Revised Changes to theTown and Country Planning Document from the Town Hall

keywords: Spain, marbella, property, town, planning, urban, land, designation, building, construction, local, plan

This fascinating document contains all the information you will need to understand the new planning regulations that will be coming into force in Marbella. It details the complete history and evolution of Marbella´s town and country planning and explains the reasons why much of the planing violations occured during the early part of 2000's. The document also demonstrates how Marbella's Town and Country Planning legislation and plans will change over the coming years and sets some impressive benchmarks for improvement.

Download this Report

November 30, 2005 | Permalink

What are the Various Options for Buying Property in Spain

Ben Johnson / Bright

Spain, cosat del sol, marbella, property, apartment, townhouse, villa, plot ,land, holiday, home, permanent, residence, investment,

This article is designed to help you understand the range of property options available in Spain. Whether you are buying your property in Spain as a permanent residence, holiday home, for rental yield or as an investment always buy what you can afford and ensure that you have thought long and hard about whether you feel you can sell it on if you ever have to (this involves the correct research and will be discussed in future articles).

Buying and selling property is not a cost free exercise: in Spain your purchase costs are between 9 and 12% (see article ‘The Buying Process in Spain’) of the property value. Additional tax consequences through ownership should be planned for, so ensure that you talk to a Spanish accountant. Your property will also need some form of maintenance that you will also need to budget for depending on how long you plan to keep it, so bear this in mind when you build your costs model.

Most importantly, think carefully about the concept of buying a property overseas: if you are buying a holiday home you should also think of it as investment opportunity as you are not only looking for a location you will enjoy, but the likelihood of how the property will make you money over time. If you are investing ‘unemotionally’, purely to make money then this opens up a larger segment of the potential market.

The main options for buying property in Spain are as follows and some of the principal points for each type of purchase will be discussed in the following sections:

• Buying off plan


• Land


• Buying resale properties


• Distressed sales


• Renting


• Commercial

Buying off plan

You can buy any type of property off plan, off plan means that you are purchasing the property from the architect’s plans. Developers buy a plot of land and commission an architect to come up with a project plan for what ever type of building they decide to build. The developer also petitions the town hall for all the administrative permission and licenses that are required. More often than not developers use banks to finance the project and the banks often require the developer to show that they have sold a number of their properties. Therefore, its extremely common practice in Spain for a project to start selling prior to the building work commencing and there are several advantages to buying a property in this manner.

When buying off-plan it’s possible to secure a property at a significant discount to the final completion purchase price and wait while the capital value increases. New developments are constructed in phases, with development taking place over several years. Capital appreciation, and increased customer confidence in the project as it nears completion means that carefully chosen properties can be resold for significantly larger amounts.

The opportunity to buy a property off plan is the main reason why so many investors have been interested in Spanish property. Investors take advantage of the favorable payment terms, typically between 20 – 40% down payment and the rest on completion, or a smaller deposit and a staggered payment system over the duration of the construction. Developers can also be known to discount the price of the first few units from the first phase of new projects to encourage clients to invest in their product.

By law investors have the rights to Bank Guarantees (see article ‘What are bank guarantees and how do they work?’) on the project to protect their money in an Escrow account should any problem occur with the project that prevent it from going ahead. The builder must also take out a 10 year insurance policy against structural defects. A lawyer can check to ensure that these are in place.

Once a purchase contract is signed the investor can then wait until completion, pay the balance and then remarket meanwhile using the property as a rental holiday home vehicle, or ‘flip’ the purchase contract prior completion to avoid costs. The good news is that an investor who manages to sell prior to completion can avoid a lot of the extra costs and taxes associated with going to title deeds.

A word of caution though, ‘Flipping’ a purchase contract prior to completion is only as viable as the properties resale potential. So look carefully at the area and product before you go for this method. General indicators are limited product availability with good features (location, view, etc) and a good value per square meter built (this varies from area to area so do your research) in a desirable area and a long build out phase to provide the maximum opportunity to resell.

The question that everyone asks is, “is there a market for second hand new build?” The answer is obviously yes; new build properties are pristine (having never been lived in) with the right criteria are desirable because many second buyers don’t want to wait the year or so for completion and would rather buy something that they see and walk round first.

Buying Land

The main advantage of buying land from a holiday home point of view is that you have the opportunity build your own project on it, while avoiding a lot of the costs associated with profits the developer makes (see the article ‘Self Build in Spain – Building Your Ideal Home in the Sun’).

As an investor and owning a plot of land avoids of the charges and taxes associated with maintaining a property (see article ‘Taxes and Other Costs Associated with Owning a Property and Living in Spain’), and the taxes that need to be paid are generally much lower. Meanwhile you can apply for planning permission and build your project and resale for excellent returns. Choosing the right plot and sitting on it while the surrounding market booms and then reselling with a permission to build can also be an excellent way of yielding an extremely good return. However, to obtain a mortgage for land is a more complicated process, and the finance ratios are not as good (max 50%) and the recent tightening of Spain’s planning regulations can make the process a beurocratic nightmare (see the article ‘Self Build in Spain – Building Your Ideal Home in the Sun’).

Land is always touted as being a safe investment in the ‘Hot Markets’, and in Spain the Costa del Sol and Costa Blanca land that can be/or has the potential to be subdivided for development is in great demand.

Buying resale properties

A resale property is a property that has already been previously owned, it doesn’t necessarily mean an older property as new build projects often resell after completion. There are huge variety of properties available and consist of everything from one bedroom apartments to mansions in very exclusive locations to frontline beach and golf properties, city, town and village center dwellings and rustic farmhouses set in the country.

Buying a resale gives you the opportunity to walk round your property, check the views, speak to your potential neighbors and generally do a lot of good research before moving ahead with the purchase.

Generally the payment terms for re sales are not as flexible, normally a 10% deposit is required and the rest at the signing of the title deeds usually one or two months after paying the deposit. The re sale market is rapidly maturing and consolidating in Marbella and this segment of the market often present the best deals for buying property as owners have become increasingly realistic in their returns.

Renovation of older property

The most popular renovation projects for foreigners in Spain are fincas (farm or rural properties) near to the major tourist destinations. Most coastal or resort based properties are still fairly new; therefore, buying to redo in these areas is rare. This form of investing is for mature inner city markets and rural areas, which can offer many attractive investment opportunities.

Using an agency which specializes in country transactions will certainly provide you with the types of product you may be looking for. They will also be able to put you in touch with a country lawyer that will help you negotiate the title deed transfer, apply for planning permission or renovation licenses to upgrade the property. Be aware the country lawyers are the experts in their field, when buying in the country never use a normal conveyancing firm from a town or city, as the transactions often require specialised help.

Distressed sales

Distresses sales occur through the owner no longer wishing/being able afford the property and needing to get out immediately, pending foreclosures by banks, divorce, death duties, etc, are all reasons for quick sale at a good price. Our recommended agent Martin Brown on our Property Deals page has an established network with the relevant government agencies and private companies that deal with these kinds of quick sale.

The most common form of distressed sales scenario that you will find and one that offers some real bargains is people who bought off plan and for whatever circumstances can’t or don’t want to complete on the purchase. This offers the possibility of buying a property at a price from two or three years ago, with further discounts as the property is already in part paid and the owner being a in a position where they have to get part or all of their money back.

Renting long term and short term

The best investment prospects for short term will be those in the most popular resorts or in areas that offer the most interesting features related again to their location. Easy travel time and access to amenities are also other important concepts to bear in mind.

Short Term

With more than 45 million tourists last year, and 8 million people arriving at Malaga airport alone, it’s possible to see why many investors have been making back between 5 and 7% normally from their investment before costs.

The general rule is the more popular and expensive a resort, the easier it will be to rent out with a greater yield, but have a regard to the length of the holiday season and the facilities of the area that affect the season. The number of golf courses is an extremely important consideration as golf is driving factor behind winter and off season rental in Spain.

Short term letting requires that you have a rental management company and they can charge between 10 to 25% depending on the level of service you require.

Long Term

With Spain’s admission into the EU, with the economy growing, the increasing importance of IT within industry and finance sectors and many multinational and corporations opening braches and offices in Spain (for example many of the world’s banks now have branches in the Costa del Sol) has resulted in an increasing number of people being posted to Spain on one or two year contracts.

Long term lessee’s requirements are similar to those of owner occupiers looking to relocate permanently, but require a less intensive service from a Management Company, therefore a reduced cost on this front. Most management companies will take a flat fee for the whole term for finding a client for a property.

Property on a leaseback or guaranteed income

It is now possible to buy properties in new developments in Spain and lease them back to the developer on a long lease. Although the rent will be lower than you would achieve yourself, it would be guaranteed. The developer will also cover maintenance costs and even furnish the apartment for you. This means you can buy with certainty, knowing what return you will receive and over what period, while at the same time the properties appreciate in capital value. There is certain tax and cost incentives for this scheme, and due to its popularity will definitely become more prevalent in the popular resort areas.

Commercial Property

Frequently commercial property is referred to as a safe investment in a hot market. As resort areas become more popular, there is a tendency for the holiday seasons to spill over into the winter months and with that the number of people who are looking to live full time in the area and set up businesses increases. There is currently a commercial property boom in the Costa del Sol, particularly in Malaga center, and many agents are beginning to look at this as a new viable market.

Office and shop rents fall into long term renting category and capital appreciation, however there is the possibility for long term lease hold usually over a period of ten to fifteen years (termed as a ‘Trespasso’ agreement in Spain). With this the lessee places a lump sum on the property to have the rites to rent it exclusively for the duration at a lower rent.

November 15, 2005 | Permalink

Using a Company Structure to Own Property in Spain

Luis Herredia / Medio y Heredia Abogados

Spain, costa del sol, marbella, property, law, company, guide, tax, investment

There are certain advantages to buying and owning a property through a company structure in Spain. This articles sets out some of the possible strategies that can be employed.

Using a Spanish Company to Buy Spanish Property

Introduction

A foreign investor may invest in Spanish property through a Spanish resident entity (Sociedad Anónima, (S.A.), or Sociedad de Responsabilidad Limitada (S.R.L.)), or even through a real estate investment fund Fondo de Inversión Inmobiliaria (F.I.I.)), or investment Company (Sociedad de Inversión Inmobiliaria (S.I.I.)).

Choosing a strategy where you buy as an individual or through a Company will depend mainly on the value of the investment. We suggest before going ahead with any property purchase that you read this basic guide. If you feel that your requirements fall within the criteria mentioned below then make an appointment to see us and speak with our fiscal advisor who will provide you with a study based on your itemized investment plan.

Why use a Spanish Company to own Spanish property

A common strategy of the past

Foreign investors used to frequently invest in Spanish property through a two-layer structure, in which a local Spanish Company owned the real estate and a foreign Company owned the shares in the local Spanish Company. Previous to recent legislation Spanish property could easily be bought and sold while avoiding many of the taxes or costs of transfer. The sale of the shares in the foreign holding Company frequently fell outside the scope of Spanish capital gains, transfer taxation and withholding at the source. However, this is a risky strategy nowadays and the Spanish tax authorities are looking into this form of avoidance.

Current advantages

The main advantage to owning a property through as company structure is that it could create opportunities to avoid or minimize taxes associated with buying, owning and selling Spanish property.

IVA or Value added tax (VAT) and Transfer Taxes when a Spanish Company buys a property

• 7% IVA on the purchase of new build property (only) is avoidable i.e. where a Spanish company buys a property off of another Spanish company.
• 16% IVA on the purchase of commercial property or land is avoidable  

Tax deductibles from income and corporate tax

The following costs are tax deductible through using a company

• All renovation, building and furnishing costs
• Utilities bills
• All other running and maintenance costs

Loss carry forward

Tax losses incurred may be carried forward fifteen years and may offset capital gains or ordinary income. For newly created companies incurring in losses, the fifteen-year period will start to compute once profits are achieved. Nevertheless, the Spanish corporate income tax law provides a limitation to the transfer of tax losses of an entity under certain circumstances.

Tax avoidance

The usual running taxes associated with owning property in Spain through a Spanish company structure are minimized particularly in terms of Income & Wealth Tax. The tax rate for Income (the tax is called Impuesto Sobre Ia Renta and is a form of income tax on all second home owners in Spain and non residents for the notional letting value of the property. If the property is not let, it is calculated on the notional rental value of the property. Notional rental value is calculated at 0.5% of the Valor Catastral) and Wealth Tax increases progressively according to the value of the assets acquired, therefore, its always worth using a  Spanish Company if the values of the property(s) are high ( i.e. + € 1.000.000).

Types of S.L.Company

For the purpose of this article we will discuss the most commonly used corporate vehicle for owning property, the Sociedad de Responsabilidad Limitada or S.L.

Setting up a Spanish Limited Company will imply costs, this is a minimum share capital of € 3,006.05 plus fees to be paid to an accountant or fiscal advisor to maintain the books of the Company typically around 1500€ to start the company and then 200€ per quarter to run the company.

There are two types of SL companies in Spain according to the tax Law:

• Companies with an economical activity
• Companies called “Patrimonial Companies”

Companies with economical activity:

1. Are included in the normal regime of the Spanish Company tax (corporate tax).  The taxable income is defined as the difference between the period revenues and period expenses. Business expenses are deductible if they are properly recorded and supported.
2. Many of expenses such us community fees, maintenance and expenses relate to building the house can be deducted.
3. The income tax rate is: 30% small companies and 35% for intermediate and big companies)

Patrimonial Companies:

Patrimonial companies can have an economical activity. In this case they are included in the specific regime but the tax must be calculated according with the rules of the Spanish Income Tax (IRPF) as an revenue paid to professional people.

They have the following requirements in their structuring:

1. There must be less than 10 partners.
2. At least 50% of the capital share belongs to a family.
3. At least 50% of the activity of the Company are properties.

This type of Company has a specific regime in the Corporate Tax:

·        General base: profits generated in less than 1 year of activity, the tax rate is 40%

·        Special base: profits generated over one year of activity, the tax rate is: 15%

What you have to show the tax man

A company who’s only activities are renting, buying or selling will be considered as having the same requirements under rules that govern Company trading standards:

• An office.
• One employee with a legal labour contract 
• The account and the tax returns must be done yearly with the obvious legal and financial implications involved.

Special tax on real estate owned by non Spanish resident entities

Offshore or companies registered outside of Spain that directly own Spanish properties not used for business purposes are subject to a special annual tax equal to 3% of the official value of the property. However, this tax can be avoided provided that the company and its share holders reside in a country that has a double taxation treaty with Spain.

Comparing the Costs

The section shows what an individual and companies must pay to buy, own and sell property in Spain and is designed to give an overview to make easy comparisons

Impuesto sobre Transmisiones Patrimoniales (ITP) / Transfer Tax  on the sale of a resale property.

Resident and Non resident

New House 1% of value on purchase deeds, resale 7% of value on Purchase deeds.

Company

Same tax rates as residents and non residents.

Value Added Tax (IVA) on the sale of a new build property

Resident and Non resident

New house 7% of value on purchase deeds.

Company

Not applicable if and S.A. or S.L. Spanish Company sells the property to another S.L. or S.A. Spanish Company ie. When a Company owned by the purchaser buys a property form a developer.

Annual Real Estate Tax (IBI)

Resident and Non resident

Paid by new house/resale owners yearly, depends on value on the purchase deeds.

Company

Same levy is charged as a resident and non resident.

Real estate tax is levied on an annual basis and the tax rates will range from 0.4% to 1.10%, applicable to the cadastral value of urban properties, and 0.3% to 0.9%, applicable to the cadastral value of non-urban properties. Such rate is increased or decreased by the local authorities depending on the specific location of the property. The taxpayer is the owner of the real estate. Real estate tax is deductible for corporate tax purposes.

Wealth Tax on owning property

Resident and Non resident

Paid by new house/resale owners, the amount depends on value on the purchase deeds or the higher value out of Valor Catastral, Valor comprobado por Administración o valor en escritura. Form 214.

Resident individuals pay Wealth tax on their worldwide assets at December 31^st. of each year, valued in accordance with tax rules.

Non-residents are taxable on property situated, or rights exercisable, in Spain.

Company

Not applicable as the property appears as an asset in the Company records.

Non resident special information: Non residents who own shares of a Patrimonial Spanish Company, must pay Wealth Tax for the shares of the Company. If the only asset of the Company is a property that’s worth 1 million euro and it doesn’t have an office and an employee with a labour contract the Wealth Tax must be calculated on 1 million

Impuestos Sobre la Renta de las Personas Fisicas - Income Tax

Resident and Non resident

This tax is paid by non residents and residents who own a second or third property in Spain on the imputed rentals gain on the property regardless of whether the property is rented or not.

Company

Not applicable. Rental income is taxed according to Corporate Tax: Any business developed in Spain is subject to business tax levied on a yearly basis. Its cost will depend on the specific activity carried out by taxpayers.

Capital Gains Tax:

Resident

Pay 15% capital gains tax on the profit

Non Residents

Pay 35% but initially pay a 5% retention on the sales prices retained by the purchaser’s lawyer on account of the capital gains tax liability.  

Company

Companies pay tax on the profits of a real estate transaction as part of their yearly corporate tax declarations. Corporate tax starts at 35% but can drop to 15% in certain circumstances.

The Corporate Tax is due on the last day of the fiscal period. According to the provisions of the Spanish law, the fiscal period cannot exceed 12 months. As mentioned before the taxable income is defined as the difference between the period revenues and period expenses.

All business expenses are deductible if they are properly recorded and supported.

Municipal Add Tax Value (Plusvalía)

Resident and Non resident

Paid to the Town-Hall in case of sale of property.

Company

Not applicable.

Inheritance Tax (ISD)

Resident and Non resident

Please refer to the inheritance tax article

Company

As the property is owned by a Company which in turn is made up of shares, these can be transferred prior to death to avoid the tax.

 

November 14, 2005 | Permalink

Insight Briefing: Quantifying British Property Ownership in Spain

Mark Stuklin / Spanish Property Insight

Though we are often asked it the question how many British nationals own property in Spain? it is surprisingly difficult to answer. There is no single database, government or otherwise, containing the answer. It should be easier to deal with a related question how many Spanish properties belong to British owners? as the Spanish Land Registry should contain this information.

Key numbers summarised

• There are117,322 British nationals resident in Spain, 27% of the total of non-Spanish EU nationals resident in Spain. The British are the biggest group, followed by the Germans with 68,812 or 16% of the total.


• The best estimate we have for the number of Spanish properties owned by the British at the end of 2003 is 600,000.


• Between 40% and 50% of all overseas properties purchased by the British are in Spain.


• 50,000 to 70,000 Spanish properties bought by the British each year, approximately 35-45% of the total sold to foreigners (of coastal properties).

For more information Read Article

November 14, 2005 | Permalink