Selling your property

This guide has been prepared by the following companies: For the sale of Rustic properties especially those in the municipality of Albatera

This guide is, of necessity, both brief and general, and is therefore not in great detail

more information will be provided on request.

Corredera, 37

03202 Elche (Alicante) SPAIN

TLF:+34 966 614 384/FAX: +34 965 420

960

jcmarhuenda@thalassaadvocats.com

www.thalassaadvocats.com

And Edited slightly so as not to change any meaning by Sharon Richards

Working with you all the way here to make life easier

Updated end of 2007

Documents to be presented before the sale

ESCRITURA FROM THE PROPERTY (PROPERTY DEEDS)
WATER AND ELECTRIC BILLS (It is not always necessary to give the latest ones)
SUMA - It is absolutely necessary to present the latest one. (If the property is not in the SUMA, it must be inscribed in the Suma office before completion.

For this inscription, an architect must visit your property to make the plans and measurements and, together with a copy of the rest of the documents (deeds, padron, plan of location of the plot, photos, etc.) these must all be presented in the SUMA offices.

If the property is not inscribed in SUMA, once the process of the inscription is finished, the Town Hall will withdraw the bills for the last 4-5 years. Usually the bills will be delivered to the property one or two years after completion, and must be paid by you although you were not the owners then. So, in these cases, it is common to calculate the amount of the bills before the sale, and provide the new owners with enough provision of funds to pay them this coming from the present owners for when the new owners receive them in the future

- CERTIFICATION FROM THE TOWN HALL.- This is called “Certificado de No Infracción Urbanística”. This is a certification made by the Town Hall, establishing that the property is free (or not), from any fines or penalties established by the Town Hall over any constructions added to the property or in fact any fine on the actual property itself

WHY……… because It serves to show to the eventual buyers that the property you are selling is free of any debts, and fines for the main building of the house, or for construction extensions over the property.

In the past, obtaining of these certifications was free, and this information was public. Right now, it is restricted to owners, or to professionals with written authorization from you.

So now, this certification is ESSENTIAL to sell the property, and must be obtained from you before completion.

ALE:

How you obtain the Certificado de No Infracción Urbanística?:

The way to obtain it is to go in person, or through your lawyer, with an authorization signed by you, to the construction Dept. from the Town Hall (“Departamento de Urbanismo”), and ask for it.

with you are the following documents:

To do this you will need

Copy of the escritura (deeds of the property)
Copy of the SUMA
Water and electric bills sometimes can help
Authorization signed (if you have instructed a lawyer).

Please, be sure that you, or your entitled person, bring these documents with you when you make the application of this certification in the Town Hall. Or you may have to return with them.

ORIGINAL NIE NUMBERS: In the past, you could buy the property without NIE numbers, or with a copy of them. Right now, you need the ORIGINAL ones to sell the property, otherwise the notary and the land registry could refuse it.

If you do not have the NIE numbers, or if they are lost, or you only have a copy, you must apply for the original ones in the NIE number offices in the area. The process will be exactly the same than to apply for a new one. If your original one is lost they will give you a copy with the same number.

- ELECTRIC.- In rustic land, it sometimes occurs that the property is built in land of less than 10.000 sqm. In these cases, Certification of Habitation (Certificado de Habitabilidad ), will never be obtained.

How this affects the electric connections?.- Your property could be in one of the following situations:

A) Your property already has an electric connection, with the proper contract of supply. In this case, usually, the contract will not be for House Supply (Vivienda), will be just for Farm Shed (Almacén Agrícola).

It means that, for the supplying company, your house is not a house, is a farm shed. This is very common but consequently, the supply given to your house will be for farm purposes, because, in theory, in less than 10.000 sqm., in rustic land, only farm sheds must be built and not houses.

Also, it seams that if, for any reason, the supplying company inspects the connection in your property, and they detect that you are using it for family and habitation purposes, they can fine the property although this is rare as it is so common normally if your property is over 6 years old you it is accepted without too many problems

If it is used for a different use than the one authorized (for farming) . For your peace of mind Our companies have not detected this kind of inspection in the area yet but the buyer must be informed, in the initial steps of the transaction, about the current situation of the electric contract, in order to avoid problems in further stages of the process.

On completion, you must sign and formal authorization to transfer the contract to the new owner.

B) Your property has connection with a “Construction Contract”. This means that the builders, when they were building your property, contracted the supply to build your house. Once they completed the building, as the electric company only supplies power when the certification of habitation is supplied then the electric company would take over the contract from the builder.

If in your case, this certification is not supplied (less than 10.000 sqm.), the builders, simply, left the house with construction supply in order to provide you with enough power for living.

In these cases, the problem is bigger than in the previous one, because, legally, the electric company (Iberdrola) is not allowed to supply connection for construction purposes for more than 2 years.

Passed this time through, they can cut the supply in any moment, fining the owners who are using the supply in this way.

If your property is in this way, please, ask a specialist.

THIS IS IF THE ELECTRIC IS STILL IN THE BUILDERS NAME

C) If your property has electric, but you have not any contract, and you have not paid, nor received any bills during your stay in the house. In this case, please, consult your lawyer urgently.

D) If your property has supply for habitation purposes. It occurs in Aged normally older than 6 years and in houses with less than 10.000 sqm., or in houses with more than this surface. In these cases, there are not any problems.

E) If your property has supply for habitation purposes, but the contract is older than 20 years. It happens normally in aged houses. In these cases, to transfer the contracts to the new buyers, you, as vendors, must to provide a certification from an official electrician, guarantying that the old installation is in perfect conditions.

This document is called “Boletín Eléctrico”.

F) Whatever the type of contract it is but bills are coming on the previous owners name, but you are paying them.- This occurs when, for one reason or another, the electric company did not authorize to change the names in the supplying contracts. In these cases, a specialist must be consulted to clarify what was the problem.

Taxes Involved in the Sale Non residents Before 2007

When you, as vendor, bought your property in Spain, you paid the taxes involved in the same transaction. These apart from other general expenses like notary, land registry or solicitor fees, the 7% for the Transfer Tax, and the 5 % for the Capital Gains retention (this last one, if the previous owners were non residents).

So, as buyers, you paid the 7 % of the price of the property as shown in the property deeds.

While you owned your property in Spain, you had to make the following declaration of taxes:

- After completion, the Spanish government considers that you, just for the reason to own a property in Spain, have to pay the 0.25 % of the official price of the property. It is paid only once, and specifically the year in which you bought the property. This tax is a part of the General Income Tax. You have to make the proper declarations of the

Income Tax, and the Wealth Tax. These taxes are calculated over the general incomes received, and from the official value of the property.

If you have not made any of these declarations, please, feel free to consult us in order to instruct you how to do it.

- You have to pay Capital Gains for the benefit obtained from buying-selling your property.Till 2007, the Capital Gains Tax was the 35 % of the net profit obtained from the price paid for buying the property, and the price obtained in the sale (considering “price”, as the one established in the deeds).

The system was even more complicated, because there was established a retention, or withholding, for the payment of this tax for the 5 % of the declared price in the sale.

Please, note the difference Now as this was in the past and Before 2007, the seller had to pay 35 % for CG, from the NET profit (which means Selling Price - Buying price – Less general expenses and taxes paid on the purchase- improvements in the property). Please, pay attention to the following example:

Example 1:

You bought the property for an official price (Declared) of 100.000 EUR. You paid 7.000 EUR Transfer Tax (7% over the declared value), and 4.000 EUR in the rest of general expenses (notary, land registry, etc.), and you have reformed your property, the reform costs being 12.000 EUR.

You are right now selling your property for 200.000 EUR.

The Net Benefit is :

200.000 – 100.000 = 100.000

Less 7.000

4.000

12.000

Net Benefit: 77.000 x 35 % = 26.950 EUR.

This figure had to be paid in the proper declaration after completion.

- B) As Before 2007, the Retention was 5 % OVER THE OFFICIAL PRICE OF THE PROPERTY (which is the price shown in the deeds). It seems that this 5 % is calculated, not over the net benefit obtained from the buying-selling of the property, just over the price for which you are selling. Following the previous example, the declared price from the selling of property is of 200.000 * 5 % = 10.000 EUR.

This system was acting in the following way:

Non-Resident Vendors were retained with the 5 % of the declared value on completion (10.000 EUR), being this payment a part of the rest to pay for the total CG (26.950 EUR). So, if the vendors, after completion, made their CG

declarations, they were reduced the final CG payments with the retention paid on completion. So, following the example, they had to pay 16.950 EUR (26.950- 10.000).

In the majority of cases, if the Non-resident vendor was returning to his country of origin, or to other country different from Spain, they never made the proper declaration of the CG, leaving the retention to the Spanish authorities. For

instance, the Spanish customs were satisfied with this retention, and they considered the case closed.

Sometimes, the retention could be higher than the same final figure to pay for CG. Please, note the example:

Example 2 :

Vendor bought the property per an official price of 100.000 EUR.

He paid 7.000 EUR Transfer Tax, and 4.000 EUR in the rest of general expenses (notary, land registry, etc.), and he has reformed his property, being the reform costs of 12.000 EUR.

He is now selling his property in 125.000 EUR.

The Net Benefit is :

125.000 – 100.000 = 25.000

Less 7.000

4.000

12.000

Net Benefit: 2.000 x 35 % = 700 EUR.

This figure has to be paid in the proper declaration after completion.

- The Retention was of 5 % OVER THE OFFICIAL PRICE OF THE PROPERTY. Following the previous example, the declared price of the property was 125.000 * 5 % = 6.250 EUR.

As you can see, there was a retention from the vendor of (6.250 EUR) higher than the one he had to pay for CG (700 EUR). In this case, vendors were making the proper CG declarations in order to obtain the difference back. So, if they were retained with 6.250 EUR, and they had to pay just 700 EUR, they had to be refunded with the difference (5.550 EUR). In order to apply for this refund, the vendor had to make the proper CG declaration after completion.

R 2007

I.- From 01-01-2007, the Capital Gains system for non-Resident vendors is the same, but with the following modifications:

- Capital Gains is now 18 %, instead if the previous 35 %.

- Retention is 3 %, instead of the previous 5 %.

II.- In the past, the control for the Capital Gains from the part of the government was weak. It resulted in that hundred and thousands of transactions in the area were made with official prices reduced from the real ones, with the intention to reduce the Capital Gains payments from the vendors, and the Transfer Tax, from the buyers. In order to control transactions which could result in illegal reductions of prices, between buyers and vendors. It means that the control is extremely higher than in the past.

For instance, taxes are reduced for non-residents from 35% to 18%.

III.- Sometimes, non-resident vendors refuse to declare the real

Price of the sale,

Arguing that, when they bought, the previous owners reduced the official price of the property, and that they are loosing money from it now as the declared value is high. Unfortunate or not this situation must be re-considered now for four main reasons:

(18 % Benefit CG, and 3 % Declared Value Retention for CG).

-It is true that, as the previous vendors sold the property to the current owners at a low declared value, and they have to support a higher CG.
But is also true that…………………………. the current owners saved

Also taxes with that reduction.

Please, follow the next example:

Example 4:

You bought the property per an official price of 100.000 EUR. The Real price was 150.000 EUR. You paid 7.000 EUR Transfer Tax, and 4.000 EUR in the rest of general expenses (notary, land registry, etc.), and you have reformed your property, being the reform costs of 12.000 EUR.

You are right now selling your property in 200.000 EUR.

The Net Benefit is :

200.000 – 100.000 = 100.000

Less 7.000

4.000

12.000

Net Benefit: 77.000 x 18 % = 13.860 EUR.

In the previous example, vendor pays 13.860 EUR for CG, but, as the property was declared in 100.000 EUR, when it was really paid for 150.000 EUR, the vendors has saved at least 3.500 EUR in Transfer Tax, because:

· He paid 7.000 EUR for transfer Tax (100.000 * 7%).

· Ha had to pay 10.500 EUR (150.000*7%).

10.500-7.000= 3.500 EUR

So, right now, what the vendor has to really pay for CG is 13.860 EUR, this amount less 3.500 EUR from the saving he had from Transfer Tax, makes a total of 10.360 EUR.

Also, the rest of taxes involved in the property after completion (like Wealth tax and Income Tax) are considered over the declared value base. So, as the base of the tax is lower, another 2-3.000 EUR are saved by the non-resident vendor.

Thus, 10.360 EUR less 3.000 EUR=7.360 EUR.

If the Spanish customs detect a non declared value, from the past, and, in some situations vendors and buyers could be denounced and or fined not only for fiscal actions, also for money laundering.

Vendors Spanish Residents) VENDORS SPANISH RESIDENTS

- FOR CAPITAL GAINS:

· They pay 18 % of the net benefit.

· They do not have the 3 % Retention.

· If they are selling their main residence, and they invest in another main residence in Spain in less than 2 years,

they have 100% exemption of CG tax for the sale of the property.

· If they are aged than 65 years old, they have 100 % exemption for CG tax for the sale of the property.

“MAIN RESIDENCE” this is considered when the vendors can demonstrate that they are living in the property for at least 3 years. The way of proof this can be the Padron, water and electric consumptions, etc.

Also, the “Spanish fiscal residence” can be obtained in the Spanish Customs just showing the Padron, the escritura, the Passport, and the NIE number. This is important for EU nationals, because they will not be forced to get the old “Residence Card” (Tarjeta de Residencia), to demonstrate that they are Spanish residents. They can demonstrate that they are residents with the Padron, or with the Spanish Fiscal Residence.

OTHER TAXES FOR VENDORS-PLUSVALÍA

Mainly, the PLUSVALÍA, is a tax over the increase of the value of the land in which your property is, from the buying and the selling time. It is the sole tax that we are not in the position to calculate previously to the sale, because it

depends on specific criteria from the town hall. And only after completion they quote it in some municipalities.

In these cases, a retention from the buyer to the seller is enough to cover the payment of this tax. Especially when seller is leaving the country after the sale.

LAND REGISTRY INFORMATION

From September 2006, buildings or extension of buildings younger than 6 years will not be passed to the land registry.

For more information, please, feel free to contact us in the following address:

Corredera, 37

03202 Elche (Alicante) SPAIN

TLF:+34 966 614 384/FAX: +34 965

420 960

jcmarhuenda@thalassaadvocats.com

www.thalassaadvocats.com