Transferring property ownership in Spain may seem complex, but it can be managed efficiently if the correct steps are followed and legal advice is sought. Below, we explain step by step how to carry out this transfer and the key aspects you must consider to ensure everything is done in accordance with the law.
1. Prerequisites for property transfer
Before proceeding with the transfer, certain requirements must be met to ensure that the operation is legal and effective. Some of the basic requirements include:
- Title of ownership: The seller must be the legitimate owner of the property, which must be proven through a title of ownership registered in the Property Registry.
- Certificate of encumbrances: It is essential to request a simple note (nota simple) from the Property Registry to verify if the property is free from encumbrances, charges, or liens.
- Taxes and fees: Both the buyer and the seller must be aware of the taxes associated with the transaction, which we will cover later.
2. Earnest money agreement (Contrato de arras)
The earnest money agreement is an optional, yet recommended, intermediate step that serves as a preliminary commitment between both parties before the final contract. Usually formalized before signing the public deed, this agreement does not transfer ownership but outlines the transaction terms, such as the property price, the signing date, and possible penalties for breach. This type of contract is regulated by Article 1454 of the Spanish Civil Code and is one of the most commonly used agreements in real estate transactions in Spain.
There are three types of earnest money agreements:
- Penitential: Both parties may withdraw from the contract, but the breaching party must pay a penalty.
- Confirmatory: Withdrawal from the agreement is not permitted without consequences.
- Penal: In case of breach, additional damages may be claimed.
3. Public deed (Escritura pública)
The next fundamental step is signing the public deed of sale. This document must be notarized and formalizes the change in property ownership. It is essential that the deed contains all the necessary information about the property, including the identification of both parties, the description of the property, the agreed price, and any relevant clauses.
The notary verifies the following:
- That the property is free of charges or encumbrances, unless the buyer agrees to take them on.
- That both parties have fulfilled their tax obligations (particularly regarding the payment of taxes).
- The identity and legal capacity of the parties involved.
According to Article 1280 of the Spanish Civil Code, the public deed is an essential requirement for the validity of the property transfer. Without this document, the sale cannot be registered in the Property Registry.
4. Registration in the Property Registry
Once the public deed has been signed, the new owner must register the sale in the Property Registry. Registration is not mandatory but highly recommended, as it provides full legal protection against third parties. In the event of disputes over ownership, the registered deed prevails over any other private document.
Moreover, registration is necessary if the owner intends to sell the property in the future or apply for a mortgage. To register the property, the deed must be presented to the Registry along with payment of the corresponding fees.
5. Taxes to consider in property transfer
The transfer of property in Spain is subject to a series of taxes that must be paid by both the buyer and the seller. The most relevant taxes include:
- Transfer Tax (ITP) or VAT:
- If the property is new, the buyer must pay VAT, which is set at 10% for residential properties.
- For second-hand properties, the buyer must pay the Transfer Tax (ITP), which varies between 6% and 10% depending on the autonomous community.
- Municipal Capital Gains Tax (Plusvalía Municipal): This tax is imposed on the increase in land value since the last transfer. It is the seller’s responsibility and is calculated based on the increase in the land’s cadastral value since the previous transfer.
- Non-Resident Income Tax (IRNR): If the seller is a non-resident, they must pay a 3% withholding on the sale price, which the buyer deposits with the tax authorities as an advance on the seller’s final tax liability.
- Property Tax (IBI): The Property Tax (IBI) is an annual tax levied on the ownership of real estate in Spain. Although this tax is usually paid continuously by the owner, in a property purchase, the amount is typically prorated between the seller and the buyer depending on the date of transfer.
6. Transaction costs
The costs involved in the purchase and sale of a property in Spain are generally shared between the buyer and the seller. The main costs include:
- Notary fees: In most cases, the notary fees for the public deed are borne by the buyer.
- Property Registry fees: The costs of registering the deed in the Property Registry are also typically paid by the buyer.
- Real estate agency fees: Although not a legal expense, it is typical for the seller to bear the cost of the real estate agency commission if they hired the agency to sell the property.
7. Other legal aspects
In addition to the previously mentioned steps, there are some other elements to consider:
- Legal representation: If one of the parties cannot be present at the signing of the deed, it is possible to grant a power of attorney to a representative to sign on their behalf.
- Expert legal advice: It is essential that both, the buyer and seller, seek advice from a lawyer specializing in real estate law to review all documents and protect their interests.
In summary, transferring property ownership in Spain is a process that involves various legal procedures and requirements. From the signing of the earnest money agreement to registration in the Property Registry, each step is regulated by specific laws that ensure the legality of the transaction. Relying on professionals such as notaries and specialized lawyers is crucial to avoiding complications and ensuring that the transfer is completed smoothly. It is also important to consider the associated taxes and costs to plan the process effectively.