Have you inherited or sold a house ? May be worth looking for a rebate of your plusvalía tax...

If you have inherited or sold a house in the last years, it might be worth investing some time on looking into your plusvalía tax. You may have a right to get it returned.

Spanish Law establishes that if you have inherited or sold you have to pay a tax called "municipal surplus value" for the profit obtained with the transmission. To do this, after each sale or acquisition the seller was given one month to produce a solicitude into the Town Hall where the home is located, which will issue you an invoice to pay the tax. To make it more complex, the Law also makes responsible the purchaser for the unpaid plusvalia invoices when the seller is non resident in Spain, so a very common practice is that the purchaser or the purchaser´s solicitors takes over the process on paying or making that solicitude with the local authority.  

In 2017, after a long serial of Court Cases within the administrative courts, the Spanish Constitutional Court established that this tax was unconstitutional in cases where there was no capital gain from the transmission. That is, in those cases that purchase price (or valuation of the estate, in inheritance) was the same or higher than the selling price. This bring along much more discussions and litigations with the local tax authorities.

 Just more recently, in October 2021, the Constitutional Court has established that the tax itself is illegal, not only when there is no gain, but in all cases. The Court considers that calculation system to obtain the amount payable does not guarantee respect for the fundamental principle of being based on the economic capacity of taxpayers. So, this has been something like an eartquake in the real estate law and municipal financial departments, even though the sentence sets that it will only would be considered null and void those bills that were not consented (appealed or discussed or not payed) at the time of the sentence being awarded. 

At the risk of leaving the Town Halls without a very significant source of income, on November 10th, 2021, the spanish government approved an urgent new regulation regulating the tax, under the form of a Decree. However, this new regulation has been appealed again before the Constitutional Court on the understanding that it has formal and material defects that make it unconstitutional.

In the event that this new appeal against the new regulations prospers, as it is quite likely to happen, those taxpayers who have filed an appeal or challenged the invoice or bills of plusvalía, will have a possibility that they have not to pay or to get a return of the amounts payed in. 

For all this reasons, we consider wise to study the situation of every deal that has been done in the last years and particularly, from October 2021 onwards. You may come with the surprise that you have a right to obtain a rebate. As well, if you are selling or inheriting a property, seems to us a good idea consider the possibility of lodging a claim against the plusvalía invoice just in case that the appeal becomes succesful, as it seems will happen.

We can certainly provide you with the best advise on how to do this. Do not hesitate to contact us and ask for further information. 

Javier Herrera Llamas 

 

 

Licence of First Occupation: Why it is important!

What is a Licence of First Occupation?

A Licence of First Occupation is also known as Habitation Licence or Certificate of Habitation, in Spanish Licencia de Primera Ocupación or Cédula de Habitabilidad.

The Licence of First Occupation (LFO) is an administrative licence which the town hall, where the property is located, grants and verifies the development is in full compliance with the Building Licence (BL) and all associated Planning laws…

A Licence of First Occupation is basically a document consisting of one or more pages issued by a town hall and addressed to the developer who applied for the licence which states that the Licence of First Occupation has been granted for the property or group of properties in the application…

A LFO only applies to new builds or off plan property, not to resale. A LFO is important as it draws the line between a new build being legally fit – or not – for human habitation. A lack of a LFO may imply serious underlying problems. You need a LFO to be connected to utility companies…

In theory, a First Occupancy Licence is required before you can live in a newly-built property, as a property is not legally recognised as fit for human habitation without one. That said, thousands of newly-built properties up and down the land are being lived in despite never having received an LFO.

In theory, you also need an LFO if you are going to rent out a property, both for holiday lettings to tourists, and for long-term rental contracts (more than 12 months). For landlords renting without an LFO could be an issue from an insurance perspective.

In many parts of Spain, Mijas included, there are quite a number of properties, for a variety of reasons, that do not have a Licence of First Occupation. There are also many property owners who are not aware that they do not have this licence. Many properties have been sold and resold without the Licence of First Occupation.

How is this possible?

Basically, if a Spanish mortgage is not required, then the non existence of this licence will not necessarily be noted. Not all lawyers stipulate the requirement of a Licence of First Occupation for completing a property purchase.

So, why do we consider the Licence of First Occupation to be an important document, when deciding whether to but a particular Spanish property or not? One word. Resale.

The non existence of a Licence of First Occupation may make resale more complicated.

Let me explain …

Although it is legal to complete a Spanish property purchase without a Licence of First Occupation, it has numerous legal and practical drawbacks which your lawyer can explain in more detail. Here are a few examples:

• You, or a any other potential future buyer, will not be able to take out a mortgage on the property or remortgage it.
• You will not necessarily be able to benefit from the official utility supplies. Changing accounts into your name will be complicated. Some lawyers are able to organise this for you but there is never a guarantee you will not have problems in the future.
• Any future prospective purchaser, or their lawyer, will haggle with you and only pay a lower purchase price if you lack a Licence of First Occupation. In a resale, the new purchasers will suffer the same problems to secure finance by means of a mortgage loan. Not having a Licence of First Occupation implies that you are actually reducing the base of potential purchasers for your resale.
• If there are planning issues at any stage, the Town Hall can set a charge against the property and you, as the new owner, may be held liable to pay the fine for the planning illegality.
• You cannot legally rent out a property without a Licence of First Occupation .

So there you have it. Some of the reasons why you really should ensure that any property you are purchasing in Spain has a Licence of First Occupation, whether you require a mortgage or not!

One last tip. If you are told that the Licence of First Occupation has been applied for, ask why it has not already been granted and ensure your lawyer looks into it for you. There is often a reason why it was not given in the first place. Do not leave anything to chance.

Javier Herrera

Residence Visa for retirees in Spain

If you’re considering making a new life for yourself in Spain, you may be eligible to ask for residence for retirees. 

 

Retirees or others who have the financial means to support themselves without working can apply for residence in Spain for non-lucrative purposes. 

To qualify, you must show that you have the means to support yourself and any dependents without working. The monthly minimum income is  aproximately €2,500 for an individual and €650  for each dependent. 

In addition, citizens of non-EU countries (including the U.S. and Canada) must show proof of private health insurance valid in Spain. Other requirements include a valid application form, a certificate of good conduct issued by the police in the city (or cities) where you’ve lived over the past five years, and a medical report, among other things.

You can submit all the required documents to your nearest Spanish embassy or consulate in person, and by previous appointment. 

Please note that the Spanish Embassy or consulate will evaluate if your profile is corresponding to somebody that is retiring in Spain. If they consider that you are going to develop an economical or commercial activity in Spain or out of Spain (selfemployed, business, etc), they probably will deny your solicitude.

Processing your application may take up to three months. After your application has been approved, you have one month to collect your entry visa from the consulate and then three months to enter Spain. Initial visas are for one year.

We can certainly help you on guiding through this process so that your solicitude does fullfill all the requirements set by the spanish authorities and you find no unpleasant surprises.

Javier Herrera Llamas

Non resident selling a property in Spain. What about Capital Gain Tax?

When a non-resident sells property in Spain, they buyer is obliged to retain 3% of the price and pay it to the tax authorities to cover the vendor’s tax liabilities. 

So, if you are non resident in Spain, be prepared to be withold an amount of 3% of the price of the sale. 

This tax is the vendor’s capital gains tax, which has to be declared in his or her annual income tax returns (known in Spain as La Renta), and is taxed at 19%. Non-residents used to be taxed on capital gains at 25% but this was reduced to 18% (same as residents) as of 01/01/08, then put up to 19% on 01/01/10, and finally raised to 21% in 2012 - 2014, and then reduced to 20% in 2015, and finally, 19% for 2016 up to day .

The reason for this is that the taxman wants the money in case the vendor does a runner without paying his taxes, something that almost all non-resident vendors have done in the past.

(Please note that this retention does not cover the vendor’s ‘plusvalia’ tax liability, which is paid to the town hall and is a separate matter. 

See here: http://javierherrerallamas.blogspot.com.es/2013/08/plusvalia-municipal-capital-gain-tax.html)

But not everything it is lost. There are somes ways to reduce your tax exposure. Mainly there are three different ways:

Reductions on when the property was purchased

Those who bought a property after the 31st of December of 1.994 will not be entitled to any reductions. 

Those who bought in 1.987 of after will enjoy of a reduction of 11.11% on the net gain for every year they have owned the property before the 31st of December 1996 after taking the first two years. This means that a seller starts benefiting from this reduction, his first 11.11%, if he bought in 1.994, 22.22% if he bought in 1.993 and so on. 

Those who bought before the 31st of December 1.986 will be pay not tax, as the cuttoff point is 1.996. 

Reductions on the inflationary movements

This reduction is obtained by applying a percentage to the l purchase price, raising the original price to the level of the value of the peseta today. This inflationary correction factor is applied to the entire purchase price, as well as to all costs surrounding the purchase. Likewise, improvements and extensions on the property will have to be updated inflation-wise.

The correction factor to be applied will be the following:

Reductions on the inherent costs of the purchase, works done on the property and others.

Costs of the purchase: these would include VAT or Transfer Tax, Plusvalía Tax (where paid by the buyer), Land registry and Notary fees, lawyer´s and real estate agent´s fees, where applicable. 

Extensions and improvements done on the property: These should not be confused with maintenance and conservation costs, as these are not deductible. In practice, there is no clear cut distinction between one and the other. 

Examples of not deductible costs are repair or maintenance works, such as painting, repairs on heating systems, lifts, plumbing and so on.

Examples of deductible costs are the installation of iron bars, doors, double glazing windows and similar improvements on the property.

It well may happen that your tax bill is lesser than the 3% withold. In that case, you can apply for refund. This could take sometime depending upon the tax office; some are quicker than others. In theory it shouldn’t take more than a few months, though some places seems to be taking up to 16 months. Around a year seems to be quite common. So, usually, your money returns to your bank account by a Bank transfer. 

But also could happen that vendor’s tax bill is greater than the 3% retention. In this case, even when it is very unusual, the Spanish taxman may try and come after you for it back home.

But if you don’t hear from them within 4 years you know you’re safe, as that is the legal deadline for the tax authorities to take action.

Javier Herrera Llamas

Why should you make an spanish will for your spanish estate

I can not recall how many times I have advised all adult persons to make a Will. But a thing worth saying is worth repeating. So, You really should make your Will

Tradicionally, our advice to all our clients was, if you have property in more than one Country, you should make a Will in every Country where you have assets. Seems to make sense, that if you have a few millions, or a few pounds, in England, Ireland or elsewhere, make an Will, then if you also have a villa in Spain, or a small sum in a Bank there, make a Spanish Will.

That way each jurisdiction can be getting on with the formalities of putting the terms of your Will into effect as soon as possible after you pass on, with no need for Spain to wait until the your national Probate Registry and Tax man have finished with your papers in your country.

The European Succession Regulation No.650/2012 (or “Brussels IV”) came into force last year, but England, Ireland or Denmark are still not signatories to it. This new regulation it is supposed to make things simpler for other citizens with property in the other Countries of Europe. Basically, you can now say in your national Will that it should dispose of all your Assets, both in England and Europe and that the Laws of Succession of your country should apply.

As an example, under the Laws of Succession of England, you can leave your belongings to whoever you choose in your Will. There is no requirement in England, as there is in other Countries [including Scotland even] that certain persons – usually spouse and /or children – should take a share of your estate as a matter of law. So if you are English, make your Will in England and elect English Succession law, then Brussels IV will tell the Spanish authorities that they must not seek to impose their own usual forced heirships upon your wishes.

Unfortunately, there will always be room for problems to arise. There are many legal issues arising from scenarios involving unusual combinations of place of residence, country of citizenship, and country of domicile, from which scope for long argument and expense can be identified.

The first thing you will need to prove to the spanish authority is that your Will was validly made in your country. He will not so much be impressed by the fact that the Will is stated to have been signed in the presence of two witnesses, as alarmed by the fact that it may not have any Notary stamp or certificate – They may also say;  “OOer, I’ve never dealt with this before. And the Will is in English. I can’t read English. And what is the Probate Registry of Leeds, Dublin, etc, and what are its powers?”

There are likely to be other areas of “mismatch” when seeking to persuade spanish authorities to   accept a Will made under a foreign jurisdiction as valid.

And some foreign requirements as to wills seem very sensible. In the Philippines, a blind person cannot make a valid Will unless “Article 808. If the testator is blind, the Will shall be read to him twice; once, by one of the subscribing witnesses, and again, by the notary public before whom the will is acknowledged” (Civil Code of the Philippines).


In Ireland, a blind person can make a Will but it cannot be admitted to Probate unless one of the witnesses gives a sworn statement about what took place. So again, problems can be envisaged in such a case where the Will maker has outlived his witnesses and no such sworn statement was made.

This could, at the end, lead our clients to follow a more expensive and time consuming procedure in order to register the property in Spain, than simply executing a properly laid out spanish will. So, our conclusion remains that new Law does create also new problems. So, it still remains simplier & cheaper for those who have estate in Spain dealing a separate will regulating separately only their spanish estate. 

Also, it is still advisable to revise your previous will to ensure that is adapted to the Brussels IV new regulation as we pointed out in our post before:

http://javierherrerallamas.blogspot.com.es/2014/12/have-look-at-your-spanish-will-before.html

So, for practical reasons, we keep on insisting on making spanish will to arrange the inheritance on spanish estate.  It will save time & money.

Javier Herrera Llamas

Off plan properties. The banks can held responsible for the moneys invested.

We have very often found the case of clients that, some time ago, have invested into an off plan property that was never built or delivered in time. 

It is not strange to find out that the developer went bankrupt sometime ago, leaving an empty plot, or in the best case, an unfinished property. When the financial crisis struck in 2008, many developers collapsed, leaving housing projects unfinished. Most new developments were sold off-plan.

 Property-buyers who had put down cash deposits were at the end of the list of creditors, and thousands lost their money.

Until recently, whenever we found this situation, we have been continuously advising that there was not a clear & effective legal solution to recover these moneys. 

This fortunately, has changed dramatically for the better. 

After a a Supreme Court ruling in Spain last year, for the last 14 month, The Spanish Courts have been continuously confirming that the bank where the moneys were deposited were legally bound to guarantee those funds to the purchasers. In case that the development did not get completed in time, or that the developer went bankrupt or alike.

Just as an example, Banco Popular, BBVA, Banco Mare Nostrum and Valencian Building Society S.G.R. have been ordered to pay over 2 million Euros plus interest, to 40 British investors.

The Courts are making clear that Off-plan property buyers in Spain have an “inalienable right” to have their off-plan deposit underwritten, rights that cannot be waived by banks who, having issued a collective insurance cover failed however to grant individual policies to buyers. This also includes “touristic apartments” as they are to be used by the owners as holiday homes, irrespective of their use as an investment for the most part of the year.

Banks have been ordered to pay the Courts the designated amounts, or face enforcement proceedings.

These decisions of the Courts have set a precedent that is fully applyable to similar cases with a very solid possibility of success.

We are consequently suggesting our clients to take another look at the matter, with views to obtain a compensation in Court for their investment. 

So, if you are in such a situation, please do not hesitate to contact us. We will be studying your case without compromise. Please note that there may be statuory limitations and deadlines applying to your case. So, do not leave it too long. 

Fortunately, sometimes, the Law changes for the better.

Our Fees

Abraham Lincoln once said that an "attorney's time is his stock in trade".


Our lawyers are retained to provide their time and apply their knowledge, advice, and thoughtful consideration to our clients solve their problems. An attorney's hourly fee should fairly reflect his level of skill and experience.


Initial Consultation

There is no lawyer without a client. The client goal is key to define success for the work of the Solicitor. We need to understand fully what are your needs, apart from the facts of the case, to be able to provide you with the best service.

We used to offer our first consultation free, but unfortunately, we are not doing it anymore. Other clients, that have already contracted our service, had to wait more time to see their matters being expeditively advancing because we were taking time to attend this free of charge consultation. 

Our first consultation meeting is estimated to be 1 hour billing time, so that we can meet you in person (or online) to review documents & your situation. We also require the fee being payed in advance, but we will discount this amount from any legal matter that we undertake, so we can certainly keep saying that is free (provided that you decide finally to be a client of ours). 

Please understand that some cases are more complex and will require more time. In those cases, we will tell you in advance an estimation of the fee that might be required.

Hourly Rates

This is our standard billing criteria. We will charge our clients for the time that an attorney, paralegal, or law clerk spends in the prosecution of his or her matter. Our hourly rates are 180€ professional solicitor and 90€ paralegal assistant, with increments of minimum six minutes (one-tenth of an hour), non vat included. We will gladly give you an estimate of the time expected for the case. We will also let you know when the time involved exceeds the estimation provided.


Services Offered For Fixed Fees

For conveyance cases, wills and straightforward inheritance work, we have flat fee rates available. The amount of the fee depends upon the conveyance value and the complexity of it. Whenever possible we will offer you a fixed fee for dealing with the whole of your case.

Please note that the fixed fee could be revised only if the nature of the work changes substantially, for example, if we discover title problems when dealing with the purchase of a property and you decide to continue with it asking us to resolve the problems before you purchase, in the case of an inheritance when new assets appear during the procedure which where no disclosed when the initial budget was prepared, etc. In any case, we will let you know in advance prior to compromise new fees. 

Correspondence service fee

It is a common policy after a conveyance to address all postal and electronic correspondence from our non resident clients to our personal address office. This correspondence usually include notifications from communities, utilities, townhall, tax authorities, etc… and the service entails us a labor cost and added time in classifying the relevant information and advising and informing our clients about it.

We are offering a six month free correspondence service to our clients after we deal a conveyance process for them.

After the six months period of free corresponding service, we are offering our clients to continue with this service for a monthly fee of 30 euros + VAT, that will be automatically deducted in your bank account if you do not give us difference instructions about it or alternative correspondence address of your preference to change them.

If you are already a client of us and we have been receiving your postal and electronic correspondence and notification in the past and now, please note that we will start charging your bank account for this service starting May 2016. Otherwise please let us know an address of your convenience to modify it.

Javier Herrera Llamas