The legal procedure is basically the same as that described in "BUYER´S GUIDE”. In this chapter we will only focus on those aspects that are of particular relevance to the seller.

Complications that are outside the expertise of even the most competent estate agent may arise in any sale. It is, therefore, advisable to contract the services of a lawyer to represent you in the sales process. Your lawyer will take part in the negotiations with the buyer to fixthe terms and conditions of the sale and will ensure that everything is legal and above board. More importantly he will prepare your Capital Gains Tax returns after the sale and negotiate with the buyer over who takes responsibility for the different payments involved.

Having all the necessary documents will help your sale to go smoothly. You should lodge the following documents with your lawyer or estate agent when you put your property up for sale; for absolute security you can make the documents available to both.

FEES

• 1. Estate Agent’s Fee

Estate agents usually ask for between 5% and 10% of the purchase price as their commission.

• 2. Legal Fees

These fees usually amount to about 1% of the purchase price + VAT.

TAXES

• 1. Capital Gains Tax (Impuesto sobre las Rentas Derivadas de Transmisiones de Bienes Inmuebles).

Capital Gains Tax is payable on the profits arising from any property sale in Spain whether you are resident or non-resident. However, different rates and payment methods are applied to residents and non-residents. Residents can also benefit from a series of deductions, which reduce or even exempt them from liability, that are not available to the non-resident vendor.

Both residents and non-residents are liable to pay Capital Gains Tax on their net profits. To calculate the net profits from a sale you take the original price you paid for the property, which appears on the title deed. Now, add to this all the expenses you incurred in the purchase of the property. Next, apply the official Inflation Correction Factor (Coeficiente de Actualización) to this sum. The resulting amount is now deducted from the price you have received for the property, along with any expenses you have incurred during the sales process, to give you a figure for your net profit. Non-residents pay 18% Capital Gains Tax on this net profit, while residents pay a lower rate of 20% as part of their annual Income Tax declaration.

If you are a non-resident, remember that your buyer will have to pay 3% of the purchase price directly to the Inland Revenue to ensure that any potential tax liability is met. In the event that your actual liability is lower than this 3% figure you can claim a refund of the excess once the sale has been completed. To do this you must complete tax form 212 and submit it to your Tax Office within 90 days of completion. The refund should be made within 90 days. In contrast, if your actual liability amounts to more than 3% of the sales price you must complete form 212 and submit it to the Tax Office along with the amount you owe.

There are a number of factors that can reduce the figure that the Inland Revenue considers as your net profit for the purpose of calculating Capital Gains Tax. Recent changes in Spanish legislation have complicated calculation of the reductions that are applicable, but the current situation for residents and non-residents alike can be summarised as follows:

If you had already owned your property for over 10 years on 31st December 1996, in other words you bought your property before 31st December 1986, you are exempt from paying Capital Gains Tax. If you are a non-resident who qualifies for this exemption your buyer will not be obliged to pay 3% of the purchase price directly to the Inland Revenue.

If you bought your property between 1st January 1987 and 31st December 1996 a reduction of 11.11% will be applied to your annual profits for each year of ownership after the first two years. So, if you purchased your property in 1989 the reduction will be applied for the period 1991 – 1996 which gives you a reduction factor of approximately 55%. Only the Inflation Correction Factor (Coeficiente de Actualización) will be applied for the following years.

If you bought your property after 31st December 1996 the calculation to find your net profit will be made as detailed above and no extra deductions will be applied.

For a full description of Plus Valía see Taxes Section in the "BUYER´S GUIDE”.

Pablo Álvarez
Abogado – Lawyer
pablo@alvarezvallejo.com
www.alvarezvallejo.com