Tag Archives: rent

The risk in buying inherited real estate

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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

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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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Tax obligations for owners of real estate in Spain

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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 red tape involved in letting a holiday home in Catalonia

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Renting out a coastal property to holidaymakers in summer has become quite complicated, although most foreigners are unaware of the many obligations involved.

In recent years, the Catalan regulations on letting tourist accommodation has become particularly strict. The main political reason for this toughening up of the legislation is a cracking down on tax evasion as many letters of holiday accommodation do not declare their rental earnings in Spain (which is required by law, regardless of whether the owner of the property is a resident in Spain for tax purposes).

However, there is an even more compelling reason for the Catalan government to want to control access to the holiday accommodation market. On the coast and in the old parts of the larger cities, particularly Barcelona, tourist flats have become a social problem, owing to the not always civil behaviour of the holidaymakers (who change from week to week), and also an economic problem, owing to the unfair competition such accommodation represents to the hotel sector.

Before you can let your property to tourists, you must register it in the local council’s register of tourist accommodation. Not doing so makes you liable for some very stiff fines (even for just advertising the accommodation online without anyone actually coming to stay). To be listed in the register, you need to certify that the dwelling complies with certain conditions of habitability and energy efficiency. You also need to register the property with the tax authorities so the corresponding tourist tax (paid per night by each tourist) and income tax can be collected.

Registering a property as tourist accommodation can result in unexpected complications (which may even make it impossible to let the property). If you have a flat or house you want to let to tourists, we offer services to assist you in registering the property with the local council, drafting the letting agreements and ensuring compliance with all the official and tax obligations for total peace of mind.

Carlos Prieto Cid – Lawyer

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New campaign of the Tax Agency to demand the payment of income tax to non-residents

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Even if they are fiscally non-resident, owners of real estate in Spain must file a separate income tax return each year and pay the so-called income tax for non-residents (IRNR) for revenues earned from the property .

The Spanish state tax authorities have not been very demanding until now regarding the payment of income tax to fiscally non-resident property owners. Many homeowners are not aware of the existence of this tax liability and can not understand why they have to file a tax return and pay this tax in Spain, despite the fact that they are not getting any income. They come to Spain just to spend their holidays: they do not work, they do not receive interest income from cash deposits in the bank, they do not rent their property. However, the mere possession of a property in Spain, as in other European countries, is considered by the law as income, even if the property is not rented. State tax rules require that the owner gets benefit of his own real estate anyway, even though these objects are not leased. The only exceptions are the cases in which the property is one’s own domicile or if the property is devoted to economic activity. Both cases can never happen with non-residents.

There is another tax, the municipal tax on property ownership, the so-called IBI (Spanish Impuesto Sobre Bienes Inmuebles), the payment of which the local municipality requires to property owners each year, and which is calculated and declared by the administration itself. In contrast, in the case of the state income tax for non-residents – IRNR-, the tax inspection is not mandated to prepare tax returns for the non-residents, but it is the taxpayer himself who is required to provide an annual tax return, and calculate and pay the property taxes on its own initiative.

This month, many homeowners who spend their holidays in their own apartments or private homes in Spain, received a letter from the Spanish tax authorities, reminding of the existence of the tax on the income of non-residents and the obligationy of paying it. Earlier, the state tax agency was very generous regarding this tax. Now, however, given that the economic situation is so bad, it appears that IRS has become stricter, requiring submission of tax returns and payment of this tax by all non-residents who own property in Spain.

Carlos Prieto Cid – Lawyer

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If I rent my holiday house in Spain, what kind of taxes should I pay?

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Most tourists who visit Spain choose for their accommodation a holiday flat or a holiday home. If we own a property in Spain and we want to rent it during the touristic season to others, we must know what taxes we are required to pay to the Spanish public finances.

The most common situation is that we rent a holiday home for a period of time not longer than three months. In this case, the income from the leasing of this property will always be considered property income and must be included in the annual declaration of our income tax. The expenses necessary to maintain the holiday home and for its promotion in the touristic market will be deductible from this declared revenues, but only if these expenses are billed in the time period in which the holiday house or apartment is leased to a third party. Nevertheless, we must not forget that even in periods when the holiday homes are not rented, they generate anyway revenues that must be declared according to the income tax regulations. That is because the Spanish tax laws regard as property income the mere possession of a property that is not used as regular residence, also when it is not leased. This fictitious revenue is the amount that results from applying a small percentage to the cadaster value of the property, a target value that established by public finance authorities under certain valuation rules. During these periods of time when the property is not rented, no deduction of expenses allowed.

Presenting an annual statement of the income tax of individuals to the Spanish Tax Office is mandatory for all owners of property in Spain, if this dwelling is not officially considered the regular residence. This means that all owners of a holiday home in Spain, whether resident or non-resident, whether or not renting it, are anyway required to file annually with this statement. Many foreign owners are not aware of this obligation. They think everything is solved, when paying the community tax (called IBI) and they oft forget to pay this compulsory income tax.
Despite all this, holiday house renting could be considered an economic activity and would have to be declared as such according to the income tax regulations when entered into under the following circumstances:

  •   There is at least one room dedicated exclusively for the management of the activity.
  •   There is at one full-time person hired to work in the development of the activity.

Everything we have said refers to income tax of individuals. With regard to the added value tax, the general rule is that renting of holiday home is considered tax-exempt as long as the landlord is not required to provide any of the services of the hotel industry, such as cleaning the dwelling and changing the bed linen and towels at least once a week. However, we must clarify that although we rent the house only for one week, the law does not consider as complementary services of the hotel industry both cleaning the inside of the apartment and changing its bed linen and towels at the time of the check-in and the check-out of the period hired by each tenant, as well as cleaning the common areas of the building and the technical assistance services for repairs and maintenance of plumbing, electrical, glass, blinds, locks and appliances.

Carlos Prieto Cid, Lawyer

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New legal requirements for holiday homes

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Our costs welcome millions of visitors during each season. Not all of them are owners of an apartment or a property or stay in a hotel. The majority of them decide to rent a holiday home during the stay. A new legislation fights against the black market on this sector and wants to guarantee the maintenance of our touristic brand.

The new legislation addresses to the touristic sector not (like in the past and without any great success) to the housing sector itself. This law considers a “vivienda de uso vacacional” those properties that are conceded by the owner, directly or indirectly, to other persons in exchange of a consideration. Because of this, every accommodation must have a “cédula de habitabilidad” and ensure that there is enough furniture and equipment according to the number of offered places for visitors. The “cédula de habitabilidad“ is a proof of flat’s habitability which is prepared by the architect and has to be proposed at local housing authority.

How to convert a house or an apartment into a „vivienda de uso vacacional“? The law simplifies this procedure by using the so-called „régimen de comunicación previa“. Hereby it is only necessary to display the intention to rent the flat at the local administration and without any delay it could be started with renting. In this display the owner declares the responsibility to ensure the necessary amount of above-named equipment. He also needs, besides the identity card, the „cédula de habitabilidad“, a confirmation of energy supply and an insurance contract with an adequate coverage.

In this point the municipality is getting involved. This means that it is possible that the community charges a certain fee which could be established in the financial regulation. It would be desirable that administration wouldn’t take advantage of this to generate new revenue. The law intends to secure the quality of the offered holiday homes and it doesn’t want to increase costs which could have the opposite effect namely a promotion of shadow economy. The success of this law depends on an easy handling without further costs as well as on a resolute control.

A holiday homes status as a “vivienda de uso vacacional” means that it could not be turned into a main or secondary residence. The owner has to register guests’ personal data and, in accordance to local security service, send them to the central administration of the police. The stay in a holiday home with this status could not last longer than three months.

Another question that should be answered is that it is not allowed to split the holiday homes. Some owners of larger estates usually rent single rooms to different persons. Or in some cases there are different segregated fully furnished apartments. In these case the law states that rent is only possible if there is an own „cédula de habitabilidad“ for each lodging. If there is none, the „régimen de apartamentos turisticos“ is applicable. For this it is necessary to show a reception with at least 10 square meters. Furthermore the minimum standards for hotels like weakly cleaning are to be maintained.

Carlos Prieto Cid, Lawyer

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Legalization of buildings outside the law

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Traditionally it has been possible in our country to legalize buildings outside the law through the mere passage of time. However, the Law 8/2011 has added new requirements when recording new buildings in the register of deeds, giving more legal security to the system.

When selling a property, the buyer usually requires financing. To obtain financing is not only very difficult nowadays, due to the current banking situation, but also virtually impossible if the buyer can not offer a mortgage to the bank that lends him the money. To make it possible for the bank to register the necessary property mortgage, the real value of the estate to be charged should be reflected in the register of deeds. This is only achieved when the elements that provide greater value to the property, that is, the existing buildings on it, are properly registered. To register these edifications, a notarial declaration of the new building is always been necessary and this document must be submitted to the register in order to be recorded, accompanied by many documents to control its urbanistic legality.

Despite this, there was always a back door to buildings that violated the law, which could end up sneaking in urban registration of the property, with the economic and financial consequences discussed above. The mere passage of time with no reaction of the relevant planning authorities, the municipalities, leads to the possibility of regularization of these illegal edifications. As the deadlines for the sanctioning procedures passed and the planning authorities could no longer prosecute these buildings, they could end regularized, if certain conditions were met. But in the present days, the last reform of the Land Act we mentioned above, has added a key requirement, prior to the possibility of recording the irregular building in the register of deeds: we should show a municipal certification defining the content of the situation outside the law of the building we intend to record.

Article 20.4 of the Act indicates that
“4 …. in the case of constructions, buildings and facilities for which no appropriate measures to restore legality involving urban demolition can be taken, because the relevant limitation period has passed, the registration record of the completion of the work shall be controlled by the following procedure:

  • a) the notary deeds with the statement of a new building can be recorded in the Land Registry if they are accompanied by a certificate issued by the City Council or by a competent technician, or a descriptive notarized certification of the property or a cadastral descriptive and graphic certification of the property, when these documents confirm the completion of the work in a specified date and the description coincides with the title. For this purpose, the Registrar shall verify if there is a notation in the Register of Deeds because of the initiation of an urban discipline procedure for the property subject of the construction, building and installation in question and that the site is non demanial or affected by easements for public use.
  • b) The registration entry will record the outside-the-law position of all or part of the construction, building and installation, in accordance with applicable urban management. It will be necessary to provide the administrative act by which the situation is declared outside management, with the proper delimitation of its contents.
  • c) The Registrar shall report to the City the respective entries in the cases included in previous issues, and such notification will be recorded in the inscription”

This new regulation, in force throughout the state, which requires prior to registration the provision of a municipal certificate on the content of urban illegality is coherent with the goal to be reached with the law of passing “registration measures designed to ensure and strengthen certainty in the real estate contracts and business, through the Land Registry” and “emphasizing on register protection measures which aim to prevent and prosecute in the future situations that occur today and that are impacting very negatively on investment in real estate, both domestically and internationally“.

Let us hope that eventually these legal measures have the desired effect and strengthen the security image as necessary to encourage property investment, especially by foreigners.

Carlos Prieto Cid, Lawyer

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Income Tax for foreign property owners

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Foreign nationals who are not registered for tax in Spain but own property in the country must submit a tax declaration for their income tax to the state tax office every year. This involves the so-called Impuesto de la Renta de No Residentes (Income Tax for Non-residents).

Many property owners do not understand why they must declare and pay tax in Spain even though they earn no income here because they only come here for holidays and therefore neither work nor are involved in any economic activities or receive interest from banks on financial investments. There is usually no rental income from property either. Despite this, in Spain (much like in other European countries), simply owning a property is regarded as income, even when the property is not let or leased out. The state tax system assumes that a profit is made from the property even if it is not rented out, it is not the own home or if the property is not dedicated to economic activity, which for non-residents can never be the case.

How is this fictitious return calculated? Spanish law stipulates that income earned from the simple possession of a property equates to a certain percentage of its cadastral value. This percentage is either 2% or 1.1%, depending on the year in which the Spanish Land Registry (or rather, the respective municipality), updated its property values. The Land Registry (Catastro) is a national register of properties, answerable to the Spanish tax office, which gives the authorities information about these properties (owners, size, use, year of construction, boundaries, etc.). The information stored at the Land Registry can be submitted by Land Registry officials themselves, the municipalities or the owners of the property. One of the most important pieces of information on every property is in fact the cadastral value. This value is dependent on many other objective details and here on the coast can generally be a lot lower than the market price that we would set for the property.

Despite this, this objective value is decisive for almost all authorities and provides the basis for many taxes, including income tax for non-residents. This percentage of the cadastral value is therefore the basis for income tax for non-residents, which is currently 24%. Every year, the owners must pay the resulting sum by 31 December the following year. This means that foreigners who own a property in 2011 must submit their tax declaration to the tax office and pay the tax by 31 December, 2012. In 2008, the tax office changed the forms for this declaration, which caused problems for many foreigners who did not hear about this amendment in time. Until then, Form 214 was used, but now Form 210 must be completed. The change was a consequence of recent tax reforms, which saw the abolition of property tax. However, the tax for non-residents was retained because it is regarded as a form of income tax rather than a property tax.

Otherwise, for non-residents there are only the local rates, the so-called IBI, which are paid as a municipal tax that every municipality demands from property owners each year and which is calculated and demanded by the local authority itself.

Carlos Prieto Cid, Lawyer

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Buying property without risk

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Before buying a property in Spain or signing a contract agreeing the sale of a property, it is important to be aware that, without the necessary guarantees, this signature can represent a major risk. The cost of consulting a lawyer is very small compared with the substantial costs arising from any possible legal proceedings resulting from a legal dispute. However, legal disputes are very easy to avoid if you receive the correct advice beforehand.

The services of a lawyer during a transfer of ownership can cover the following:

Prior inspection of the property:
– Register details: ownership, description, liabilities and tax liabilities
– Cadastre details: description, cadastral value
– Tax details of the property: outstanding tax
– Urban planning details of the property: valuation, planning, liabilities, legality of new building
– Horizontal ownership details: debts, special taxes and duties
– Condition of the building: implementation and monitoring during the preparation of a survey report
– Property value: implementation and monitoring during the preparation of a valuation report

Regulation of register, cadastre, tax and planning details

Financing and tax analysis of the project

Foundation and registration of a company with the tax office

Registration of natural persons with the tax office

Supervision of mortgage financing

Preparation and legalisation of documents
– Arrangement of power of attorney
– Application for apostilles
– Request for simple and certified translations

Drafting and verification of the private contract of sale, option contract, service contract etc.
– Drafting and negotiation
– Verification
– Guidance when signing the contract or signing in the name of the client by means of the power of attorney

Drafting and verification of certificates (for purchase, mortgage, acceptance of inheritance, building project etc.) together with the notary.
– Preparation and verification of documents necessary for issuing the certificate
– Drafting of the proposal and verification of the certificate text drawn up by the notary, based on the project
– Guidance when signing the contract or signing in the name of the client by means of the power of attorney

Processing of tax declarations and payment of tax

Entry into land register

Contracting party’s change of contracts with energy/water suppliers and phone companies etc.

Guidance in negotiating with the following persons/organisations:
– Seller/buyer
– Estate agent
– Builders
– Chief architect and technical architect
– Notary
– Registry officials
– Valuer
– Surveyor
– Bank
– Insurance company
– Property management
– Tax office
– Local council and other public authorities

Carlos Prieto Cid, Lawyer

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