Why you should make a will where you invest in property

From the moment you register your property in a state’s land registry to protect your rights as a property owner, you are subject to that state’s regulations. If the state that rules on your inheritance is not the same as the one governing your property, you can help your heirs by making a will in the state where the property is located.

When you buy a house, you want your property rights to be protected by the law of the land. This is why you register your title to the property in the corresponding land and property registers. In exchange for this protection, you pay taxes. After your death, your heirs will want the same protection, but their title to the property will not be a property deed. It will be an acceptance of inheritance document. This is a document issued by the authorities of a country that may be different from where your property is located.

The differing legal approaches in different countries create the biggest headaches in international inheritances. Who is the heir? What percentage do they inherit? Who has a right to inherit? Such questions can only be resolved by the competent public authorities. As a rule, these are the authorities of your country of residence or nationality. When you have foreign investments, the documents issued by the authorities in your home country have to be interpreted by the authorities in the country where you have assets. This creates additional problems that can be tricky to resolve. You can resolve these problems by making a valid will in the country where your property is located. By doing so, you stop foreign authorities from getting involved in the processing of your estate.

As always, we recommend that our foreign clients, from as soon as they own property in Spain, make a Spanish will to govern their Spanish inheritances as they see fit. Thus, limiting the involvement of non-Spanish authorities in the processing of their estates.

Carlos Prieto Cid – Lawyer

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Working in Spain for non-resident employers

Providing services remotely is, thanks to today’s technology, increasingly common. You can live in one country and provide services to a person or company based in another. However, this scenario can be confusing with regard to taxation and social security.

Today’s technology allows you to provide someone with services without ever having to physically meet them. For instance, communications, consultancy work and the transfer of knowledge are all services that can be provided remotely via the Internet, with no physical or geographical barriers. If you are a Spanish resident, which, as a rule, means that you live here for more than 183 days a year, you are subject to Spanish labour, tax and social security regulations with regard to the services you provide.
But there are grey areas in the Spanish legislation when it comes to remote working. It is straightforward if you are self-employed. In this case, you are simply registered and treated as self-employed by social security and the tax office. You have the same obligations as any self-employed resident.
However, you may not technically be self-employed if:

  • You only provide services for one person or company.
  • The receiver of your services trained you or provided you with or paid for the tools required to carry out the work commissioned.
  • You carry out the work according to the instructions of the service receiver, and the resulting products are sold on by them.

If these cases, the service receiver is actually your employer, and they are required to register you with the social security as an employee and meet their tax and employer obligations in Spain. It doesn’t matter if the company or person receiving your services does not have a permanent premises in Spain. Their obligations are clear, and you can report them for not meeting them.

Carlos Prieto Cid – Lawyer

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Who will inherit your property?

You may think you know the answer to this question. But the law, when applied, can lead to some surprising and unexpected outcomes. Because regardless of whether you make a will, your inheritance will be subject to the law.

I’m sure you know that the law fills the gap when someone doesn’t make a will. But even if you make a will, the law is applied to determine its validity, scope and any limitations.

What happens if the heir you appoint dies before you do? What happens if they die after you but before they formally accept the will, in other words, they die without having been declared your heir? What happens if you appoint a non-family member or a legal person (e.g., a foundation or association) as your heir and leave nothing to your children? What happens if somebody has an interest in invalidating your will?

All these questions are subject to the law. But here is where the doubts just begin. What law? The law where you live, your country of origin or where your property is located?

For instance, the inheritance of a Swiss national resident in Spain is governed by Swiss law. However, Swiss law can end up making Spanish law applicable. Whereas the inheritance of a German national resident in Spain is governed by Spanish law except where otherwise stated in the will.

And then there’s the fact that the applicable Spanish law differs depending on whether you live in Benidorm or Salou. The applicable tax will also differ. Even the formalities that your heirs must observe to take possession of your property won’t be the same.

So care must be taken when setting out your inheritance in a will. You must think about the formalities that the beneficiary you designate will have to go through, the costs that they will have to bear, and any difficulties they might face with other possible beneficiaries, the authorities, your creditors, etc.

So if you have property in your name, we urge you to seek professional advice and make a will as soon as possible. Your heirs will be glad you did.

Carlos Prieto Cid – Lawyer

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The risk in buying inherited real estate

Buying a house is a big decision because it’s a big investment. You need to be aware of the consequences and clear about the risks.

Today we’re going to talk about a common scenario: inheriting the primary residence of a deceased parent, spouse or relative. People finding themselves in this scenario need to sign notarial documents to transfer the property by inheritance. They can also reduce the inheritance tax they owe if they state in these documents that they don’t have any intention to sell the property in the next five years. They may not have to pay any tax at all. This is something they are always relieved to hear when they visit the notary’s office. And they can still register the notarial document for accepting the inheritance in the Land Registry (a requirement in Spain) without any problem.

Time passes. These inheritors forget the statement they made so they could pay less or no tax when they accepted the inheritance. Then someone offers them a good price on the property. They decide to sell, and the buyer acquires the property, theoretically free of encumbrances. But this is not the case. Because of the inheritance, the property was subject to a charge recorded at the Land Registry. But everyone overlooked it. However, the Spanish tax authority, which can review tax declarations made when properties are transferred, won’t overlook it. If the tax authority decides that the wrong amount of tax was paid at the time of transfer, it can impose a new payment of the tax, with the property as security to cover any tax liabilities, regardless of who owns the property today. In the case that we spoke about above, the buyer could get a nasty surprise if the tax authority discovers that the conditions for the tax reduction or exemption taken advantage of when the property was transferred by inheritance were not subsequently met. Thus, tax becomes due on this property, and the new owner must pay it, even though they benefited in no way from the original tax break. This is why we always recommend seeking legal advice before signing any conveyancing agreement or preliminary agreement. You need a lawyer to check for any hidden problems that may come back to bite you. The case we talked about today is just one of the many traps that buyers can find they have fallen into when they sign agreements without seeking advice. There are many other scenarios that also entail great risk.

Carlos Prieto Cid – Lawyer

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Tourist rentals and homeowner associations

We’ve written before about the administrative requirements for renting properties to holidaymakers: https://blog.tarracoiuris.com/en/?p=380
Today we look at the legal issues that can arise with homeowner associations
.

As we stated in our previous post, the government has established social, economic and tax controls in the tourist rental market. It did this because holiday letting can affect housing prices, the make-up of districts and the good relations between neighbours. Politically, these are highly sensitive issues. Recently, there have even been very divisive campaigns by neighbourhood and social groups against tourism, a phenomenon referred to as “tourism-phobia” by some in the media. These groups say that the boom in holiday letting has caused social problems, especially in the historic centres of cities and in communities in tourist areas.

Thus, the government now requires various things if you want to rent a property to tourists. First, the property must have a special registration number. This number, issued by the Tourism Register of Catalonia (Registre de Turisme de Catalunya, RTC), starts with the prefix HUT, which basically stands for “property for tourist use” in Catalan. Second, you must register the property with the regional police so you can register the details of the people who stay overnight in your property. Lastly, you need to pay the Catalan tourist tax (the IEET tax) on an ongoing basis.

As well as having to comply with these administrative requirements, you also need to take into account whether the property you want to let out is affected by a homeowner association. If you have an apartment in a building with common areas or a house or duplex on an estate with common services (pool, sport facilities, etc.), you and your property may be affected by the decisions of a homeowner association on what your property may be used for. Homeowner associations are increasingly voting to prohibit certain uses of properties. This often includes prohibiting owners from renting their properties to holidaymakers.

What can you do to protect your property rights in such cases? You need to seek professional advice to analyse exactly what options you have. We would be more than happy to provide you with this advice. Please contact us if you find yourself in this situation or have any questions.

Carlos Prieto Cid – Lawyer

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The advanced healthcare directive: help your family make the decisions you would want

If you become incapacitated, your loved ones may have to decide what medical treatment you should get and whether to turn off life-support. You can make these decisions easier for them by leaving an advanced healthcare directive, also known as a living will.

Who will decide for you if you become incapacitated owing to illness or injury? You can sign a document before a notary or witnesses that designates who will make decisions on your behalf and talk with the healthcare professionals who carry out these decisions. You can also state the personal criteria that should be taken into account for making these decisions, when, owing to your physical or mental state, you cannot directly express you will.

These personal criteria can refer to, for instance, your wishes regarding life quality in terms of your level of pain tolerance or functional independence. You can also specify where you want to spend your last days and in what health situations the personal criteria apply (dementia, irreversible illness, etc.).

Once you’ve specified who decides for you, the decision-making criteria, and when and why decisions should be made, you can give instructions on the health procedures you want carried out. For instance, you can request that your life not be uselessly prolonged by artificial means. In your living will, you can also state if you want spiritual care in your last moments and if you want to donate your organs.

In Catalonia, to facilitate the access of doctors to this personal information, the advanced healthcare directive can be registered in the Department of Health’s Register for Advanced Healthcare Directives. By registering the document, it is included in medical history shared with patients. This information can also be accessed by authorised professionals elsewhere in Spain.

Carlos Prieto Cid – Lawyer

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Why you should check that the details on your property in the Land Registry and the Cadaster match

As we have commented previously on this blog https://blog.tarracoiuris.com/en/?p=118, there are two systems for registering and guaranteeing titles on real property in Spain: the Land Registry and the Cadaster. Having two systems means inconsistencies in the data registered can arise.

The details registered can differ from one system to another because both the information source and purpose differ in each system. The Cadaster provides property details to the Spanish Tax Office for collecting tax. This information comes from tax declarations and inspections. In contrast, the purpose of the Land Registry is to guarantee and protect property titles. Titles can only be registered by submitting public instruments. The information in the Land Registry is therefore more rigorous than that contained in the Cadaster as the information source is subject to stiffer requirements.

To help make the data stored in each system consistent and so this data better reflects reality, the Spanish government introduced in 2015 a straightforward procedure for coordinating the data in both systems. This procedure has been further extended. You can now update the data registered to make it consistent in both systems and ensure it reflects reality. The procedure is quite automatic and gives rise to numerous advantages. If the data registered is coherent and faithfully reflects reality, selling your property or transferring it in any other way (by mortgage, gift, etc.) becomes far more straightforward. These advantages affect the property’s market value.

So I encourage you to check that the details on your property in the Cadaster and the Land Registry are the same and do reflect reality. If you find otherwise, get in touch. We can help you rectify the problem. By fixing the problem, you will have peace of mind that your property rights are fully protected by the Land Registry and that you are only paying the tax you lawfully owe.

Carlos Prieto Cid – Lawyer

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Tax obligations for owners of real estate in Spain

Owners of real estate in Spain must pay tax on their properties regardless of their place of residence. In practice, resident and non-resident property owners pay the same taxes in Spain, although the names and collection mechanisms of these taxes differ.

A real estate property can generate earnings, either through renting or because of sale. Also, under tax law, just owning a property generates a notional income that is taxable. All these incomes must be declared in Spain, and Spain is the competent state for collecting any tax due. This is according to all the double taxation treaties signed by Spain. These treaties follow the general OECD model under which income from real estate property can be collected in the country it is in, regardless of the country of tax residence of the taxpayer.

In addition to paying any income tax due to the national Spanish tax agency, the property owner must also pay all other taxes due to other agencies. This includes, for instance, the municipal property tax collected each year by the local council. And, when you sell your property, the capital gains tax you also should pay to the council.

Lastly, in Catalonia and some other autonomous communities, there is a further tax on an activity widespread among foreign investors in coastal properties: the short-term leasing to tourists. The tax is a small amount due per night for every person staying in the property, which must be registered for tourist use with the local council.

Carlos Prieto Cid – Lawyer

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The recognition of notarial documents overseas

Expats with financial or family interests in their home countries often have to go to local notaries to sign powers of attorney and other formal documents to handle legal matters in their home countries. Differences between the legal systems mean that these types of formalities generate more complications than we’d imagine possible.

The main problem arises when the law requires that a particular document be executed as a “public” notarial instrument for it to be valid. In Spain, for instance, legal transactions such as granting powers of attorney and transferring real estate are only valid if they are executed via a notarially-recorded “public document”. But there are countries, e.g., most common-law jurisdictions, where this type of “public document” does not exist.

What makes a document “public” in countries where this type of instrument does exist depends on the law in each country. In Spain, notarial documents are public documents, which guarantees that the facts stated in these documents are true in accordance with what the notary public has personally verified, and that, from a legal point of view, the statements of intent made in these instruments are authentic. Basically, all these characteristics give such documents privileged probative force.

We can only be sure that a notarial instrument will be recognised as such and, therefore, as a public document in the country where it is to be used, if the notary public who authorises it confirms in the document itself that all the legal requirements have been met, both in the jurisdiction it was executed and where it is to be used. In these cases, as a complement and guarantee to the service provided by the local notary, it is advisable to seek the advice of a lawyer who knows both legal systems.

Carlos Prieto Cid – Lawyer

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Avoid causing problems between your heirs over the inheritance you leave them

A common cause of family rifts is the distribution of inheritances. Before we die, it is our responsibility to take one of the many measures available to make sure such conflicts don’t happen.

Joint ownership is by far what creates the most problems we encounter on a daily basis at our law firm. Joint ownership of real estate, bank accounts, vehicles, etc. can tangle the associated financial, administrative and fiscal red tape so much that the property loses just about all profitability and may even lose value.

People rarely enter joint ownership arrangements voluntarily, which shows how undesirable they are. They normally arise out of an unwanted event of legal significance: a divorce, a company winding up or someone passing away. In this post, we look at joint ownership arrangements arising from inheritances.

The most straightforward and economical way of distributing an inheritance is by making a will. To guarantee the effectiveness of the will, first you need to get your lawyer to check its content. Second, you need to execute it as a notarial instrument (done with a notary public).  In a will, an inheritance is usually distributed by means of “legacies”, i.e., the universal heir to the entire estate is required to distribute certain property to certain people. To ensure the heir complies with this obligation, an executor can be appointed.

Another way of sidestepping problems between successors is to make gifts while you are still alive. A similar amount of tax is paid when property is transferred as a gift to when it is inherited. The advantage is that you can finalise everything while you are still alive. The disadvantage is that, unlike with a will, if you change your mind, you can’t change the situation without the help of the beneficiary.

Either way, if we want our memory to live on in a harmonious family, it’s worth distributing our inheritance in the most impartial way possible prior to our death. Our heirs will thank us for it.

Carlos Prieto Cid – Lawyer

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