivity has gradually shifted to encompass the protection of animal rights to the point of awarding jail terms to human offenders.

In October 2.015, for the first time ever, an individual was charged, found guilty and convicted of beating to death his own racehorse after losing a competition in what now constitutes a landmark case. Not a stranger to breaking laws, he had been previously convicted for DUI. He is now serving his sentence in jail. Source: El Pais daily.

Conclusion

The amendment of article 337 is a great leap forward that reflects modern’s society gravitational shift towards animal’s rights. However, the law focuses only on domesticated animals and purposely excludes animals in wilderness.

There is still much work to be done to lobby and push hard for an agenda that extends jail terms to those few who would abuse wild animal life. In any case, to my mind, it is a clear victory that animal’s rights in Spain have (finally) become a tenet of our society which can now be upheld legally. Ah, so many laws to choose from; you will be spoilt for choice!

So next time you spot a miserable git torturing some poor defenceless animal, know that YOU can make a difference.

“The greatness of a nation and its moral progress can be judged by the way its animals are treated.” – Mohandas Karamchand Gandhi. AKA Mahatma (‘Great Soul’) Gandhi.

Father of the modern Indian Nation. Led the country to a peaceful independence from the rule of the British Empire. Author, journalist, editor, staunch human rights activist and founder of the non-violent movement that influenced so many others to follow (Martin Luther King). Even career politician and lawyer in his spare time; nobody’s perfect. Arguably the 20th century’s most towering historical figure.

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Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, 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.

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2.016 © Raymundo Larraín Nesbitt. All rights reserved.