Frank and Diane will go on to enjoy long and happy lives in Spain. But in the event of the death of our couple in Spain, it will be their nationality at the time of death that governs rules of inheritance and succession.
If they have retained British citizenship, for example, then English or Scottish law (depending on which part of Britain they live) will determine who should inherit if they have not written a will, or how it will be interpreted if they have, and how inheritance is settled. If they die without a will their estate will be taxed at the full rate.
Rules can vary profoundly between countries. English Law, for example, allows you to do what you like with your assets. But if your assets comprise only Spanish property then under English law it is the Spanish law that must be applied, and Spanish law limits your freedom when granting a will. A portion of your assets must be left to certain relatives (legítima). Spanish law will also be applied if, at the time of death, you have acquired Spanish citizenship.
Writing a will you should consider:
- You may draft your will in Spain, according to Spanish law, usually signing before a notary.
- You may alternatively draft your will according to English law, but in this case you must consider two cases:
- A will drawn up by mechanical means and signed in the presence of two witness must be submitted to the competent judicial authority in Britain for the grant of probate, without which the will cannot be executed, nor the resulting property rights registered at the Land Registry;
- In accordance with English law, you can grant a will which refers only to your properties in Spain, and you may do so with a Spanish notary or in the manner prescribed by English law. In that case, Spanish law will govern the distribution of inheritances.
Buying a property in Spain means paying property taxes at the time of completion, which are based on the sale price as stated in the deed of sale. However, if the sale price is judged to be lower than the real value then the tax office (Hacienda) will submit an additional bill for the difference.
- If the buyer is not a Spanish resident, the seller will withhold 3% of the price and give it to the tax authorities.
- If the seller is not a Spanish resident, the buyer will withhold the capital gains tax on the increase in value of urban land – formerly known as plusvalía.
How much tax is payable will depend on whether the purchase is a primary residence, a brand new property bought directly from the developer, or is a resale.
New homes: The buyer pays Value Added Tax (IVA) to the seller. At the time of writing (July 2015) this is 10% on residential property. In the Canary Islands it is 7%, and called the General Indirect Canarian Tax (IGIC).
The buyer pays IVA along with the purchase price and the seller sends it on to the tax authority. The buyer also pays Stamp Duty Tax (AJD) of 0.5% of the value declared on the deed (unless set at a different rate by the relevant Autonomy). This will be self-assessed on an official form and paid into the tax office via a cooperating bank.
Resale homes: The buyer of a resale pays Transfer Tax (ITP) rather than IVA, at a rate of 6% of the value declared in the deed, but again can be set a different rate by the Autonomy. It is also paid via a self- assessment form at a cooperating bank.
Deed of loan: Stamp Duty Tax (AJD) is payable at 0.5% of the total amount of the mortgage liability. This is not the amount actually received from the bank, but the quantity guaranteed for repayment of principal, interest and costs of enforcement. The Autonomy may set different tax rates.
If you buy subsidized housing (VPO), tax rates are generally lower.
Paying property taxes
To pay property taxes you obtain printed self-assessment forms, calculate the amount, pay it to the relevant entity and give the form notifying that you have made payment to the tax office. Your lawyer will normally pay the property tax, but it could be done by the purchaser, by an agency or by the notary who has drafted the deed.
A buyer paying personally needs to know:
- Where to submit the self-assessment form for ITP or AJD. For property in provincial capitals it is paid to the Delegation of Finance of the Autonomous Community. For property outside the provincial capital it goes to the District Liquidation Office, which takes in the Land Registry.
- Payment of Property Transfer Tax and Stamp Duty Tax must be made within 30 working days from the date of execution of the deed. Delays will lead to a surtax being imposed.
- Payment of those taxes is required for you to take out the registration of rights acquired in the Land Registry.
Disclaimer: This guide was brought to you by AIPP / RICS / RDE