Before you can buy a home in Spain you have to make some prior arrangements like opending a bank account, getting a Spanish ID number, and finding a lawyer to help you with due diligence and conveyancing. These are prerequisite tasks that need organsing at the very begining of your mission to buy a property in Spain, if you are serious that is. Don’t leave them until the last minute, when they might cause you stress.
Generally speaking people make poor decisions, and incur higher costs when they are forced to take decisions and make arrangements in a rush. And even if it is just to avoid the stress, start making these arrangements at the beginning of your property search, and continue making them as your search proceeds. You need to have everything in place so that when you find the right property you are ready to move with speed not haste.
Get your Spanish NIE number
One of your first tasks will be to apply for a Foreign Identity Number, which has its own guide here: Spanish NIE number guide.
Get a Spanish NIE number (ID number for foreigners)
One of your first tasks should be to apply for a Foreign Identity Number, known locally by its initials as an NIE number (Número de Identidad de Extranjero) , which has its own guide here: Spanish NIE number guide.
Find a lawyer look after your interests
At this stage, before you have found a property to buy, you do not need to hire a lawyer and make any payments, as there is always a chance that your property search will come to nothing. All you need to do is find a good lawyer who you can use the moment you find a property that you would like to buy.
You should also find out how much the lawyer charges and what services are included in the fee. Many lawyers charge around 1% plus VAT of the value of the property you buy, whilst others charge by the hour or a flat fee, for example 2,000 Euros plus VAT, irrespective of the value of the property you buy.
As will become clear from the section on buying it is important to find out what services are included in the price. Some lawyers include a post-purchase service such as paying the transaction taxes and inscribing your title in the property register whilst others charge extra for this. If these services are not included in the fee then you should consider using a gestor (administrative professional), as they are usually cheaper than qualified lawyers.
Define the ownership structure, if relevant
There are various options to choose from when deciding how to structure the ownership of a property in Spain:
- Sole ownership
- Joint ownership
- Spanish company
- UK company
- Offshore company
For most people, sole or joint ownership are the only options, but the more money you spend, the more the other options come into play.
Each option will have different fiscal and inheritance implications, and different running costs. This is a complicated question that needs specialist advice to be properly understood.
Most British people buy the simple way, which is in their own names, or shared with a spouse. In most cases this is a sensible option. However if you have any inheritance concerns – for example you are remarried and want your partner, rather than your children, to inherit the property on your death – then you need to consider one of the other options. You should always discuss your needs and circumstances in the context of Spanish inheritance laws with your lawyer before deciding how to structure the purchase.
If you are going to buy a small and inexpensive property then it is probably not worth your while going to great lengths to optimise the fiscal impact of your purchase. However the more expensive the property you buy, the more you have to gain from spending money on specialist advice to reduce your tax exposure. High net worth individuals with complex financial arrangements and large budgets will have the most to gain from optimising their purchase from a fiscal point of view, and will need to use lawyers who specialise in cross-border tax efficiency. Most British buyers, though, have a budget of 200,000 Euros or under, and may not have much to gain from spending money on specialist cross-border tax lawyers. However if you have children, and depending upon your age and other circumstances, it is usually worth discussing the issue of Spanish inheritance tax and how to minimise it with your lawyer in Spain.
Note that the advent of Self Invested Pension Plans (SIPPs) increases the opportunities for a wider section of society to buy in a tax-efficient manner, but it also increases the complexity of the issues to be considered. SIPPs are such a recent creating that there are few professionals in Spain who understand them, and most lawyers in Spain will never have heard of them. If you wish to use this vehicle for buying in Spain you will need to consult a specialist in the UK.
If you decide that your interests are best served in buying through a Spanish limited company then you will need to make arrangements well in advance of buying the property. Off the shelf companies can be bought in Spain, but in general the process of setting up a company takes longer and is more expensive than in the UK. If you are going to buy through a Spanish company then you will need to hire your lawyer at this stage to help you set up the company. Bear in mind, however, that tax laws in the UK are going through a period of change and may end up penalising UK residents who own property in Spain through a company. If you are tax-resident in the UK you should always consult your financial adviser before deciding how to structure your purchase in Spain. If you are or will be tax resident in Spain then you should consult your lawyer. If you are wealthy and have, or will have, significant assets in both Spain and the UK then you will need to consult a cross-border tax specialist.
Get a mortgage quote if you need one
Some people need a mortgage to help finance the purchase of their property but even those people who can afford to buy without a mortgage may benefit from using one.
The question of how to evaluate and arrange a mortgage for a is dealt with in depth in the Spanish mortgage guide. The point to be made here is that mortgages arrangements need to be made in advance of finding a property so that you are in a position to move with speed but without haste when you are ready to close in on a property.
People who are forced to apply for a mortgage in a hurry will not have time to shop around and find the best mortgage conditions. This makes them more likely to end up with an expensive and inflexible mortgage, which can add thousands of Euros to the cost of your property over the lifetime of the mortgage.
So do your research and shop around whilst you still have time, with a view to choosing a mortgage broker or lender and arranging the basic conditions of the mortgage by the time you have found the property you want to buy. Doing this also puts you in a much stronger position when buying from a developer whose mortgage you have the option of taking over. Having researched mortgages in advance you will be much better placed to evaluate the developer’s mortgage before deciding whether or not to take it.
Open a bank account in Spain
If you use a mortgage in Spain to finance your purchase it often makes sense to open an account with the bank that lends you the mortgage. In this case you choice of bank will be determined by the mortgage conditions you are offered. However if you do not take out a mortgage with a local bank you will need to do some research on the retail banking conditions being offered by different banks.
Retail banking services and charges vary significantly and it is important to look into these issues before you open an account and buy a property. One has to pay particular attention to the fees that different banks charge for receiving transfers from abroad and for issuing bank-guaranteed cheques, both of which can add thousands of Euros to the cost of your purchase if you are not careful. To avoid a nasty shock you need to negotiate these fees in advance with the branch where you open your account.
Look into foreign currency exchange if you need it
If you already have enough Euros you won’t need to think about how to buy them. However, if you have your funds in another currency then you have to buy Euros before you can buy property in Spain. That means organising the best way to exchange currency at the most competitive rate, with the lowest transaction costs. You can lose a significant amount of money if you use one of the expensive ways to convert currency, like your local bank.
These days there are new financial companies offering multi-currency accounts, credit cards and currency exchange at extraordinary rates that would have been unthinkable 20 years ago. Even so, specialist currency brokers still offer the best blend of competitive rates and personalised advice to help you reduce your exchange rate risks.
If you decide to go down the currency broker route you can usually set up an account in no time at all, so it’s not necessarily an expensive mistake to leave this until you have found a property. On the other hand exchange rate movements can be quite dramatic in relatively short periods of time so it is worth setting up an account in advance and discussing the exchange rate outlook with a specialist when you first decide to buy and start fixing your budget. If it looks like the Euro is on an upward trend it may make sense to buy Euros in advance. If you place the right bet on exchange rate movements you can save yourself thousands of pounds – or increase you budget significantly. On the other hand nobody knows for sure what will happen to exchange rates in the future, not even the specialist brokers, so there will be no guarantees that you will make the right decision. Nevertheless you should look into this issue, select a foreign currency broker, and open a trading account at this stage rather than in a rush later.
Look into insurance
There are many English-speaking insurance brokers operating in Spain (as well as brokers in the UK offering insurance for property in Spain) and you are unlikely to have any difficulty arranging insurance. Ideally you will need insurance cover to start the moment you take possession of the property but in many cases you won’t be able to get a binding quote until a couple of weeks before the policy is due to start. However you can and should look into the question of insurance and try and find a good broker when you first start looking for property. Doing so makes it easier for you to get the best quote with the least hassle when the time comes.
There are many other things that you can look into at this stage, for instance surveyors, appraisal companies, furniture providers and security companies. Anything you can do to bring forward the work and get everything in place before you buy will help you to stay in control of events rather than the other way around. If you have balanced the workload over the period of your search you will find the negotiation and purchase stage much easier and less stressful. It also enables you to evaluate and select the best products and providers, and keep costs down.