Lifetime loans explained

Raymundo Larraín Nesbitt, August, 3. 2020

Are you a senior citizen struggling with liquidity problems in Spain? Did you know there is a special legal procedure to free up equity from your home and easily obtain money from lenders? Solicitor Raymundo Larraín explains to us what a Lifetime Loan is and how you too can profit from its multiple benefits. Interested? Read on.

Marbella-based Larraín Nesbitt Abogados (LNA) has over 17 years’ taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. 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 © 2011, and 2020. Plagiarism will be criminally prosecuted.

Today’s article is dear to me, as it was the first one I published in Spanish Property Insight, under my own name, a decade ago. At the time, I was living and working in the United Kingdom.

Original article from the 21st February 2011

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of August 2020

Introduction

Back in 2006, I was one of the first lawyers in Spain to formally introduce Lifetime Loans (LTL, for short) from the hands of a New Zealander institutional lender. This is a very niche financial service that few lenders have on offer. Because it is a service aimed only at residents, unlike other lenders, they do not need to communicate or speak in English, much less in other languages. Which is where we come in.

In the aftermath of the Covid-19 pandemic, families continue to struggle to make ends meet and face their mortgage payments.

LTL is one of our proposed solutions to release equity from your home in Spain. This option appeals to senior expats resident in Spain. It offers them the opportunity to release cash from their homes whilst still being able to live in them for the remainder of their lives.

At a time when finance is tight (understatement), a LTL allows asset-rich but cash-poor senior borrowers to unlock the store of wealth they sit on without any impact to their lives. Well, other than being paid a substantial amount of money that is!

Definition

A Lifetime Loan is a special type of home equity loan for senior residents. It allows owners to release equity from their homes converting it into cash by placing a charge against their property (which acts as collateral). The loan does not have to be repaid during the homeowner’s lifetime.

Specifics

The borrower retains full ownership of the home and can actually continue living in it until they, or their surviving partner, passes away. Once this takes place, the loan (plus accrued interests) must be settled by either selling the property or else by the appointed heirs who will repay it in full. The loan can be taken either as lump sum or periodically in instalments at the borrower’s choice. The older you are, the larger the amount of money you can qualify for as it follows a sliding scale.

At no time will the borrower owe more than what the collateral (the house) is worth even if the resulting debt is higher. Meaning that at the time of passing away, it suffices to either hand over the property to the lender or else to pay to settle the debt for good. The afore has huge legal significance as it implies that, unlike a standard Spanish mortgage loan, with a Lifetime Loan you cannot be pursued for negative equity. In other words, the valuation of the property for the purpose of requesting this loan facility is the capped threshold you can expect to owe a lender on signing on the dotted line. This brings much relief to borrowers.

Who qualifies for a Lifetime Loan?

  1. Be resident in Spain.
  2. Be 65 years old, or over.
  3. The property must be your main home (not a holiday home).

How’s the loan paid?

  1. In lump sum, all in one go.
  2. In monthly instalments.
  3. A combination of the two above.

Payout chart

The following is a chart to give you an idea on what you can reasonably expect to be paid out. It follows a sliding scale, so the older you are, and the more your property is worth, the higher the payout. In the below chart I only show the payout either as a lump sum or in monthly instalments, but you could also choose a combination of the two if this accommodates you more.

Property value (€)

Age

               Payout (€)

    Lump sum          Monthly

200,000

65

           50,000                   200

200,000

80

           78,000                   600

 

 

 

500,000

65

         120,000                   500

500,000

80

          195,000                1,500

 

 

 

1,000,000

 65

          240,000                1,000

1,000,000

 80

          390,000                3,000

Pros

  • You get to decide how and when you want the loan paid out. You are in control.
  • The loan does not need to be repaid during your lifetime, only after you pass away. You have peace of mind.
  • You may continue to live in your home for the remainder of your lifetime unmolested. You are independent.
  • Attaining this loan does not impact your lifestyle in any way other than improving it. You deserve it.
  • You get to decide how and when to spend the loan, no strings attached. You have freedom.

 

Are there any restrictions on what can be done with the loan?

None. You are free to use the loan as you see fit. For example, some borrowers use it to pay for improvements on their homes, others to travel around the world, and others to finance expensive medical treatments.

In conclusion

One of the main drawbacks of living in a democracy is that retirement nowadays is akin to playing a rigged soccer match with the Government, in which it keeps moving the goalposts! It is foreseeable governments will jump at the chance to use the Covid-19 pandemic as a plausible excuse to push back retirement age by several years – again. Some people would rather play it safe and not take chances with their life savings on applying for a LTL. A LFTL gives you peace of mind and financial stability because no matter how choppy the waters are up ahead, you always get paid on time. It nicely supplements any pension cover you may already have affording you in your twilight years quality of life and choice.

A Lifetime Loan is a great option that can help you, and your partner, attain a tidy amount of extra income to help you push (very) comfortably past the finish line every month. Attaining a LTL does not change your lifestyle in any way, well, other than greatly improving it!

At LNA, we help clients to secure a LTL anywhere in Spain, discharge an existing mortgage liability, and sign it on your behalf at a notary for a very competitive fee. This is a very niche financial service that very few lenders have on offer, and we know them all. We have over 14 years’ experience signing them. Give us a buzz and find what the fuss is all about.

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

Democracy is the worst form of Government except for all those other forms that have been tried from time to time.”Winston Churchill

Sir Winston Leonard Spencer-Churchill (1874 – 1965). Born into a privileged aristocratic family,  he was an eminent British career officer, artist, historian, delicious eccentric, and laureate writer – awarded the Nobel Prize in Literature in 1953 “for his mastery of historical and biographical description as well as for brilliant oratory in defending exalted human values.” With dogged single-minded determination, he defied alone and managed to stave off, the tyrannical Nazi wave in WWII, unwaveringly assisted by our American cousins, which threatened to swallow whole the United Kingdom as it had already overrun most of Europe. He resolutely led the country out of its darkest hour, restored Europe’s freedom, and laid the groundwork for peace and prosperity which all future generations have come to enjoy since and taken for granted, or so it would seem. As a keen-eyed historian, in line with fellow Founding Fathers Schuman and Monnet, he was quick to grasp and understand the importance of a united Europe to avoid repeat past mistakes which had resulted in two world wars that ravaged the continent. Consequently, he became a staunch defender of the idea of creating a single supranational political and economic entity which reconciled old foes and would act as a guarantor of peace & prosperity in the continent (in his own words, a “United States of Europe”); in time, this European fellowship would be known to us as the European Union. Churchill was instrumental, and the key driving force, behind the creation of the Council of Europe, a forerunner of what is now the European Union. He is credited as one of eleven Founding Fathers of the Union. Churchill incarnated like no other the best of British values. A child of the House of Commons, he was a proud servant of the State, never its master. A true statesman that would always put ahead of any consideration the best interests of our people, by tearing down divisive walls and fostering at every opportunity union.

Simply put, he’s likely the finest British politician ever to grace 10 Downing Street.

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.

Legal service Larraín Nesbitt Abogados offers you

 

LTL related articles

 

Article originally published at Spanish Property Insight: Lifetime Loans Explained

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.

2.011, and 2.020 © Raymundo Larraín Nesbitt. All Rights Reserved.

 

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Dacion en pago explained - handing back the keys

Raymundo Larraín Nesbitt, June, 19. 2020

Are you struggling with your mortgage payments? Did you know there is a special legal procedure in Spain to hand back the keys to your lender, without attracting any penalties? Solicitor Raymundo Larraín explains to us how to formally surrender the keys to your lender securing your assets abroad and without attracting any taxes. Interested? Read on.

Marbella-based Larraín Nesbitt Abogados (LNA) has over 17 years' taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. 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 © 2008, 2010, 2013, and 2020. Plagiarism will be criminally prosecuted.

Original article from the 21st November 2008

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of July 2020

 

Introduction

In the aftermath of the Covid-19 pandemic, families struggle to make ends meet and face their mortgage payments.

Given the tough financial situation we are in, the most challenging since The Great Depression, it is foreseeable scores of borrowers will fall into arrears over the next months. In this month's article, we focus on one of the proposed legal solutions for individuals who are struggling with debt in Spain. There are several other options you should consider first, and we will cover them in detail in next month's article. As advised, today's solution should only be regarded as your last option, as it entails surrendering your home keys to your lender and walking away from it all.

For all those who’ve slipped into mortgage arrears in Spain, or are likely to, and are thinking of handing back the keys as a solution, there’s a formal legal procedure to do it known as dación en pago (‘datio pro soluto’). Article 140 of Spain’s Mortgage Act allows a borrower to cancel a lenders’ debt by handing in exchange the encumbered asset.

This solution of last resort puts an end to many borrowers’ waking nightmare, as the mortgage debt mounts up exponentially over time eventually becoming unbearable.

You simply cannot hand back the keys to a lender.

It needs to be done following a formally established procedure known as ‘dacion en pago’, witnessed by a notary public. If you simply leave the keys on the counter, you are defaulting on a mortgage loan, which has serious legal & financial repercussions, as explained below.

Your lender will be forced to follow a full-blown bank repossession, which attracts a great deal of expenses for them. What many borrowers fail to realize, is that the loan debt is not finished on handing back the keys. When a bank repossesses you, the value of the property can be for half, or less, of the appraisal value post-auction. Meaning, even after being repossessed you still owe your lender money. Your lender will chase you against your assets for the shortfall, even abroad.

Your lender will also blacklist you with all major credit-rating agencies, which will seriously hamper your borrowing ability in the future in your home country, or elsewhere. It will gravely affect your credit score, to the point that companies will refuse to issue you credit or debit cards, and you will even be barred from applying for membership from selected retailers i.e. gyms, clubs, golf clubs, commercial centres, etc.

A dacion puts an end to this nightmare, ringfencing your assets.

Definition

In plain English, ‘dación en pago’ (or dation in payment) means handing back the keys to a lender at a notary, and in exchange a lender discharges in full the mortgage liability not holding a borrower liable in the future. They will renounce pursuing the debt in your home country, or elsewhere, against any other assets you may hold.

Why hand back the keys? Unlimited personal liability

The reason on why struggling borrowers follow a dación is because on being repossessed in Spain, if a property slips into negative equity (meaning you owe more money than what the property is worth), a lender will pursue the borrower for the difference (art. 579 LEC), even abroad, in your home country.

Following article 1911 of the Spanish Civil Code, a mortgage borrower’s liability is personal and unlimited with all his assets, both now and in the future. In other words, the debt goes personally against the borrower on the balance owed to a Spanish lender. The property itself, the collateral, is accessory and was only guaranteeing the bank loan, which is the principal. Meaning a lender will legally pursue a borrower on the shortfall post-repossession.

A dación is particularly interesting for those holding property, whether in Spain or abroad. What a mortgage borrower seeks on following a dación is to set a legal firewall that will avoid a lender jeopardising the remainder of his assets. It is basically ringfencing the family’s financial assets by (legally) drawing a line on the sand. If you hold no assets, then you may wish to skip this article altogether.

Many defaulting borrowers realize with shock and horror only post-auction, that in despite of a lender having repossessed their Spanish property, they are still being chased in their home country for the outstanding debt. As they owe, in addition to the mortgage loan shortfall, the bank repossession’s associated expenses, lawyer’s fees, court agent’s fees and on top the mortgage default compound interest. The default compound interest on average is over 20% p.a. which only adds more pain on the long run as the overall debt builds exponentially over time.

That is why many defaulting borrowers, in lieu of being repossessed and face all the above dire legal and financial consequences, would rather sell the non-performing mortgage loan as a distressed asset (fire sale) or else simply follow a dación procedure if they are unable to find a buyer in time to avoid repossession proceedings.

Bottom line, a repossession in Spain is something borrowers should avoid at all costs, and a dacion does just that.

Requirements

  1. No-negative-equity rule: the property should not be in negative equity. As a rule-of-thumb I would personally advise the buffer of equity to amount to at least 20% of the property value for it to be successfully accepted. The higher the positive equity buffer, the more likely a lender is to accommodate the idea of a dación.
  2. No repossession procedure underway: it is critical a lender has not instigated repossession proceedings against the property.

Dacion en pago procedure

The outline on how it works is as follows:

  • Borrower must be up to date with mortgage repayments, community fees, and local taxes.
  • Borrower proposes his lender a dacion en pago
  • Lender requires a property reappraisal. Borrower pays for this (approximately €350).
  • If on average the new valuation of a property covers the outstanding mortgage loan, plus 12% of the associated legal expenses, the lender accepts to take the possession of the property, cancelling your debt and waiving any legal action against your assets.
  • Your lawyer, in tandem with the lender, drafts a special deed to be witnessed by a notary public. The deed is signed at a notary, and the borrower formally surrenders the keys in this act, leaving the property clear of furniture and tenants.
  • The property will now be lodged under the lender’s name.

 

Expenses involved

A dación en pago works similar to a conveyance procedure only that instead of getting paid in exchange of signing your property away, you are fully discharged of the mortgage liability being allowed to walk away scot-free from the problem - without any legal repercussions.

  • 6 to 11% Property Transfer Tax (ITP) contingent on the autonomous region of Spain where the property is located
  • Plusvalía tax
  • Lawyer’s fees
  • Notary fees
  • Land Registry fees
  • Gestoría fees (may not apply)

 

Ideally all the above expenses should be negotiated by your lawyer to be borne by the lender (except the lawyer’s fees). A lender, on becoming the new owner, will contribute towards the community fees just like any other member in a Community of Owners. That is the reason why there must be sufficient equity in the property to offset, not only the associated completion expenses and taxes, but also the ongoing community maintenance costs and property taxes until a lender manages to sell on the property. Banks are not real estate agencies and do not cherish having large stocks of unsold properties on their books; that is not their core business.

Signing the notary deed and frequent mistakes

 

You can either sign a dation in payment personally or else instruct a lawyer to sign it on your behalf through a power of attorney.

However, I just cannot stress enough the importance of instructing your own lawyer. He will verify the debt with your lender is fully discharged on you signing the deed relinquishing ownership, besides acting as a translator (mandatory). Besides, your lawyer will negotiate with the lender on your behalf who pays for the expenses, as some lenders notoriously make borrowers pay for some (or all) the associated expenses if unrepresented.

I have witnessed several cases in which borrowers - acting without a lawyer - were purposely tricked into signing before a Notary what they thought was a dación, but was in fact only an assignment of rights and assets (datio pro solvendo) which does NOT extinguish the debt.

The practical implication of this is that the mortgage liability is not fully discharged, remaining very much outstanding. Meaning lenders can – and will – pursue the borrower abroad for the outstanding debt, which mounts up exponentially over time. It is standard practice these debts are sold in block to local debt-collection agencies for a fraction of the book value. E.g. a Spanish lender sells hundreds of defaulted loans to a local UK company who will then (aggressively) chase you in England on the arrears, plus interests, and expenses against your main home and assets.

Another glaring mistake people often make is that they rely on Spanish notaries or lenders to act as their own private lawyers. Some borrowers are lulled into a false sense of security thinking that only because a Spanish notary or bank is involved that everything will be above board and they will look after their rights – crass error. A notary is not there to give you legal advice, as he acts impartially to either side. Their main role is to witness the deed and ensure taxes are paid to the state (they are after all civil servants working for the government). Don’t rely on a notary to act as your own personal solicitor, because he won’t.

You must instruct your own legal counsel to safeguard your interests.

Pro-tips:

  1. A dacion fully discharges your mortgage liability, bringing (legal) closure to the matter.
  2. A dacion en pago avoids jeopardizing your assets in your home country; you will not be chased abroad on the shortfall plus expenses.
  3. Following a dacion avoids being blacklisted by major credit-rating agencies, such as EXPERIAN, ASNEF, RAI etc.

 

Dación en Pago – Conclusion

A dación en pago is a win-win for both parties.

A borrower is free at last having managed to stave off the problem by successfully securing his assets, whether in Spain or abroad, from a lender or any law firm or debt-collection agency hired to pursue the outstanding debt.

A lender on the other hand will now own the property outright and will have successfully waived a lengthy, protracted and expensive court procedure (bank repossession) without having to set aside the mandatory provisions before the Bank of Spain to make up for this dubious loan which affects its liquidity ratio. A repossession procedure lasts 2 years minimum and may easily entail for the bank expenses running up to 20% of the properties’ value. These provisions set aside by lenders are being looked upon closely by credit-rating agencies post-credit-crunch as they hinder their borrowing ability and ultimately dent their share value.

In short, a dacion offers a way out for all those who’ve lost hope.

 

If you are struggling with debt, and feel the weight of the world upon your shoulders, give us a buzz. Our friendly staff will have a chat with you and guide you on the different options available to you. At LNA, we can represent you handing back the keys for a very competitive fee, regardless of your property’s location in Spain, we act nationwide. We have 17 years’ experience signing them, ask us free of compromise.

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

 

A sad soul can kill you quicker, far quicker, than a germ.”John Steinbeck

John Ernst Steinbeck Jr. (1902 – 1968). Was an American author who won the 1962 Nobel Prize in Literature "for his realistic and imaginative writings, combining as they do sympathetic humour and keen social perception." He is regarded as "a giant of American letters," and many of his works are considered classics of Western Literature. Amongst his vast works, the Pulitzer Prize-winning The Grapes of Wrath and Of Mice and Men stand head and shoulders above the rest and are considered masterpieces of modern US Literature. In these books he poured his soul to depict the class struggles of tenant farmers and migrants, often neglected by society, and the financial hardship they were forced to endure brought upon by The Great Depression.

Legal service Larraín Nesbitt Abogados offers you

 

Related articles and blog posts

 

Article also published in Spanish Property Insight: Dacion en pago explained - handing back the keys.

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, 2.010, 2.013, and 2.020 © Raymundo Larraín Nesbitt. All Rights Reserved.

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Dissolution of Joint Property Ownership in Spain

Raymundo Larraín Nesbitt, May, 22. 2020

Are you fed up with your partner? Did you know there is a special procedure in Spain to terminate property co-ownership which saves you up to 86% in taxes? Solicitor Raymundo Larraín explains to us how to re-arrange asset holdings in Spain between family and friends without attracting a great deal of taxes. Interested? Read on.

Marbella-based Larraín Nesbitt Lawyers has over 17 years' taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. 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 © 2007, 2010, 2011 and 2020. Plagiarism will be criminally prosecuted.

Original article from 14th of November 2.007

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of June 2020

 

Introduction

Covid-19 has brought in its wake a host of nasty effects, both direct and indirectly.

Directly, by infecting and killing hundreds of thousands of vulnerable people the world over, from all ages.

Indirectly, by drastically changing our lifestyles as we struggle to cope and adjust to our new reality. Governments, in order to protect the most vulnerable elements of our society, are forced to curtail our fundamental rights and limit our ability to move freely, even forcing non-essential businesses to shut down. But more fundamentally, it has forced people into a seemingly never-ending lockdown, trapped within the walls of their own homes. As a result of these necessary draconian government-imposed measures, it has led to Depression-era levels of unemployment and having developed economies in free fall.

We have gone from Greta’s ‘save the planet’ to save ourselves in the span of only two months.

And we thought Australia’s wildfires, from early on this year, which ravaged the land and devastated wildlife, destroying in its wake thousands of homes and taking the lives of hundreds was going to be the major highlight of 2020. How little did we know. Does anyone remember when this was a thing?

Amid this dire financial context of millions of workers being laid off, myriad companies filing for bankruptcy, property price drops of 40%, or more, stock markets plunging into the red wiping whole family’s life savings, couples are forced to live 24/7 under the same roof - with kids. Understandably, this sparks great tensions or even drives a rift, putting relationships under severe strain.

Not everyone has what it takes to come out on top. Escaping from this ordeal unscathed is proving quite the challenge for most couples and as a result we are sadly witnessing more and more couples filing for divorce.

In this article, we explain a special legal procedure that can be followed in Spain to re-arrange property holdings which saves buyers a considerable amount in taxes. On buying resale property in Spain, a buyer is normally subject to 8% Property Transfer Tax (ITP), or even more, on the sales proceeds. However, on following what is known as a ‘Dissolution of Joint Property Ownership’ (or DJPO, for short) a buyer attracts only 1.5% Stamp Duty.

In plain English, this procedure saves you 86% in tax, or more.

Interested? Read on.

Definition

A Dissolution of Joint Property Ownership allows joint owners to re-arrange their share on a property in a tax-efficient manner as it enables the outgoing joint owner to transfer his share to an existing co-owner legally waiving the extreme Property Transfer Tax and paying in lieu 1.5% Stamp Duty (or less).

DJPO requirements

  • Both buyer and seller must be pre-existing owners of a property i.e. a married couple who own a property under joint names.
  • One of them wishes to terminate the situation and sell his/her share to the other joint owner.
  • If there is an outstanding mortgage on the property, a lender’s permission may be required to release the outgoing borrower/owner from his commitments.

Applicable cases

A DJPO is suitable in a number of cases involving joint property ownership:

1.- In a divorce or separation. Couples owning property jointly may decide to split up. Taking for granted they own a property in equal shares, one of them decides to sell their 50% to his ex-partner. The ex-partner will pay him/her his quota and this transaction.
2.- Re-arranging inheritances. Beneficiaries of an inheritance transferring their quota on a property to a fellow heir. E.g. Sisters who inherit property transfer a share between them.
3.- Re-arranging property holdings between family and friends. Stakeholders such as family, friends or investors co-owning a property may decide to re-arrange their holdings.

Associated taxes & expenses

Both buyer and seller are subject to pay taxes on transferring ownership of the asset.

Buyer:

  • Pays 1.5% Stamp Duty on the outgoing share.*
  • Lawyer’s fees
  • Notary fees
  • Land Registry fees

 

*In some regions of Spain, due to devolved competencies, it is in fact well-below this quoted tax rate.

Seller:

  • Pays Capital Gains Tax on the outgoing share.
  • If the seller is non-resident, a 3% retention may be practiced on the outgoing share.

 

Forced Dissolution of Joint Property Ownership

What happens if one of the co-owners refuses to sell? This is when a contentious DJPO comes into play. It involves litigation.

There may be cases in which one of the joint owners may wish to terminate the joint ownership for good and sell the property. Fellow co-owners, for whatever reason, may turn down the proposal to sell the property as a whole and likewise may refuse to buy him out. This will result in a bitter gridlock that will erode personal relations.

To bypass the deadlock, any joint owner is entitled to force a DJPO through a competent law court (Arts 406 and 1062 of the Spanish Civil Code). The court’s ruling will overrule any dissent and the asset will be disposed of regardless of opposition from fellow co-owners. The property will then be auctioned off publicly to the highest bidder.

However, a forced dissolution through a law court is only advisable as last resort wherein the disagreement is serious resulting in a protracted stalemate. The reason is that all joint owners stand to lose significantly on following it. Sadly, at times, this may be the only legal solution to bring an end to an ongoing co-ownership quarrel.

In conclusion

A Dissolution of Joint Property Ownership is optimal to mitigate a buyer’s tax burden. In fact, you save 86% in taxes, or more, in a legal manner.

However, a DJPO may not apply in all cases. Seek legal advice on the matter.

A non-contentious DJPO works almost like a conveyance and can be arranged within a few days providing both parties agree to it. It can be arranged without any need to fly over to Spain by way of granting your appointed Spanish lawyer a specific Power of Attorney. The new re-arranged ownership will then be lodged at the Land Registry after the associated taxes are settled.

A DJPO neatly puts to rest the financial side of couples’ ongoing marital disputes, legally saving them a great deal in taxes. It’s a win-win.

At LNA we can represent you following a DJPO for a very competitive fee, regardless of the property’s location in Spain. We act nationwide. Ask us free of compromise.

 

"Toute nation a le gouvernement qu'elle mérite." – Joseph de Maistre

Joseph-Marie, comte de Maistre (1753 - 1821). Was a Savoyard lawyer, diplomat, writer, and philosopher. Together with the Anglo-Irish statesman and philosopher Edmund Burke, Maistre is commonly regarded as one of the founders of European conservatism.

 

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 service Larraín Nesbitt Abogados (LNA) offer you:

 

Related DJPO articles

 

Article originally published in Spanish Property Insight: Dissolution of Joint Property Ownership in Spain

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.

2.007, 2.010, 2.011, and 2.020 © Raymundo Larraín Nesbitt. All Rights Reserved.

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Home-Seller’s Checklist

Raymundo Larraín Nesbitt, May, 1. 2020

Lawyer Raymundo Larraín gives us a rundown on the points we should have ready on selling a house in Spain. This is the third, and final, of a three-part series on buying & selling property in Spain. Previous entries:

 

Marbella-based Larraín Nesbitt Lawyers has over 17 years' taxation & conveyancing experience at your service. We offer a wide range of 40 legal and corporate services. 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 © 2018, 2020. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of May 2020

 

Congratulations, you have found a buyer for your Spanish property! You should now instruct a lawyer to represent you in the sale, particularly if you are non-resident in Spain.

To secure the deal, your appointed lawyer will require from you a long list of documents you should have ready at hand. These documents will then be forwarded to the buyer, or his legal representative, as they are necessary to prepare a due diligence.

Following this, the next step would be exchanges; to sign the all-important Private Purchase Contract (contrato privado de compraventa, in Spanish). At times, buyer’s & seller’s skip this key step and go straight to completion, but in my opinion, this is unadvisable for reasons I won’t go into.

The below list is thought only for non-resident sellers acting as physical persons. If the seller is a holding company, there would be additional documents that need to be handed over to a buyer, or his representative.

Selling property may at times prove a daunting and stressful ordeal for sellers; to save yourself aggravation and time it is most advisable a seller pre-empts this by collating the below list well ahead of time.

You are welcome.

Seller’s checklist

 

  • Full scanned copy of your purchase Title Deed
  • (Updated) scanned copy of a Nota Simple
  • Copies of your national ID, passport and NIE Number certificate (in force). A duplicate NIE certificate is at times demanded by notaries if your certificate already expired i.e. 3-month validity (the assigned number never changes)
  • Copy of recent utility invoices (water & electricity)
  • Copy of IBI tax invoices, for the previous 4 years
  • Copy of Refuse Charge (Basura, in Spanish), for the previous 4 years
  • Energy Performance Certificate
  • Licence of First Occupation
  • Community of Owner’s administrator contact details
  • Scanned copies of the minutes of the last three General Assemblies (Junta General Ordinaria, in Spanish)
  • Community of Owner’s Certificate stating the property being sold is not in arrears
  • Spanish fiscal residency certificate (to avoid a 3% retention on the sales proceeds)
  • Copy of Power of Attorney, if instructing a lawyer (it is highly advised that you do to avoid payment scams at completion, which are rife)
  • If renting out, copy of the signed lease agreement

 

Capital gains tax mitigation checklist

 

On hiring our law firm, we can GREATLY mitigate your tax bill on selling property. We can offset all the following taxes and fees at no extra cost:

  • Lawyer’s fees (on buying).
  • Notary fees (on buying).
  • Land Registry fees (on buying).
  • Taxes (on buying) yes, these can be offset in full on selling – you are welcome.
  • All property-related improvements (not maintenance costs) i.e. glass curtains, refitted kitchen, roof retiling, wood flooring, A/C installation, house alarm etc.
  • Estate agent's commission (on selling): VAT invoice/s.
  • Lawyer’s fees (on selling): VAT invoice.

 

3% tax rebate on selling property in Spain

 

To close, free of charge, we also apply for a tax rebate on the 3% withheld by the Spanish Tax Authorities on account of a non-resident seller’s CGT liability. This is taking 5 months on average through us.

Selling at a loss?

 

If you’re selling at a loss, we can apply for a full tax refund of your plusvalia tax for a very competitive fee. More on this service in our article: Have you sold property at a loss in Spain? You can now apply for a tax refund. In general, you only have 30 days as from the date of sale to apply for this tax rebate.

Sounds interesting? Call us.

 

At Larrain Nesbitt Abogados we have over 17 years’ experience assisting clients buying & selling property in Spain and dealing with its taxation.

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 to book an appointment.

Legal services available from Larraín Nesbitt Lawyers

 

Selling-related articles

 

Article also published at Spanish Property Insight: Home-Seller’s Checklist

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.

2.018, 2.020 © Raymundo Larraín Nesbitt. All Rights Reserved.

... Read more

Home-Buyer’s Checklist - RESALE

Raymundo Larraín Nesbitt, April, 10. 2020

Lawyer Raymundo Larraín gives us an overview on the points we should cover on buying a resale in Spain. This is the second of a three-part series on buying & selling property in Spain.

Marbella-based Larraín Nesbitt Lawyers has over 17 years' taxation & conveyancing experience at your service. We offer a wide range of 40 legal and corporate services. 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 © 2020. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of April 2020

 

You have fallen in love with a property in Spain and now it’s time to take the dip and sign the contract!

This short article is written with the aim to provide a buyer with a basic guideline on what you should be asking a seller for. It is not meant to substitute professional legal advice.

Whilst it is possible to buy a property in some overseas jurisdictions, including Spain, without having to appoint a lawyer, it would be very unwise to do so. Buying a house is one of the biggest investments most people make in their lifetime. So why take the risk by not obtaining proper legal advice?

Banks and notaries are not your own personal lawyers and will not carry out stringent legal checks to protect buyer’s legal interests; that is not their job. This is a common blunder buyers’ make, particularly non-resident ones.

Instruct your own independent lawyer and never under-declare; besides being illegal, you will pay a massive Capital Gains Tax bill on selling it later on. It is illegal, it is stupid and only benefits the seller, not the buyer.

Remember to store safely the following invoices on buying which can be used to GREATLY mitigate your tax bill on selling:

  • Lawyer’s fees (on buying).
  • Notary fees (on buying).
  • Land Registry fees (on buying).
  • Taxes (on buying) yes, these can be offset in full on selling – you are welcome.

 

 

Buying Resale Checklist

 

Please note I only have in mind physical individuals acting as sellers on writing this rundown, if companies are involved, then far more checks would be necessary.

  • Request a copy of a seller’s Title deed.
  • Request a copy of a Licence of First Occupation, where possible. This is required for holiday rentals and also by lenders to raise finance against a property (i.e. to buy the property itself, or because you need money to pay health-related expenses later on in life, etc).
  • Ensure the person/s you are dealing with as sellers are the ones registered as the property owners. If not, ensure they are acting through a valid Power of Attorney.
  • Request an updated nota simple, or else procure yourself one.
  • Ensure the property is classified legally as a dwelling and not as commercial property.
  • Ensure the property is freehold, not leasehold.
  • Verify the property is not in arrears with its Community of Owners, if applicable. A buyer becomes liable for the previous 3 years in arrears plus the current one (total 4 years).
  • Verify there are no outstanding local rates to be paid: IBI and refuse charge (basura, in Spanish). A buyer becomes liable for the previous 4 years.
  • Verify there are no tenants living in the property. Under new stringent rental laws tenants at times are legally entitled to stay 8 or 10 years in a property, even if sold on! The buyer must respect the duration of the whole rental contract, unless a tenant formally agrees to leave ahead in exchange of ‘compensation.’
  • Ensure the property is unencumbered (no mortgage against it).
  • Ensure the property is free of liens i.e. rights of way, rights of view, hunting rights, gathering rights, well rights
  • Ensure the property is free of charges i.e. no registered embargoes against it.
  • If investing in a Buy-to-Let, verify your Community of Owners has not banned or restricted holiday rentals.
  • If investing in a Buy-to-Let, ensure you are compliant with holiday homes regional regulations and attain a Tourist licence to rent where necessary - seek legal counsel.
  • Post-completion: arrange payment of local rates (IBI & basura) as a direct debit against your Spanish bank account.
  • Post-completion: if you are non-resident, ensure you pay every year your Non-Resident Imputed Income Tax (NRIIT) on your Spanish property.

 

 

 

" We human beings become what we dream as children and during our youth.” Manuel Patarroyo

Manuel Elkin Patarroyo (1946, Colombia). Is a Professor of Pathology and Immunology who developed, under precarious third-world conditions, the world's first synthetic vaccine against a severe strain of malaria, a disease which kills 1.5 million people per year. The man was offered a fortune by leading US Pharmaceuticals for his patent (rumoured at over 1bn US Dollars). Anyone would have accepted such a generous offer; anyone but him. He altruistically donated his patent to Humankind, and as a result the prices charged for his vaccine are ultra-low, because anyone can mass produce it without having to pay royalties brutally reducing the cost of development. It is estimated his work saves two million lives every year. Much like his childhood hero, the much-acclaimed French microbiologist Mr. Louis Pasteur, he too would grow up to become a real-life hero.

Our world needs more people like Mr. Patarroyo.

 

At Larrain Nesbitt Abogados we can assist you buying & selling property in Spain and deal with its taxation. 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 to book an appointment.

 

Resale-related articles

 

Article originally published at Spanish Property Insight: Home-Buyer’s Checklist: RESALE

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.

2.020 © Raymundo Larraín Nesbitt. All Rights Reserved.

... Read more

Home-Buyer’s Checklist - OFFPLAN

Raymundo Larraín Nesbitt, March, 1. 2020

Lawyer Raymundo Larraín gives us an overview on the points we should cover on buying off-plan in Spain. This is the first of a three-part series on buying & selling property in Spain.

Marbella-based Larraín Nesbitt Lawyers has over 17 years' taxation & conveyancing experience at your service. We offer a wide range of 40 legal and corporate services. 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 © 2020. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
1st of March 2020

You have fallen in love with a property in Spain and now it’s time to take the dip and sign the contract!

This short article is written with the aim to provide a buyer with a basic guideline on what you should be asking a developer for.

Whilst it is possible to buy a property in some overseas jurisdictions, including Spain, without having to appoint a lawyer, it would be very unwise to do so. Buying a house is one of the biggest investments most people make in their lifetime. So why take the risk by not obtaining proper legal advice?

Banks and notaries are not your own personal lawyers and will not carry out stringent legal checks to protect buyer’s legal interests; that is not their job. This is a common blunder buyers’ make, particularly non-resident ones.

Instruct your own independent lawyer and never under-declare; besides being illegal, you will pay a massive Capital Gains Tax bill on selling. It is illegal, it is stupid and only benefits the seller, not the buyer.

Remember to store safely the following invoices on buying which can be used to GREATLY mitigate your tax bill on selling:

  • Lawyer’s fees (on buying).
  • Notary fees (on buying).
  • Land Registry fees (on buying).
  • Taxes (on buying) yes, these can be offset in full on selling
  • All property-related improvements (not maintenance costs). Providing you have VAT invoices to back them up. You are welcome.

 

Buying Off-Plan Checklist

 

  • Verify the plot of land is registered under the developer’s name whose contract you are signing.
  • Request a copy of the developer’s Building licence.
  • Request bank guarantees or insurance policy securing ALL your stage payments, including the initial holding deposit paid to the developer/estate agent. These will act as a safety net safeguarding your interim payments should the developer complete the property late, or not at all.
  • Ensure the development is compliant with Coastal Laws.
  • If the development is finished, request a copy of the Licence of First Occupation.
  • If the development is finished, ensure you do a snagging list before completion.
  • Post-completion: ensure your property is now registered under your name at the Land Registry and never take anyone’s word for it! Verify it yourself.
  • Post-completion: arrange payment of local rates (IBI & basura) as a direct debit against your Spanish bank account. With offplan, IBI is normally available on the following year. You will be notified in your Spanish address.
  • Post-completion: if you are non-resident, ensure you pay every year your Non-Resident Imputed Income Tax (NRIIT) on your Spanish property.

 

“Ring-a-ring o’ roses,
A pocket full of posies,
A-tishoo! A-tishoo!
We all fall down.” – Popular British nursery rhyme that sinks its roots deep in the Middle Ages.

 

At Larrain Nesbitt Abogados we can assist you buying & selling property in Spain and deal with its taxation. 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 to book an appointment.

Off-plan related articles

 

Original article commissioned and published by IDEALISTA: Home-Buyer’s Checklist

Article also published at Spanish Property Insight: Home-Buyer’s Checklist - OFFPLAN

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.

2.020 © Raymundo Larraín Nesbitt. All Rights Reserved.

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Tax form 720 – Modelo 720

Raymundo Larraín Nesbitt, February, 5. 2020

Lawyer Raymundo Larraín gently reminds us of the tax obligation to submit tax form 720 (modelo 720, in Spanish) over the next weeks if you qualify. Last day for submission is the 31st of March 2020.

The following tax article has been summarised to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.

Copyrighted © 2018, 2019 and 2020. Plagiarism will be criminally prosecuted.

Photo credit: courtesy of Self Bank

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21st of February 2020

 

In 2013 the Spanish Tax Office implemented a new tax obligation whereby all tax residents in Spain, who hold over €50,000 in assets abroad, need to complete this tax return before end of March 2020 deadline.

By 2018, over 5,000 taxpayers had already been (heavily) fined on failing to disclose they held substantial assets abroad. This figure continues to increase year on year. We stress the fines for non-compliance are the steepest we’ve ever seen. In fact, so much so, they have been challenged at Brussels. The infamous modelo 720, despite being the object of heated controversy, remains very much an active tax obligation with which taxpayers must contend with. If you fall within its scope, I strongly advise you to comply or else face the risk of stiff fines.

It should be stated this tax form is only for reporting purposes; you do NOT pay any tax on submitting it. Resident taxpayers already pay income tax on submitting their annual I.R.P.F. tax returns once a year.

You also have Mark Stucklin's pungent article explaining it which - unlike mine - doesn’t pull any punches.

I have structured my article as a FAQ for ease of comprehension.

Brexit and the new wave of British residents in Spain

Unless you have been living under a rock for the previous four years, you will know the UK vowed to leave the EU by the 31/01/2020. As a consequence, thousands of non-registered expats (who were effectively living in Spain under the radar, whether purposely or not) have now stepped forward into the limelight and rushed to apply for Spanish residency over the last year.

Applying for Spanish residency is a self-admission that you are in fact tax resident in Spain; the residency procedure is monitored continuously by the Authorities to ensure you retain your resident status (i.e. so they can turn down renewals when the applicant no longer complies with the residency requirements).

As scores of new residents will be entirely oblivious of their new tax obligations, i.e. submitting tax return 720, it has prompted me to write this short article to shed some light on the matter and act as a gentle reminder on their newly-acquired tax obligations with the taxman.

Who needs to declare?

All Spanish tax residents who own assets overseas on or over €50,000.

E.g. Mr. and Mrs. Smith live all year round in Mijas Costa, Spain. They own two houses in Berwickshire, England, have open bank accounts in the UK and receive UK-based pensions.

Mr. and Mrs. Smith are in fact tax resident in Spain and they both need to submit tax form 720.

Again, and for the avoidance of doubt, if you are non-resident in Spain you do NOT need to submit this tax return; it is only for residents.

Who is considered tax resident in Spain?

The Spanish Tax Office applies - amongst many others - the following broad criteria:

  • You spend more than 183 days within a calendar year in Spanish territory.
  • Your centre of financial interests is located in Spain.
  • Your spouse and/or underage children live in Spain.

 

Reporting categories

There are three reporting categories: bank accounts, investments and immovable property.

Obligation to report

You must report all assets in a particular category if the value of your total assets within it exceeds €50,000.

2020 tax submission period

From the 1st of January until the 31st of March 2020.

Can I file it after the submission period?

Yes, but hefty penalties apply. Ask us.

If you have already filed tax form 720 in the past

You only need to file it again if:

  • The value of an existing asset grew by more than €20,000, or
  • You sold an asset, or
  • You obtained a new asset.

 

Penalties for non-compliance

The disproportionate fines levied are (very) stiff.

  • Failing to file 720 or filing it incorrectly: €5,000 per infraction.
  • Minimum fine of €10,000 for each group of assets.
  • Penalty of 150% on unpaid income tax.

 

The Common Reporting Standard and you

Please take good note that with the advent of the Common Reporting Standard (CRS), signed by over 100 countries to combat tax evasion, as from the 1st of January 2018, the Spanish Tax Office is being spoon-fed fiscal information by your home tax office.

For example, both HM Revenue & Customs and Ireland’s Revenue Commissioners are busy supplying the Spanish Tax Office with detailed information (and vice versa) on all your overseas assets and reported income derived abroad as from the 1st of January 2018.

In plain English, your home country’s tax office will likely have already informed the Spanish Tax Office of the assets you hold abroad. It is in your best interests to be pro-active and come clean before you are served with a legal notice imposing humongous fines on you; as it’s happened already to over 6,000 unsuspecting taxpayers. The tax office likes waiting till the last moment before imposing fines to rake in as much interests as is legally admissible before the statute of limitations kicks in. Fines on non-compliance start at five figures and often are six-figures, or higher.

The last word

We strongly advise you to submit tax form 720 if you are (tax) resident in Spain to avoid steep penalties. If you plan to submit it, please contact us well ahead of the submission deadline (31st of March 2020) as it takes days to prepare and process. If you are unsure if you qualify for it, just give us a buzz and one of our friendly staff will answer your queries to allay your fears.

 

Larraín Nesbitt Lawyers offers the following competitively-priced taxation service:

Tax form 720

 

"No one is too small to make a difference.” Greta Thunberg

Greta Thunberg (2003). Pronounced ‘tOOn-bairyeh.’ Swedish 16-year-old climate change activist. Known for her forward speaking manner which does not hold any punches addressing world leaders. She has successfully led an international campaign to fight climate change, galvanizing the interest of the young (and not so young!) which has garnered much media attention. She is the youngest person to date to hold the prestigious Time Person of the Year 2019, sorry Trump.

If only we had more Greta’s and less dumps, what a wonderful world this would be.

 

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 to book an appointment.

Related tax articles

Tax form 720 – 20th April 2018
Tax form 720 – 21st March 2019
Spanish Tax Office to fine 5,000 taxpayers over tax form 720 – 1st September 2019

Tax form 720 – Modelo 720 – 21st of February 2020

 

Article originally published at Spanish Property Insight: Tax form 720 – Modelo 720

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. Voluntas omnia vincit.

2.018, 2.019 and 2.020 © Raymundo Larraín Nesbitt. All Rights Reserved

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Relocating to Spain? We offer a wide range of Immigration & Residency services

Raymundo Larraín Nesbitt, December, 30. 2019

Lawyer Raymundo Larraín explains the Immigration & Residency services available from Larrain Nesbitt Abogados (LNA).

Marbella-based Larrain Nesbitt Lawyers has over 17 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 © 2019. Plagiarism will be criminally prosecuted

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of January 2020

 

Introduction

Are you planning to relocate to Spain?

Larrain Nesbitt Lawyers offers a comprehensive range of residency services making us a one-stop provider for all your immigration & residency needs.

From something simple as attaining a NIE number, to open a bank account, or even buying your house in Spain, we have all your needs covered.

On hiring one of our immigration services, our company assigns you an in-house residency specialist that will handhold you through the entire admin procedure. We offer all the following immigration & residency services, from standalone services to all-inclusive immigration family packages.

All residency services featured below available only on the Costa del Sol.

 

I. Spanish Residency

 

1. Non-EU nationals

  • Golden Visa Service

This is a privileged fast-tracked visa that rolls the red carpet and grants the right to work & reside in Spain for the investor, and his family (including dependent parents), allowing unfettered travel across Europe´s Schengen Area. The investor has the right - but not the obligation - to reside in Spain. Which paves the way to not be regarded as tax resident in Spain. As an example, your spouse and underaged children may live, study (and work) in Spain whilst the main investor resides outside of the EU taking care of business and being considered for tax purposes as non-resident. In other words, and in plain English, attaining a Golden Visa does not preclude your tax residency in any way; which is of particular interest to HNWIs and UHNWIs.

This visa greatly streamlines the standard residency procedure cutting out all the red tape and greatly reducing the application time frame. For affluent non-EU investors, this is hands down the residency option that should be pursued if money is not an issue.

To qualify, you can either buy a house in Spain (cheapest and easiest option), deposit a large sum of money in a Spanish bank account (also known as Wealth visa) or become an entrepreneur investing in a major project. The initial application is for two years and following this you can renew it for a further 5 years. You may then apply for permanent residency that can lead to citizenship, at your choice.

Since its launch in 2013, we have achieved a 100% application success rate.

More on this service: Golden Visa Service

 

  • Non-lucrative permit

The non-lucrative residency permit allows you to stay in Spain for a period of 1 or 2 years (as it is a temporary residency authorization), plus renewals. The first and second renewal lasts two years. At the time of applying for the third one, you may apply for the long-term residency in Spain. In case you apply for the long-term residency, you should renew it every 5 years.

As it has a non-profit nature, it does not allow you to engage in any professional activity or employment. You are required to be self-supporting, having your own means to live. If you are able to prove that you have enough funds to this end, and that your stay in the country won’t induce government expenditure, you will qualify for this permit.

More on this service: Spanish Residency: non-EU nationals - non lucrative permit

 

  • Lucrative permit

As its own name implies, this permit allows the applicant to work in Spain as you will be self-employed. This residency applies to someone who is looking to set up his own business in Spain. Typically, you will be acting as director or company administrator. Needless to say, one of the key requirements is that you will have enough means to be self-supporting both for yourself and your family.

Outlining and submitting a sound business plan is required by the Spanish Authorities. You will be required to work in the business plan which is submitted. You can either set up a new business or else take over an existing business. Renewals of this type of permit are guaranteed so long as the business is making a profit and money is not owed to either the Social Security or Spanish Tax Office.

As stressed, devising a professional business plan is paramount to the success of this application; LNA can assist you both devising one, to meet their stringent expectations, as well as attaining the residency permit itself.

This permit allows the investor's family to live and study in Spain (but not to work).

More on this service: Spanish Residency: non-EU nationals - lucrative permit

2. EU-nationals

  • Residency. All expats that spend over 3 consecutive months in Spanish territory, within a rolling six-month period, must apply for residencia, by law. If you remain in Spain after 3 months, without attaining residency, you may be regarded as an illegal alien and may even be subject to deportation to your home country. Additionally, all expats who are not registered will be stripped of a series of EU rights and entitlements. At LNA we can assist you, and your family, to attain Spanish residency fast and cheaply.

 

More on this service: Spanish Residency: EU nationals

  • Healthcare. We can homologate your national EU healthcare with Spain’s Social Security so you can benefit from your acquired rights in Spain in equal footing. This is particularly advantageous for senior citizens allaying their healthcare fears on living in a fellow EU member country.

 

More on this service: Social Security Homologation

II. Spanish Nationality

We also offer a specific service for those seeking to apply for Spanish nationality.

A Spanish passport is amongst the top 5 in the world following the prestigious annual ranking elaborated by Arton Capital and Henley & Partners (Henley Passport Index). It allows unfettered access to 187 countries without a prior visa (out of 195 countries worldwide).

More on this service: Spanish Nationality

 

III. Other Non-Resident Services

  • NIE number

This is a tax identification number for non-residents that is required to pay taxes in Spain and carry out almost any administrative procedure, including renting or buying property – simply essential.

  • Opening a bank account in Spain
  • Exchanging your driving licence
  • Finding a reputable estate agent
  • Finding a competitive exchange rate company
  • Arranging a mortgage loan
  • Conveyancing (buying or selling property)
  • Contract-drafting
  • Litigation
  • Spanish wills
  • Inheritance (probate & succession)
  • Setting up direct debits for taxes, rates and utility supplies (water, electricity etc)
  • Attain a Tourist licence for holiday rentals in under 24 hours (only Andalusia)
  • Wealth planning
  • Holiday rentals taxation
  • Non-resident taxation
  • Company incorporation
  • Off-the-shelf companies
  • Etc.

 

Conclusion

If you plan to relocate to Spain, Larraín Nesbitt Abogados has over 17 years’ experience assisting expatriates. Calls us and one of our friendly staff will guide you through the wide range of immigration and residency services available from us.

Our client’s testimonials, collated over the years, are truly our best business card and a testimony to our team’s good work.

 

"Always follow your own heart and go your own way.Marie Fredriksson

Marie Fredriksson (1958 – 2019). Was a Swedish pop singer, songwriter, pianist and painter. She is best known as the lead vocalist of the duo Roxette, alongside Per Gessle. The duo achieved international success in the late 1980s and early 1990s. Their classic hits became staples of Hollywood's most romantic movies of the time (i.e. Garry Marshall's iconic Pretty Woman). They rank, along with ABBA, as one of the all-time best Swedish pop bands. For 17 years she would wage a relentless battle against brain cancer, finally succumbing on the eve of 9th December 2019. She would not allow cancer to define how she lived and always went her own way. 

 

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.

Immigration & Residency services available from Larraín Nesbitt Lawyers

 

Related articles

 

Article also published at Spanish Property Insight: Relocating to Spain? Immigration & Residency services

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.

2.019 © Raymundo Larraín Nesbitt. All Rights Reserved

... Read more

Community of Owners in Spain

Raymundo Larraín Nesbitt, December, 3. 2019

Lawyer Raymundo Larraín explains to us the legal intricacies of community of owners, or comunidad de propietarios in Spanish. Makes for excellent bed reading!

Article dedicated with affection to my friends Ann and Andy H., from Wakefield, West Yorkshire, England.

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 © 2.009, 2.012 and 2019. Plagiarism will be criminally prosecuted

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of December 2019

Introduction

Now that the season of General Assemblies is fast approaching for Q1 2020, I thought I’d revisit my 2009 article. The following is a revamped version of my decade-old article updating it in line with the new changes in legislation.

Community of Owners is an article which gist is to provide basic guidance on what becoming an owner in a community entails, with particular focus in Andalusia. It is not an in-depth treatise.

General Assemblies, held once or twice a year, are prone to bickering and backstabbing, where every neighbour it would seem has an axe to grind. You’d do well in acquaint yourself with your owner’s duties and rights to better protect your interests; which may not be aligned with others’.

Because this is just a ‘short’ article, I strongly recommend reading the law itself, as I have considerably abridged the sections pursuant to it, on reviewing them, giving only a general overview of its key sections and casting aside any pesky nuances which are only of interest to other lawyers.

This is a link to the Commonhold Act in English as amended by Law 8/99 & others, courtesy of Castillo Traductores. English version starts on page 4. You are welcome.

Definition

On buying property in an urbanisation, or block of flats, you may automatically become a member of what is known as a ‘Community of Owners’, or CO for short. The CO is a legal entity comprised by all the property owners within the same development, or building, and is governed and ruled by its own self-approved statutes and bylaws, besides a national legal framework that acts as common denominator to all CO’s.

General Legal Framework

There is a general legal framework acting nationwide as backbone common to all communities in Spain, as set out by the Commonhold Act 49/60 (AKA Ley de Propiedad Horizontal, Horizontal Property Act, or Commonhold Act) and by the Spanish Civil Code (arts 396 et seq).

The 1960 Law on Horizontal Property was amended most significantly by Law 8/99, amongst others, to bring it line with social changes. It is now a 60-year-old law.

Community Statutes and Bylaws

In addition to the above general laws, the day-to-day running of each community is really determined by the Communities’ Statutes which are drafted at the time of lodging the Master Deed (aka Escritura de División Horizontal or Horizontal Deed). Unanimity is required to amend either the Master Deed or the Community Statutes (arts 5 and 17). So, in practice it’s quite a feat to change either of them. An exception to this unanimity, is a recent legal change on holiday rentals (see section further below).

That’s why a community may, at its own discretion, approve additionally its own Community Rules or Bylaws (in Spanish Normas de Regimen Interno or Normas de Funcionamiento de la Comunidad de Propietarios), which are not to be confused with the above Community Statutes. Community Rules (Bylaws) need only a simple majority vote to be approved and amended so as to waive the unanimity rule. They allow for great flexibility and will rule, for example, on communal services such as garbage collection or the use of communal facilities such as the swimming pool or lifts. They cannot rule on matters reserved only to Community Statutes.

Normally, on buying off-plan, there will be a clause whereby the purchaser allows the developer to draft and lodge the Master Deed as well as the Community Rules (Bylaws) at the Land Registry. Buyers may later on amend these, when they become owners, on complying with the strict majorities that are required by the Commonhold Act (unanimity).

This means that every development may enact their particular laws governing it but always subject to, and in compliance with, the general legal framework that must be respected and adhered to at all times. Bylaws will rule for example the Community’s governing bodies such as the need or not for the optional role of vice-president or how must the owners be notified in advance of an owner’s assembly i.e. think of non-residents being notified abroad of an upcoming General Assembly (AGM or EGM).

Bylaws stem from Spain’s Commonhold Act and adapt it to the requirements of each particular CO. That’s why each CO has its own unique Bylaws, tailored to suit their own individual needs.

Naturally, given the tight space constraints of such a short article (and frankly, not to bore gentle readers to tears), I can only offer a general overview of the shared legal framework and concepts which underpin all communities in Spain without focusing on any particular Bylaw, which are unique to each CO, as I write.

Commonhold Quota

On drawing up the Master Deed before a Notary, every property within a community is assigned a quota or percentage thereof. This quota is composed both of privative and communal elements which are assigned to each property. Storerooms and garage spaces are tallied as well for this purpose.

A commonhold quota is important twofold:

  1. The expenses of a community will be allocated apportioning them to your quota. So, the larger your quota, the more you will have to contribute towards expenses. These can be paid monthly, bi-monthly or even quarterly depending on the Community Rules.
  2. On voting at owners’ assemblies, the quotas need to be tallied for majority vote purposes. So, each owner does not equate to one vote. There may be a single owner, such as a developer or bank, holding a significant communal quota which translates into great voting power. The resolutions reached bind all units within, regardless of whether they cast an opposing vote as majority rules apply (see below).

Owners’ Duties

Section 9 rules them in detail. The main duty will be, of course, to contribute towards the maintenance and financial upkeep of the CO.

Falling in arrears with your community fees will eventually result in your CO placing a lien against your property and may even lead to selling it in a public auction. This legal procedure in Spain works surprisingly efficiently. You have been warned!

This important article mentions the endowment of a community’s mandatory reserve fund, in accordance to each owner’s commonhold quota. The percentage of this endowment has now been raised to 10% of the community’s ordinary budget (used to be 5%). The purpose of this fund is to create a safety net for a rainy day i.e. the maintenance and repair of a building such as lift repair work. This reserve fund shall be endowed with an amount not lower than ten percent of its last ordinary budget. Its funds will be used as well to pay for the building’s insurance cover.

It is also very important to find out – prior to buying a property in an urbanisation – what your contribution is to avoids nasty surprises. Some of those private gated communities that lure you with breathtaking views, 24/7 top-notch security, lush tropical gardens, private gym and dream-like infinity pools command (very) steep monthly fees. This is particularly true of well-off off plan developments (when the community is not up and running yet) where it is not uncommon that unscrupulous salespeople tell you the community fees are X/month and later on it becomes only too apparent they are in fact 3X/month!

Communities’ Governing Bodies

Art 13 establishes the governing bodies are the Owners’ General Assembly (ordinary or extraordinary), the President (vice-presidents are optional), the Secretary and the Administrator. Oftentimes, the role of Secretary is also taken by the community Administrator (paid role).

Presidents and vice-presidents must be appointed from among unit owners only. The roles of Secretary and Administrator can be held by unit owners, as well as by outsiders, providing the latter hold the necessary professional qualifications and are legally licensed to perform such roles.

The Statutes will be the ones which detail exactly what roles exist in each Community of Owners. Presidents, by law, alas do not receive any remuneration for this most ungrateful task.

Following the above, no one in their right mind wants to be President, much less be elected to the same role year after year. A well-known issue is that some community presidents (which officially hold an unpaid role) perpetuate themselves year after year abetted by their web of cronies and do in fact make a very tidy living running whole communities at the expense of pocketing fees from fellow owners on fudging the numbers (specifically fellow gullible non-resident expatriates, bless their warm hearts!). I tell you - by experience - that no one who has held the role of community President wishes to repeat from one year to the next as it is a very ungrateful task that’s almost like a second job. Be wary of community Presidents who hold their position indefinitely and fight tooth and nail to retain power and control. Only on changing administration does the corruption of the former management come into light.

Owners’ Assemblies (AGM’s and EGM’s)

At least once a year an Annual General Meeting (AGM) will be called to approve the community budget and accounts. An Extraordinary General Meeting (EGM) may additionally be called at any time, needing 25% of the unit owners’ quotas.

The notification must be given with a minimum of 3 days’ notice.

This creates serious practical problems to non-residents owning second homes in Spain i.e. you need to book a flight to Spain which may be very expensive with such short notice besides having to take time off your job. Therefore, communities with a high number of non-resident owners may include in their Bylaws more realistic notices of, say, 30 days and to be notified by e-mail in addition to placing it on the Community’s Notice Board. There’s freedom and flexibility to rule on this as each community deems fit in accordance to their own needs and circumstances. Logic should prevail, albeit it seldom does in practice.

Majority and Unanimity Votes

Section 17 deals with when unanimity votes are required. Basically, unanimity is necessary for modifying the rules contained, either within the Master Deed or in the Community’s Bylaws.

A majority vote (three fifths of the owners’ assessed quotas) is required for things such as the lift service, janitors, security services or any other common service or facility. This type of majority vote will be the one used to decide on the Community Rules. Proxy votes are also allowed. Only owners who are up-to-date with their community fees may vote at owners’ assemblies. You are allowed to settle your arrears even on the same day as the General Assembly is being held. However, there are new practical limitations in place to settle arrears in cash. In compliance with new national and EU Anti-Money Laundering Regulations in force, payments in cash in excess of 2,500 euros may be declined. So, if you plan to pop over to the meeting with a wad of banknotes, you may be turned down by the Secretary!

You may find that in new unsold off plan developments, a developer may hold the majority vote as he still holds a large stock of unsold units. Conversely, it can be its lender, if they have taken over the developer’s units (repossession). Either way, both are obliged to contribute to the communities’ upkeep, paying their communal fees in proportion to their communal quotas, just like everyone else.

General Assembly Resolutions

Section 19 deals with the recording of the resolutions reached. They will be recorded in a book of minutes, validated and stamped by the Land Registrar.

A copy of the meeting’s minutes will be sent to each owner with the adopted resolutions following the AGM or EGM. Ideally shortly after the assembly, not several months after when no one can remember what transpired at the meeting.

The Secretary will act as the custodian of the general meetings minutes book.

Any Other Business

If you want to put a concrete matter forward to the Assembly for consideration, you must do so well in advance of being notified by the General Assembly. You cannot simply turn up at the AGM or EGM and expect to nonchalantly raise new issues which were not previously included in the day’s agenda. The President and/or Secretary will simply disallow it and move on with the agenda’s points.

Challenging General Assembly’s Resolutions

Section 18 rules on how assembly resolutions can be challenged at court. I’ve written a specific article on the matter due to its complexity: Community of Owners in Spain: Challenging Assembly Resolutions – 21st October 2011.

This can be done on three accounts:

a) When resolutions are contrary to Law or the Community Statutes;

b) On them being seriously detrimental to the interests of the community and benefit one or several unit owners.

c) When they are seriously detrimental to some unit owner who has no legal obligation to sustain such detriment or when they have been adopted in abuse of power.

There are four deadlines depending on the matter. The most important deadline is the 3-month-rule. Or else a year, if a resolution is against the Law or the Community Statutes. I would always advise challenging a resolution before the three-month deadline is up as a judge may not agree with you that the adopted resolution is against the law or community statutes, in which case you wouldn’t have a year to challenge it, only three months. Pro tip: don’t wait over 3 months to challenge them.

Only owners who are up-to-date with their community fees may challenge community resolutions before a court. Alternatively, they can lodge the owed amounts before a law court prior to litigating. You can only challenge approved assembly resolutions at court, through litigation; sending a strongly-worded letter or e-mail to the President, Secretary or Administrator stating you are in full disagreement with resolution X is a futile exercise. But if that indulges you…

Holiday Rentals

As we reported back in March (Spain's new rental laws in 2019), a new law was approved early on in 2019 which brought a raft of changes, specifically on holiday rentals. If you buy into a gated community or building, chances are high you will become part of what is known as a community of owners. New laws passed on March 2019 have empowered communities of owners across Spain to outright ban, or restrict, holiday rentals. You really do not want to invest several hundred thousand euros in a property only to find out later on you are banned by your community to offer it as holiday accommodation! All changes effective as from 6th of March 2019. General Assemblies (AGMs or EGMs) which adopt restrictive resolutions on holiday rentals should lodge them at their local Land Registry for them to be enforceable.

The main two changes are as follows:

   1. Community of owners may now ban holiday lettings outright

Spain’s Horizontal Act has now been amended allowing Community of Owners to vote by a simple majority of 3/5 (or 60%) to ban outright holiday rentals within a community.

I had already pointed out in a blog post in 2017 that this step was necessary, as the Horizontal Property Act at the time required unanimity to ban them, which logically was never going to happen because landlords would vote against it because of their vested interest.

This change has no retroactive effect. Meaning that if you attained a Tourist licence before your community banned holiday rentals, you can continue doing so. There is an ongoing debate on this point between lawyers, as it is a bit of a grey area until there are further like-minded rulings consolidating a jurisprudential trend settling the open controversy.

   2. Community of owners may now increase the community fees of all those owners who market their properties as holiday lets through holiday platforms

Spain’s Horizontal Act has been amended allowing Community of Owners to increase the communal quota assigned to a landlord of the overall community budget.

In plain English, communities of owners may now vote to increase the community quota of a property owner who uses his property/ies as a holiday home. The Community can vote to increase your quota by as much as 20%.

This change has no retroactive effect.

‘Inheriting’ communal debts

Unlike in other countries, in Spain community debts follow the property, not the owner. When you buy a property in Spain you may find yourself being liable for several thousand euros of unpaid community fees owed by the ex-owner. At times, sellers blissfully forget (God forbid) to mention any outstanding community fees pre-completion. When you buy a property in Spain you immediately take over all existing debts and the seller walks away scot free. A buyer is liable for the previous three years of community arrears plus the current one (total 4 years). More on this in our in-depth blog: Buying in a Community of Owners – Outstanding Debts!

Also, on buying a property, which is part of a Community of Owners, I strongly advise you to request the general assembly’s minutes of the previous 4 years (both AGM’s and EGM’s). The reason is that, unbeknown to you, the community may have voted on an item that requires you to fork out thousands of euros i.e. to repaint the whole flaking paint of the building’s façade. Seller’s at time surprisingly neglect to disclose such key points, I guess they are too busy booking flights to Bora Bora with the sales proceeds!

Which is why, under law, the signing of the deed of transfer of ownership requires a Communities’ certificate, signed by the President and the Secretary (normally the Administrator) stating that all communal fees are up-to-date for that unit. The purchaser can however waive this requirement voluntarily – unadvisable.

Property located in Andalusia

Following arts 7 & 9 of Decree 218/2005, off-plan vendors of property located within the autonomous region of Andalucía must hand over the DIA (Documento Informativo Abreviado) to purchasers. The DIA is the Spanish equivalent of the UK’s Home Purchase Information (HPI), or Seller’s pack. Both the Community’s Statutes and Community Rules must be included in the DIA pack.

Conclusion

There is a general legal backbone, common to all communities in Spain, which is embodied by both the Commonhold Act and the Spanish Civil Code. Besides this girder - which applies nationwide - each community of owners fleshes out its own set of Community Statutes and Bylaws adapted to its own idiosyncrasies; the latter are really the ones that rule on the day-to-day of each community and are unique i.e. no pets allowed in the pool. No two communities hold the same bylaws.

It is strongly advised that, prior to purchasing a property on a development, you request both a copy of the Community Statutes, known in Spanish as Estatutos de la Comunidad de Propietarios, as well as the Community Rules (Bylaws), known in Spanish as Normas de Regimen Interno, if at all existent. You may avoid unpleasant surprises, such as communities that ban pets or even piano players, gasp!

Communities of Owners should be run – in theory – like small, tidy democracies. Well, that’s the theory anyhow.

In practice, they resemble more dictatorships with full blown egos as many owners can vouch for. I would advise you bring your tin hat to owners’ assemblies and prepare for some serious and protracted trench warfare, whereby each owner will hold his own ground, yielding occasionally to fleeting interests.

Good luck; trust me, you’ll need it.

At Larrain Nesbitt Abogados, we can assist you twofold:

 

"Every pound is a prisoner.” Margaret Nesbitt

Margaret Nesbitt (nee Conway) 1917 – 2013. From a humble working-class background, she lost her husband at a very young age, and was forced to fend for herself, single-handedly raising her four young children. Assisted by a generous (unsecured) loan of St Aloysius churchgoers, she bought a guest house in Glasgow and set up a business all by herself, without formal education, which she would run until her mid-nineties. Within only the span of a few years, working hard, she managed to repay the kind private loan with interests on top. As is often the case in life, she placed great value in that which she had been deprived of in her youth, which was a formal higher education;  she went to great lengths to generously ensure all her children, grandchildren and even great grandchildren enjoyed the perks of a privileged higher education. A quiet, courageous woman with strong religious beliefs that always managed to hold a positive outlook towards life despite all the social and financial hardships she was forced to endure and overcome alone. In the wee hours of any morning at Aldara, you would find her guest house’s kitchen brimming with bobbies on the beat enjoying a short pause and savouring the lavish generosity for which she was much loved.

 

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 available from Larraín Nesbitt Lawyers

 

Related articles

 

Article originally published at Spanish Property Insight: Community of Owners in Spain

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.

2.009, 2.012 and 2.019 © Raymundo Larraín Nesbitt. All Rights Reserved

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8 Tips for Buy-To-Let Success

Raymundo Larraín Nesbitt, October, 21. 2019

Lawyer Raymundo Larraín spills the beans on how to become a successful Buy-To-Let landlord in Spain.

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.

The following finance article has been summarised to avoid unnecessary tax technicalities. Before committing and making any type of investment, you should first seek professional tax & legal advice on your matter – see disclaimer below.

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
8th of November 2019

 

Introduction

We have closed in October the accounts for Q3 2019, and it has been yet again a record-breaking tax quarter. The cracking numbers we’ve seen from BTL landlords have prompted us to write a short finance article on the matter.

Several factors have contributed towards this ongoing Buy-To-Let boom, to name but a few:

  • Spain became in 2017 the world’s second tourist destination. Let those words sink in. This has created a huge demand for tourist accommodation to house the over 83 million tourists Spain receives every year (and growing). The hospitality market simply struggles to keep up with the strong demand.
  • Irruption in the market of new big players. AirBnb, HomeAway etc all these huge holiday platforms have created for the first time ever the opportunity to harness the huge tourist demand and widen the offer range at competitive prices. Effectively they have single-handedly moved the goals posts, allowing small-time investors to offer their Spanish properties to an unprecedented worldwide audience. For the first time ever, small investors may now give their properties great marketing exposure, in equal footing to large hotel groups.
  • A sluggish sales market has helped to steer investments towards the ever-growing, and far more profitable, buy-to-lets.
  • New gargantuan changes in tax laws. Several European Court of Justice key rulings have paved the way to huge tax savings for expat landlords. So much so, that non-resident landlords have seen their tax bills drop by an average of 70%, or more, which directly impacts the bottom line making their real estate investment far more rewarding. This is unprecedented, as before non-residents were barred from deducting any expenses, taxes and fees.
  • New changes in long term rental laws. Spain clumsily approved in April 2019 new rental laws which have given huge entitlements to long term tenants, among many other changes detrimental to landlords. As a result of these sloppy measures, landlords have pulled out en masse from long term lets, offering instead their properties as short-term holiday accommodation which are decidedly more lucrative and have far less associated legal restrictions.
  • Political instability in competing tourist destinations. This translates into tourists looking for safe havens, like Spain, to spend their holidays in.
  • Rental yields have soared by two digits year-on-year over the last three years. As a result of the imbalance in supply, landlords find themselves in a privileged position being able to command higher rental yields year on year to meet an ever-growing demand.
  • Climate change. The global warming has caused the tourist rental season to draw out to months which were previously unsuitable for short term accommodation, allowing overall more rental days with good weather.

 

When you factor in all the above, you come to realize why the tourist rental industry is booming in Spain. This short article goes on to explain how you too can profit and ride the tourist rental wave.

 

8 tips to rent like a pro

 

  1. Location, location, location. Any article on real estate worth its salt usually starts with this timeless saying. A worn out trope no doubt, but that doesn’t make it any less true and it is hands down the first tip that is often forgotten or neglected by most. Property prices can increase or decrease, but nothing impacts more on them than location. A great location helps you to cap off the storm greatly cutting down on your losses in a cycle downturn. Conversely, in a property boom, well-located real estate greatly capitalizes from it, soaring at a much higher rate than the average. When you invest in BTL, you need to choose a location which has a great touristic affluence. You simply can’t go wrong with international household names such as Madrid, Marbella, Mallorca, and Barcelona.
  2. Inland vs coastal. Both are on high demand but for very different reasons. The discerning city crowd, with refined tastes, are after the glitz and bling of a cosmopolitan lifestyle and are drawn to museums, restaurants, cultural events and all the flashy spoils a big city has to offer. On the other hand, the beach crowd is after raw fun, sun & beach, mojitos and disconnecting for a while. You must decide which group you want to appeal to and hone your marketing towards it. Both are proving to be great business options. Inland property (large cities aside) tend to fall more on the rural wayside. Whereas coastal resorts (and large cities) are clearly aligned with urban properties. To sum it up, in general, flat out you should choose urban over rural for buy-to-lets in my humble opinion. That said, if you have a strong predisposition towards nature and wildlife preservation and want to offer this healthy experience to your guests, then by all means go rural (inland). Spain has thousands of unspoilt scenery waiting for you, and your guests, to discover and get lost in their beauty.
  3. Affordability vs maintenance. Budgeting carefully is a key element of any successful conveyance procedure. Yes, you may afford to buy a swanky property in a great location, but can you afford its steep maintenance? Only buy a property you are absolutely confident you can afford to maintain over the mid to long run. Buy-to-let properties intrinsically should not be very expensive. I advise the property you acquire should be centric, small, with good communications, within walking distance of all amenities and the sea (on coastal resorts). If you do your research properly, you can even use at times the rental income generated to repay the mortgage and any additional expenses.
  4. Tourist Licence. Several regions in Spain have devolved competencies on this matter, passing their own regional laws (holiday rental licences in Spain, region-by-region). Some of these laws are very stringent i.e. Balearic Islands. Spain’s Supreme Court has recently ratified and defined the scope of regional competencies on holiday rentals. You would do well to acquaint yourself with the regional regulation where you plan to buy a property in. You must comply with all the requirements set out in the regional law and attain a Tourist Licence, where necessary. You really do not want to invest several hundred thousand euros in a property only to find out you are banned by your local town hall from offering it as holiday accommodation!
  5. Licence of First Occupation. A staple requirement to apply for a Tourist Licence throughout every region in Spain is to have attained what is known as a Licence of First Occupation. This is an unconditional requirement which marks the difference between being able to let your property legally, or not. Humongous fines are levied on landlords who fail to prove their property has attained a LFO from their town hall.
  6. Community of owner’s bylaws. If you buy into a gated community or building, chances are high you will become part of what is known as a community of owners. New laws passed on March 2019 have empowered communities of owners across Spain to outright ban, or restrict, holiday rentals. You really do not want to invest several hundred thousand euros in a property only to find out later on you are banned by your community to offer it as holiday accommodation!
  7. Rental management companies. This is a make-or-break. Some shoddy companies and individuals, that fly under the tax radar, refuse to hand over VAT invoices for any of their services (for which they charge thousands!). This translates into their clients unbeknownly picking up huge tax bills. Other more professionally-run rental management companies have no qualms to supply clients with proper VAT invoices, so that the landlord’s lawyers may deduct them, dramatically reducing a landlord’s tax bill (on average by 70%, or more). Make no mistake, landlords end up picking the tax bill of those suppliers who refuse point blank to declare and pay VAT. Bottom line, go legal and demand VAT invoices from suppliers; you will be able to offset huge amounts of expenses from your landlord tax bill. Don’t subsidize tax dodgers out of your own pocket!
  8. Taxation - Lawyers. A competent company, like Larrain Nesbitt Lawyers with over 16 years’ experience, will be able to legally knock off 70%, or more, from your landlord tax bill. Our company does this routinely for all our tax clients. Did you know there is a huge list of property-related expenses, taxes, fees etc which are all tax-deductible and can vastly mitigate your landlord tax bill? Not to mention that lawyer’s fees can also be offset from any tax you need to pay on renting out... Ask us for our holiday rental accounting service (HRAS).

 

Conclusion

In Spain, the average annual rental yield equates to 5% of a property’s value. Given how rental yields have soared year-on-year by two digits across the board over the past 3 years, this is quite substantial. The afore does not even factor in capital appreciation, which has increased in general by one digit and by two digits in large cities. When you combine both the power of soaring rental yields and capital appreciation, you conclude that real estate is a safe investment that is yielding a two-digit return per annum YOY, with little to no risk. BTL is ideal as a safe retirement plan, as opposed to investing your hard-earned pension with legions of mainstream overrated ‘professional’ hedge fund managers, who rake in millions a year, and return between 36p and 83p for every £1 invested by their customers.

At a time of historic ultra-low interest rates (which, incidentally, is a wondrous opportunity to request a buy-to-let mortgage) this is simply smashing; it doesn’t take a MBA to profit from it, only a level-headed investor that puts some work and time into lettings.

Buy-To-Let is akin to running your own business. If you want to succeed, you must learn to delegate. When you examine some of the world’s most successful CEO’s, it dawns on you that the key to success is finding the right people for the right roles and delegating on them. You cannot hope to do everything yourself or you will be driven insane.

Instruct a seasoned lawyer (conveyancing & taxation), hire a competent rental management agency, and market your property using a renowned property portal. All three working in tandem with you will drive your rental business to success. And profit from it all as millions of landlords already do!

 

 

"If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don't have to manage them.” Jack Welch

 

John Francis "Jack" Welch Jr. (1935). From a humble background of deeply religious Irish immigrants, he made money as a youth working as a newspaper delivery boy and shoe salesman. He captained his high school hockey team and would go on to study chemical engineering. He would rise to become a legendary US business executive, author of several best-selling books on management, and ex-CEO of General Electric (at the time, the world's largest and most powerful company). Through a series of clever acquisitions in emerging markets, and by (polemically) streamlining the company, Mr Welch multiplied GE’s market cap by a stunning 38. Over the course of two decades, under his competent stewardship, he steadily grew the company from $12bn to a whopping 450 billion dollars of capitalization. Upon retirement, he received the largest severance payment in recorded history ($417mn). He is now retired with an estimated personal fortune of $1bn and never misses mass on Sunday's.

He married a lawyer; nobody's perfect.

 

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 952 19 22 88 or by completing our contact form to book an appointment.

 

Tax & legal services available from Larraín Nesbitt Lawyers

 

Holiday rental-related articles

 

Article also published at Spanish Property Insight8 Tips for Buy-To-Let Success in Spain

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 or finance 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.

2.019 © Raymundo Larraín Nesbitt. All Rights Reserved.

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