By Raymundo Larraín Nesbitt
Lawyer – Abogado
18^th of November 2016

I was stunned to learn the other day from a client the commission structure of a high-profile real estate agency in Marbella. We are talking of a leading agency that operates in dozens of countries, employing thousands of staff worldwide. In their defence, maybe this was just a one-off contract from one of their branches, as these operate autonomously within the umbrella of a global brand.

At first I thought either the client or myself had misunderstood the agency’s contract. On being forwarded the contract I confirmed it was as I feared. This prompted me to write this short blog post as a warning to all sellers not to sign such a contract and have it amended (or even change the estate agent).

In Spain, an estate agent is legally due his commission when the sale takes place. From a legal point of view, and with no intention of going into esoterics, this takes place on completion on signing a Title deed before a Notary Public which changes the ownership and it is when all the associated property transfer taxes are due.

In the Costa del Sol, as a norm, the generally accepted commission on selling is 5% plus VAT (this varies for rural property and for very high-end property). Typically, how it plays out is that the buyer’s lawyer will bring a cheque for the estate agency at completion. If there is no sale, some agencies may agree to withhold a small percentage of the initial reservation deposit to cover their costs as a token of compensation which is perfectly acceptable as they have invested time and money chasing a lead.

Now the contract I was given had two dangerous clauses:

• One clause defined contractually what was understood by a sale. It actually went on to define a sale as either the signing of a private purchase contract (contrato privado de compraventa) or else completion at a Notary Public. The latter is fine; it is the former that is unacceptable. The former understood that signing a private contract was a final sale and so a sales commission was due. From a legal point of view signing a private purchase contract should have associated no sales commission as effectively no change of ownership has taken place. Moreover, no taxes are due precisely because there has been no change in ownership.
• The second clause specifically stated that “immediately” upon signing a private contract 50% of the sales commission was due (or overall 2.5% plus VAT). This, for want of a better word, is simply ludicrous.

When these two clauses work together they can create a perverse scenario whereby a seller has signed with a buyer a private purchase contract to sell a property within a deadline but the sale may fall through for myriad reasons i.e. buyer is unable to secure finance from a lender or he simply pulls out because he gets cold feet.

Even if the sale is not completed, and the buyer backs away, the seller would still have to honour the agency´s commission and pay them 2.5% plus VAT as a ‘sales’ commission (!). Picture the case of an upmarket property worth a substantial amount. You may be talking of a five or six-figure agent’s commission when no sale has taken place!

Such an agency contract clearly damages the seller’s interests and should not be signed, period. A seller should request the agency to remove both clauses and add the typical clause whereby the 5% sales commission is due at the signing of a Title Deed before a Notary Public, not a moment before.

To avoid being taken for a ride, it is strongly recommended that sellers appoint legal representation on selling property in Spain to protect their interests and avoid such blatant abuses.

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

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

Related Legal Service

• Conveyancing – Selling
• Conveyancing – Buying
• Fiscal Representation (Non-Resident Income Tax)
• Will Service

Related articles and blog posts

• Buying Distressed Property in Spain  – 8th August 2011
• Buying Resale Property in Spain – 21st February 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
• House Hunting in Spain – 17th June 2015. The New York Times
• Non-Resident Taxes in Spain – 8th December 2015
• Energy Performance Certificate Explained – 7th November 2016
• Selling Property in Spain – 10 Reasons to Hire a Lawyer – 8th December 2016

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This blog post 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 blog post without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
7^th of November 2016

In 2.013 a new law was passed (Royal Decree 235/2013) which requires all buildings in Spain to be issued an Energy Performance Certificate (EPC, going forward). Alternatively, some people refer to it as Energy Efficiency Certificate (or EEC). This change follows in the steps of other countries´ similar regulations, such as that of the United Kingdom. The self-admitted goal of this regulation is twofold; first, it aims to reduce the carbon footprint on our environment by nudging property owners to adopt more eco-friendly energy solutions. Additionally, it also empowers the choice of buyers and would-be renters by allowing them to gauge the energy efficiency consumption of their new home.

The significance of this new regulation is that it affects conveyancing in Spain. All properties being built, sold or rented must now produce this certificate so that a buyer or tenant can examine it and make an informed decision.

I have put up this small FAQ to explain what it consists on and which hopes to address the most commonly related queries.

What is an EPC?

Briefly, it is a report that classifies the efficiency of energy consumption by a home. It assigns an energy rating to each home on a scale which ranges from “A” (the most efficient) to “G” (the least efficient).

Who needs an EPC?

All properties in Spain being:

• built
• sold
• rented

When is an EPC required?

• On renting: this includes holiday rentals. The EPC will be produced by the landlord at the time of signing a Tenancy Agreement. A photocopy of it will normally be attached to the contract.

• On selling: whether it is a resale or new-build property, it is necessary to attain it prior to completion. A Notary witnessing completion will demand an original EPC as part of the vendor’s paperwork.

Duration of the EPC?

Ten years. After said time it must be renewed.

Consequences of not attaining an EPC?

• A Private Purchase Contract on a property can be annulled.
• Your Autonomous Community, where your property is located, may fine you on selling or renting without it in breach of Consumer Rights regulation. Fines range from €300 (light offence) up to €6,000 (very serious offence).
• The vendor or landlord may be forced to compensate a buyer (or tenant) for any damages caused.

EPC has Tax Benefits

Depending on the energy rating assigned to your home by the EPC, you could apply for a tax rebate from your local town hall as from 2.016 on paying IBI tax (akin to the UKs Council tax). The tax rebate follows a sliding scale; the higher the energy efficiency rating, the larger the tax discounted.

Letters "F" and "G" are not eligible for a tax discount.

•    “A” rating: 20% discount
•    “B” rating: 16% discount
•    “C” rating: 12% discount
•    “D” rating:   8% discount
•    “E” rating:    4% discount
•    “F” rating: nil
•    “G” rating: nil

How much does it cost?

Prices vary widely; from low (providing your command of Spanish is spotless) up to several hundred euros (companies that can communicate with you in English). To this you must add VAT.

Besides the language requirement, the constructed surface of a dwelling influences as well the asking price of this certificate.

If you are being quoted more than €300 you are likely being overcharged (unless it is a villa).

Where can I get one?

Our law firm can arrange this service on your behalf for a flat fee of €285 plus VAT.*

_{*large villas have higher fees}

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

• Energy Performance Certificate
• Conveyancing – Buying
• Conveyancing – Selling
• Rentals
• Fiscal Representation (Non-Resident Income Tax)
• Will Service

Related articles

• Buying Distressed Property in Spain – 8th August 2011
• Buying Resale Property in Spain – 21st February 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
• Taxes on Buying Spanish Property – 8th July 2015
• Non-Resident Taxes in Spain – 8th December 2015
• Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This blog post 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 blog post without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved

By Raymundo Larraín Nesbitt
Lawyer – Abogado
28^th of October 2016

Snagging is an informal expression used within the construction industry which is used to describe the process of defect identification and resolution on buying off-plan properties.

It is important that you ensure that if you are buying a newly built property that the snagging is finished to your satisfaction. Before making the final payment to a developer or builder, you should ensure that your home is finished to your required specification. Normally one or two months ahead of completion, developers will give you notice to book an appointment and allow you to check the property yourself. Good developers will always carry out stringent tests themselves and use best endeavours to put everything right before legal completion.

However, even with the best will in the world, sometimes things are overlooked only to be found faulty later. Ideally the inspection should be carried out before you move in so that the developer will have time to address all the problems before you complete. The main reason for this is that lawyers can practice a retention on completion (using the funds as leverage) until any flaws or pending works detected during the snagging are carried out to your approval. If you hand over all the monies at completion you lose your leverage to have the flaws fixed. Which is exactly why it is in your best interests to hold back your cards in this game and have the withheld funds acting as an ‘incentive’ to get the job done (to your satisfaction). This allows you to maintain the upper hand on negotiating.

It should be noted that lawyers do not carry out physical inspection of properties (snagging lists); we only examine the associated legal paperwork. Which is why I always strongly advocate clients to engage the professional services of a reputable surveyor. I have badgered relentlessly in previous articles on the usefulness of hiring a chartered surveyor. In my opinion it should be mandatory when it comes to purchasing off-plan or rural property (in fact, any kind of property in Spain). Ideally, your surveyor should be a fellow of the Royal Institute of Chartered Surveyors (RICS), so you are guaranteed they work to British standards. You should know that Spanish survey reports are very different from our own.

The cost of a valuation survey will be largely offset by the problems that are picked up by a seasoned professional. This valuable report can be then used by a lawyer to know what weak points to watch out for and which are likely to give problems down the line. The lawyer will then use this insight to his client’s advantage knowing what should be negotiated and worded into a Private Purchase Contract, prior to completion, to better protect the buyer’s interests or else to practice a retention at completion and withhold funds to secure the satisfactory resolution of the spotted flaws.

Off-plan Snagging Checklist

• Check for damp patches. These will become hands down the number one enemy of your Spanish property.
• Check for mould growths.
• Check for mismatched tiles.
• Check for leaking faucets.
• Check for flaked painting.
• Check for damaged appliances.
• Check for unsuitable drainage.
• Check that any shutters you have are secure, and if electric, that the switches work.
• Check for scratches and scrapes on the windows and on the walls.

Below is a list of questions that you may want to ask yourself before completing on any new-build property:

• Is the plasterwork finished well and without cracking and is the paintwork complete?
• Do the doors and windows open and close properly?
• Do you have electric, telephone and internet points as specified on the plan?
• Have all the electrical appliances that you agreed to buy, or that were to be included in the price, been installed?
• Has the tiling, grouting and painting been finished to your satisfaction?
• If your water has been connected, check that all the taps (including showers, baths, sinks and exterior taps) work and that the toilets flush correctly.
• If you have irrigation, does it work?
• Confirm whether water and electric will be and if not what date can you reliably visit the property with services connected. Most utilities cannot be contracted until after legal completion of the property and service providers vary as to when they can make the connections. Do not assume you will be able to use your property on the day of legal completion.

Take a record of any faults that you find and inform the developer as soon as possible, or alternatively ask your lawyer to raise any problems you find directly with the developer. Don´t forget to take a notepad and a camera, if you have one, on any snagging inspection so that you have a reliable record afterwards unless you follow my advice and hire a professional such as a chartered surveyor.

To close, and speaking strictly from personal experience alone, anecdotal evidence would seem to suggest that waterproof insulation standards in southern Spain (read against rainfall) are seriously found wanting when I compare them to their UK counterpart. I lived for five years in Edinburgh (read non-stop monsoon) and never once did I have damp patches or problems with rainfall. In southern Spain on the other hand, where rain is scant, damp patches sprouted after heavy rainfall specially in the fall. Take it from me, you may want to keep a close eye on roof insulation in Spain in new-builds.

Our law firm can provide you referrals of trustworthy chartered surveyors that work to UK standards. Ask us.

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

• Conveyancing – Buying
• Conveyancing – Selling
• Fiscal Representation (Non-Resident Income Tax)
• Will Service

Related articles

• Off-Plan Construction Guarantees – 8th November 2011
• Licence of First Occupation Explained – 8th April 2013
• Bank Guarantees in Spain Explained – 8th April 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• House Hunting in Spain – Interview with The New York Times. June 2015
  
• Taxes on Buying Spanish Property – 8th July 2015
• Non-Resident Taxes in Spain – 8th December 2015
• How to inspect an off-plan property overseas – Q&A with The Sunday Times. July 2017

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This blog post 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 blog post without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

Hot on the tail of the Junta de Andalucía’s news to reduce the regional Inheritance Tax (featured in last month’s article on Inheritance Tax Novelties in Andalusia & FAQ on IHT in Spain) various town halls have jumped on the band wagon to apply their own reductions in Andalusia. As previously explained, town halls have devolved competencies on some minor aspects of IHT which allows them a certain degree of flexibility.

Amongst them is Marbella’s Town Hall which has taken the mantle onto itself to lower the Plusvalía tax that is borne on the estate transfer to heirs. In simple English this means that inheritors stand to pay less taxes on inheriting estates in Marbella – good news. The catch (bummer - why has there always got to be one?) is that it only applies to main homes; and low valued homes at that. In other words, it applies to permanent abodes.

The fiscal changes follow a sliding scale with an inverse correlation; the higher the value, the less the reduction:

• 95% reduction for main homes < €125,000
• 50% reduction for main homes > €125,000 < €200,000
• 20% reduction for main homes > €200,000 < €300,000

A reduction on the tax burden is always a welcome respite. As I always tirelessly point out in all my articles and blog posts, lowering the tax burden is the right way out of a recession as it fosters the attraction of foreign investments, kick-starts the local economy and spurs job creation.

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

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

Related Legal Service

• Will Service
• Transfer of Estate to Heirs
• Death Certificate

Related articles and blog posts

• Non-residents: Six Advantages of Making a Spanish Will – 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) – 8^th March 2016
• Inheritance Tax Novelties in Andalusia & FAQ on IHT in Spain – 8th September 2016

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This blog post 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 blog post without crediting the author may result in criminal prosecution. VOV.

2.016 © Raymundo Larraín Nesbitt. All rights reserved.

The British Chancellor George Osborne has announced sweeping changes giving British pensioners more freedom to spend their pension pots how they like, including on Spanish property. In this article, regular contributor Raymundo Larraín Nesbitt looks at the impact the new rules might have on the Spanish real estate market.

Photo credit: Andrew Winning / REUTERS

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of April 2014

Chancellor of the Exchequer George Osborne has outlined in March the blueprint of what hands down is the most dashing pension reform in almost a century. His proposed changes for 2014 Budget mean that hundreds of thousands of people retiring each year will now have the freedom to take savings built up in a defined contribution pension as a cash lump sum, subject to their marginal rate of tax, instead of turning their savings into a guaranteed lifetime income in the form of an annuity. Osborne has effectively handed savers the control over their savings and pensions.

This unprecedented liberty, devised to woo the grey vote with next year’s general election in mind, has undone the financial shackles bogging down millions of pensioners that were forced to invest in annuities with meagre returns due to the ultra-low interest rates of the previous five years. In fact, the lowest on record over a fifteen-year period. This radical shakeup will allow anyone over the age of 55 who belongs to a private pension scheme (as opposed to a final-salary scheme) to take out their savings as a lump sum to spend or invest as they wish.

As from April 2015 savers will be able to access the entirety of their pension pot at any time after age 55, subject to income tax at marginal rates on three-quarters of the money. The ability to take the whole pension as one lump of income would mean someone with a £100,000 pension could take £25,000 tax-free and then withdraw the remaining £75,000 to spend or invest as they saw fit. However the £75,000 would be treated as income for that tax year, pushing the individual into the higher-rate tax band for the year. From April 2015, there will be no cap on the amount of money that savers can withdraw from this arrangement, so income can be varied to stay within the basic rate tax or even nil-rate threshold for the year if desired.

This daring reform allows pensioners unprecedented access to investment opportunities that fan out before them as well as poising a new set of challenges and risks. Where to invest responsibly their hard-earned money? I wonder. I think we can safely rule out Lamborghinis for now.

In my opinion there is nowhere safer than a crashed property market in a first-world country, such as Spain. The inherent risk of buying property has largely been factored out as property prices could barely fall any lower after seven years of continued drops. Moreover, Spain has now technically exited its gloomy seven-year recession marking the inflexion point which turns the tide and heralds a new cycle. The market is clearly picking up pace spurred by savvy foreign asset-hunters bagging themselves bargains under the sun.

Spanish House Prices Down Fifty Per Cent

In the wake of Spain’s real estate bubble implosion property prices have fallen 50 per cent across the board. It is widely acknowledged by reputed experts that the time to invest in Spanish real estate is ripe once again. Following up on Spain’s upbeat macro figures, high-profile investors, such as George Soros, Bill Gates or Wang Jianlin (China’s richest man), are heading the wolf pack swooping in the pick of the litter. A new dawn begins for the Spanish property industry offering unique once-in-a-cycle investment opportunities in a bottomed out market. Clearly a buyer’s market.

Chancellor Osborne’s landmark pensions reform has left the door ajar for shrewd pensioners wishing to escape the lethargic constraints of dull paltry annuity returns and profit instead from the bright opportunities offered by a dynamic crashed property market (either directly or indirectly through investment funds); much like high-flyers are busy doing already. The time has come for those savers wishing to be in the driver’s seat of their financial future and, through direct control, make a difference with double-digit returns (long-term). The chancellor’s bold reform levels the playing field and empowers pensioners to be on par with big-ticket investors at just the right investment moment to supplement meagre state pensions.

“Carpe diem” – Horace (seize the opportunity). Odes, book 1, number 11.

Leading Roman lyric poet during the time of Augustus (Octavian).

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.

Related articles

• Buying Resale Property in Spain – 21st February 2013
• Buying Off-Plan Property in Spain – 8th of June 2013
• Buying Bank Repossessions in Spain – 21st February 2014
• Buying Distressed Property in Spain – 8th August 2011
• Rent-to-Buy in Spain: The Smart Choice – 8th of April 2012
• Investor Guide to Spain’s Golden Visa Law – 8th of November 2013
• How to Buy Property in Spain Safely – 10th October 2014

I am indebted to the following sources:

• The Telegraph: Budget 2014: How will the new pensions system work? By Dan Hyde. 20/03/14
• Financial Times. By Josephine Cumbo, George Parker, Chris Giles, Sam Fleming and Jim Pickard. 20/03/14
• The Sunday Times business supplement. 23/03/2014.

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.

2.014 © Raymundo Larraín Nesbitt. All rights reserved.

Lawyer Raymundo Larraín Nesbitt argues the wealth-tax is a desperate and counter-productive measure from a flailing government.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8^th of September 2011

In 2007 Spain’s Socialist President, Mr. Jose Luis Rodriguez Zapatero (pictured on the right), was mulling over a second term in the upcoming presidential elections of 2008. He was on the prowl for some landmark tax concession that would confidently enable him to coax the middle class vote giving him the key to a landslide re-election. Despite being previously briefed, by his well over six hundred in-house presidential advisors, regarding the unfairness of Spain’s wealth tax (patrimonio) and how its goal of taxing the “super-rich” was self-defeated, as in truth no affluent taxpayer had ever paid it, he remained largely unconvinced.

A prisoner of his deeply embedded political beliefs, he set about on a campaign of his own and privately contacted, one by one, Spain’s upper crust. Much to his surprise, but not to that of tax experts, none of Spain’s Forbes’ list billionaires was liable to pay for this tax for a number of different legal reasons. Convinced at last he had an ace up his sleeve; he decided to play this trump card and announced the abolition of Wealth tax stealing the limelight only three months ahead of national elections.

“Wealth tax falls on the middle class but not on the higher class who easily find (legal) mechanisms to elude it”

“The suppression of Wealth tax will be a stimulus for savings in this country as this tax, by definition, curtails it”

“Wealth tax is unjust and it is only just to abolish it”

Mr. Jose Luis Rodriguez Zapatero, 2007.

The fact is Wealth tax was never abolished; it was merely suspended as from the 1st of January 2008. Which means it was “put on hold” by the Government until an appropriate time came for it to be reintroduced. Erm, now?

Fast-forward a few years and only two months ahead of this year’s national election this tax is restored by the same president who only three years ago claimed it was unfair and taxed middle classes’ savings. By Royal Decree 13/2011, of 16th September, Spain’s Wealth tax has been formally restored being published in Spain’s Official Law Gazette on Saturday the 17th September 2011. As from 2012 it will be enforced merely as a “temporary” measure lasting only two years and will be affecting an estimated 160,000 taxpayers. In Spain temporary legal measures have been known to last over a century, so I advise this is taken with a pinch of salt. Wealth tax itself was formally introduced in 1977 as a temporary tax and has been going on strong for over three decades now; the irony.

Personally, I would not object to this exceptional temporary measure if the super-rich were truly taxed by it. But in my professional career I’ve seldom come across an affluent person paying for this tax. In my experience it is the middle class, and of course non-residents at large, who pay for it.

The reason given is that the tax-free allowance has now been significantly tweaked raising it six-fold to avoid levying unnecessarily the middle class (besides other generous provisions). The middle class are no longer going to pay for this tax; that much is true. The super-rich never paid it and somehow I doubt they’ll be paying for it now, so nothing new.

But don’t take my word for it. Mr. David Taguas, former Head of Mr Zapatero’s Economic Office, has made revealing public declarations this very week on the matter:

“The rich have never paid Wealth tax (in Spain). At a time in which we are undergoing a savings crisis, it will only assist thwarting (much-needed) savings…bringing it back makes no economic sense. In 2007 there were only 130,000 taxpayers with estates ranging from €700,000 to €2,5mn; among them there were no rich”.

He went on to add this tax contributed slightly over €1bn which may, on paper, sound like a considerable amount but it is peanuts in fiscal terms. Its hasty reintroduction has, clearly, not been carried out with the purpose of propping up Spain’s dwindling coffers, but rather as a wink to the left-wing establishment on the wake of hugely unpopular, albeit much-needed, financial reforms to bring Spain’s unchecked deficit under control. It is delusional to label it as a deficit-reducing measure. This amount will scarcely dent a spiralling deficit and its real impact in the overall picture will be negligible. But it serves nicely, mind you, its purpose of drawing the media’s attention ahead of November’s national election.

It is Mr Zapatero’s appointed successor, Mr Alfredo Perez Rubalcaba (former Minister for the Interior Presidency up until July this year) who, with a view on this fall’s election, has pushed -very- hard for it to be restored so as to win the vote of the socially discontent; its ranks swelling day by day. The latest strategy is to focus on the “rich” as suitable scapegoat for Spain’s financial maelstrom.

This action is the latest in a continued string of demonizing social elements, dividing society upon itself creating unnecessary tension, lifting smokescreens (i.e. smoking ban, air-traffic controllers’ wages, bullfighting prohibition in Catalonia, abortion law, Civil War Historical Memory law, religion issues and now the super-rich) so as to deflect the attention of the real problems at stake; shifting blame on others, all the while not being held accountable for one’s own serious flawed judgements.

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

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

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

Photograph: Adem Altan/AFP/Getty Images

2.011 © Raymundo Larraín Nesbitt. All rights reserved.

It was highly anticipated since January this year that the Bank of Spain would raise –yet again– the provisions lenders have to set aside on real estate assets held in their portfolios as a result of NPL’s or on accepting daciones en pago from ailing developers or struggling borrowers. The purpose of these provisions is to offset the likely capital depreciation.

Lenders are required to set aside 10% on adjudicating themselves these assets and deposit it before the BoS. If after 12 months the asset remains in their books they have to set aside an additional 10%. If a further 12 months go by a further 10%. So basically after 24 months they are unable to offload these real estate assets from their portfolio they must set aside provisions for 30%.

So the BoS not only has raised these provisions but additionally has also proposed to shorten the timeline to deposit them down from 24 months to 12 months. The outlined proposal will bring serious consequences on many fronts:

i) As a direct result lenders will suffer a further impact on their already deteriorating balance sheets as they will have to allocate additional funds to offset asset depreciation which sincerely couldn’t come at a worst time as credit is tight. Spanish savings banks will foreseeably suffer the greatest with this change to the point that some may even collapse. The BoS itself estimates the huge impact of yesterday’s change in a reduction of 10%, on average, of Spanish banks’ pre-tax profit.

ii) Indirectly, as I had already anticipated in my article on “Advice to Struggling Mortgage Borrowers”, this change in law would have as collateral victims those borrowers that seeked to hand the keys in lieu of being repossessed (AKA as Dación en Pago de Deuda). Lenders were already increasingly reluctant on accepting them due to the BoS continued raises in these generic provisions in 2008, 2009 and now 2010. This is explained in detail in this post.

What the above translates into, for practical purposes, is that when I wrote in my article on Dación en Pago on 2007 that as a rule-of-thumb 20% of positive equity was required (AKA no-negative equity rule) for a lender to accept a dación procedure the collar must now be raised to 30 or maybe even 40% following the changes in law over the last three years. If you compound this with a foreseeable hike of interest rates by the ECB by this year’s fall or early next year you have brewed a perfect storm for struggling Spanish mortgage borrowers who will no longer have this option available and will most likely be repossessed by their lenders on slipping into arrears.

And the reason is simple, property prices of new-build second homes on the Spanish coasts have fallen by an average of 40% from the appraisal value as the BoS itself acknowledges with the proposal of change in law. So it will be hard to find off-plan properties with 30 or 40% positive equity in them built over the last five years as borrowers typically took 80% or 100% LTV mortgage loans to acquire them. There simply isn’t enough equity left in such cases with such high LTV loans when you compound asset depreciation (- 40% on average). Which is why I think that properties built post 2005 are now probably in the red zone for the purposes of following a dación en pago procedure as owners will be unable to fulfill lenders’ new criteria to accept them.

The Dación en Pago was a solution of last resort to waive the dire consequences of a full-blown Spanish repossession procedure with everything that it entails (personal and unlimited liability with all your assets, both now and in the future); sadly, even this has probably now been removed as an option for all those who purchased with a mortgage loan post 2004 following the proposal announced yesterday by the BoS.

Source: Cotizalia and Expansión

Related articles

• Buying Off-Plan Property in Spain – 8th June 2013
• Advice to Struggling Mortgage Borrowers – 8th March 2011
• 10 Common Abusive Clauses in Spanish Mortgage Loans – 8th January 2012
• The Dación en Pago Explained – 8th December 2013
• Bank Repossessions in Spain: A Legal Perspective – 21st February 2014

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

2.010 © Raymundo Larraín Nesbitt. All rights reserved.

Here we go again. As explained in my article on “Non-residents: Six Advantages of Making a Will in Spain” the matter of Inheritance taxation is a fairly complex and technical one compounded by the fact that the 17 autonomous regions of which Spain is made can rule on this matter besides the State.

Spurred by protests of non-residents inheriting in Spain (are you to blame Arthur?), Brussels has taken a closer look at this matter and has informed Spain that it gives it a 2 month’s deadline to set the record straight or else it will send the matter off to the European Court of Justice to rule on this issue. In any case don’t hold your breath, it will take some time to sort out.

In Spain there’s an ongoing trend to abolish Inheritance tax, especially in regions under the political control of the conservative party. This has created a three-tier system, speaking broadly, where you have on the one hand an increasing minority of regions which have gone as far as almost suppressing this tax whereas on the other hand you have a majority that apply generous tax allowances without actually suppressing it (i.e. Andalucía). Regional tax allowances are applied only to resident beneficiaries on one of the said regions.

On a third level you have the State regulation which has the least generous tax allowances and is applied to non-residents inheriting in Spain. Beneficiaries of an inheritance resident in one of these regions can take advantage of these generous regional tax allowances which in many cases almost suppress the Inheritance taxable base.

However non-resident beneficiaries inheriting in one of Spain’s regions may be faced with a hefty taxation bill (specially on large estates or when the named beneficiaries are non-family members) as it’s only the State law that is applied in their case in lieu of the more lenient regional laws. This amounts to a formal discrimination between residents and non-residents. These provisions are deemed to be incompatible with the free movement of workers and capital which the founding EEC Treaty of Rome enshrines. Brussels wants for non-resident beneficiaries to have application of State law waived and instead apply regional laws which are more tax-friendly. The problem will be deciding on the “connecting factor”. You can read in English the European Commission’s press release on following this link.

Following what’s happened in similar cases, we can safely assume that non-resident beneficiaries will be able to benefit in the future from the generous regional tax allowances that are now reserved exclusively to those holding resident status in one of Spain’s 17 different regions. Again, this new regulation will greatly reduce lawyer’s headaches. One just cannot stop himself from having warm feelings towards Brussel’s legislators that keep making our life’s easier.

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
• Spanish Inheritance Tax Abolished? I’m Afraid Not! 19th September 2008
• 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) – 8th March 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

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

2.010 © Raymundo Larraín Nesbitt. All rights reserved.

So much for “green shoots”. Spain’s Government is mulling over resurrecting Wealth tax which was suppressed, albeit not abolished, as of the 1st January 2008.

In a new attempt to prop up its dwindling coffers the Government is now seriously considering bringing back to life this tax as reported this morning by the Spanish press at large. To sweeten up the deal it will be presumably modeled after France’s, which applies a sliding scale on estates north of €790,000. So basically this “new” Wealth tax would tax, presumably, only those who are deemed “affluent”.

This is a political concession from Zapatero to the left-wing establishment on the wake of last week’s hugely unpopular financial reforms, which were essential and maybe even fell short. His announcement on Wednesday the 12th of May before the Congress on adopting unprecedented harsh financial measures to keep the Budget Deficit at bay created a shockwave of social upheaval which ripples are still being felt a week later with syndicate announcements of strikes. His announcement came after he was phoned on the eve before by no less than US President Obama himself and China’s PM Hu Jintao amid concerns on Spain’s spiralling debt; not to mention Merkel’s public announcements of early last week on taking control if necessary. You really couldn’t make it up, could you?

These measures (i.e. reducing by 5% public servants’ salaries, freezing public pensions, supressing baby checks) caused great anger as it afflicted the weaker core of society. In an effort to counteract the heavy criticisms the Government is now preparing a new batch of tax novelties targeting the “rich”. A Government’s spokeswoman understanded by rich as those having more than €45,000 stashed in a bank. To affirm these financial measures seem somewhat, erm, improvised would be an understatement. 

Honestly, whatever next?

Source: El Mundo

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

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

Related articles

Spanish Wealth Tax – 8th November 2011

Spain's Wealth Tax Reloaded – 8th September 2011

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

2.010 © Raymundo Larraín Nesbitt. All rights reserved.

Every year 450,000 successions are bogged down on cross-border issues relating to the applicable laws. The EU has decided to adopt regulation to help avoid all the related problems that these transnational inheritance cases give way to.

This new regulation, known as the “Brussels IV Regulation”, purports to create a “European Certificate of Inheritance” which endeavours to harmonise the winding-up of the estate procedure to be followed. This certificate is devised to greatly simplify succession procedures throughout all EU-member countries and will hinge on the person’s last “habitual residency” to determine which succession laws ought to be applied. Additionally, this new regulation will also allow testators to choose which regulation should be applied to dispose of their assets and rights.

This regulation is not expected to be approved before 2011/2012. You can find a draft of this interesting new law in English here.

In case you are worried that Brussels will meddle on your deathbed dictating on your overseas estate you ought to know that both Ireland and the U.K.’s Government have opted out of its application, at least in its present form. So for the time being if you hold either of these citizenships you shouldn’t be too worried.

In any case let me close adding that this new regulation is geared towards making European succession procedures run smoothlier and more efficiently; they are not passed to curtail your national rights. Besides it’ll make us lawyers’ life’s easier… and that cannot possibly be wrong, can it?

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 to book an appointment.

Legal services Larraín Nesbitt Lawyers can offer you

• Transfer of Estate to Heirs
• Making a Spanish will
• Death Certificate

Related articles

• Spanish Inheritance Tax Abolished? I’m Afraid Not! – 19th September 2008
• EU Pulls the Stops and Vows to Put and End to Inheritance Taxation Discrimination on Non-Resident Beneficiaries Inheriting in Spain – 20th 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 blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.010 © Raymundo Larraín Nesbitt. All rights reserved.