Property law in Spain: a legal and tax guide for buyers and investors

Property law in Spain (Derecho inmobiliario) governs essential questions when you buy, hold or invest in a property. Before committing, it pays to understand its legal status, confirm it can be used for the intended purpose, and calculate the taxes and costs of the transaction.

For international buyers, it is also important to distinguish nationality, administrative residence and tax residence. Each can have different consequences.

In this guide from MH Legal & Seguros we explain the main legal and tax questions to consider when acquiring and holding a property in Spain.

1. Property regulation in Spain: state, regional and municipal rules

Not every sale is governed by the same requirements. Rules from several levels can apply to each transaction:

• State: general contracting rules, the Land Registry (Registro de la Propiedad), the Cadastre (Catastro) and certain taxes.
• Regional (autonómicas): devolved taxation, housing, planning, tourism and, where applicable, regional civil law (Derecho civil propio).
• Municipal: local planning, occupation procedures, local tax ordinances and requirements for particular uses and activities.

A check that is valid for one home should not be transferred automatically to another in a different municipality or autonomous community. The analysis must be adapted to the property, the parties and the intended use.

2. Legal requirements to buy a property in Spain as a foreigner

As a general rule, foreigners may acquire property in Spain. Certain transactions, however, may require authorisations or additional checks — for example, certain acquisitions by non-EU buyers in areas where property ownership is restricted for national defence reasons.

The buyer must have the corresponding tax identification, normally through the NIE (foreigner identification number) for a foreign individual. Its application should be planned through the competent channels with the necessary documentation.

The NIE does not by itself grant a residence permit, nor does it determine where you must pay tax. Nor should it be assumed that buying a home gives you a right of residence in Spain.

Before the transaction, check your tax residence and how the acquisition will affect your obligations in Spain and in your country of residence.

3. Property due diligence: what to check before buying

The legal review, also called due diligence, identifies issues and decides how to resolve them before taking on commitments.

It is advisable to start it before signing a reservation, accepting a binding offer or paying a deposit. If a check must be completed afterwards, the contract should regulate its consequences.

Among the aspects worth reviewing are:

• Ownership of the property and the powers of those involved in the sale.
• Mortgages, attachments, usufructs, easements and other charges or limitations.
• The correspondence between the deed, the Land Registry, the Cadastre and the physical reality.
• The planning status of the construction and of any works carried out.
• The occupation or habitability documentation that may be required.
• The existence of leases, occupants or third-party rights.
• Community fees, special levies, taxes and utilities.
• The possibility of using the property as a home, a rental or another intended use.

The legal review may be complemented by a technical inspection to assess the state of repair, possible defects and necessary works.

Land Registry and Cadastre: different functions

The nota simple (simple note) gives information on ownership and registered charges, but is informational in nature. When the registry content must be formally certified, a certificación (registry certificate) should be considered.

The Catastro is an administrative register describing the physical, economic and legal characteristics of properties. Its data does not replace the protection of the Land Registry, nor by itself prove the planning legality of a construction.

Discrepancies between documents and reality must be analysed: not all have the same relevance, nor are they resolved by the same procedure.

4. Reservation contract, arras and sale: legal effects

The reservation is not a mandatory stage, nor a document necessarily devoid of effect. It can create commitments depending on its content.

Before signing, the amount paid, who receives it, the deadline, the parties’ obligations and the cases of refund or forfeiture must be clear.

The private sale contract should regulate the price, payments, charges, deadlines, the allocation of costs and the conditions of delivery. If it incorporates arras (earnest money), it is important to specify their nature and effects.

Not all arras allow withdrawal by forfeiting the deposit or returning it doubled. Those consequences belong to penitential arras (arras penitenciales) when they apply under the law and what was agreed. There is also no general obligation to set the deposit at 10 % of the price.

If you need financing, what happens if the bank does not grant it should be reviewed. In addition to what is agreed, specific regional civil rules may apply, such as those provided in Catalonia for certain cases of third-party financing.

5. Public deed and registration in the Land Registry

The public deed (escritura pública) formalises the conditions of the transaction, the payments and the representations and documents that apply. The notary performs an impartial role of advice and legality control.

Delivery of keys and possession must follow the contract. If it is deferred, the deadline, liabilities and guarantees should be regulated.

Under the common civil regime, transfer is effected by title and delivery; granting the public deed normally amounts to that delivery, unless otherwise provided. Registration of the sale is generally declarative: it should not be confused with the act that transfers ownership.

Registering the acquisition is highly recommended for the registry protection it provides. After signing, the taxes must also be dealt with and the agreed cancellations of charges checked.

6. Property taxation: acquisition taxes and costs

The total cost depends on the type of property, the transaction, its location and the buyer’s circumstances. An indicative percentage of costs does not replace a personalised budget.

Second-hand home: Transfer Tax (ITP)

The acquisition of a second-hand home is usually taxed through ITP (Impuesto sobre Transmisiones Patrimoniales). Rates, reductions and tax benefits depend on the territory and the applicable requirements.

The taxable base does not always match the price. Where a Cadastre reference value exists, generally the highest among that value, the declared value and the price is taken. Where none exists, the rules for declared value, price and market value apply.

New home: VAT and Stamp Duty (AJD)

For first deliveries of homes subject to VAT (IVA), the general rate is 10 %, with certain reduced-rate cases. The seller being a developer is not enough to conclude that it is a first delivery.

The deed may also be subject to AJD (Actos Jurídicos Documentados), whose treatment depends on the territory and the transaction. The Canary Islands, Ceuta and Melilla have different indirect-tax regimes.

Other costs and buyer obligations

Budget for the notary, the registry, advice and, where applicable, financing. Notary and registry fees and professional fees follow different criteria.

If the seller is a non-tax-resident, the buyer must check whether to withhold 3 % of the consideration and pay it via form 211 (modelo 211) as an advance payment against the seller’s tax.

In addition, when the seller is a non-resident individual, the buyer may act as the taxpayer’s substitute for the municipal capital gains tax (plusvalía municipal). These obligations must be prepared before signing.

7. Taxes for owning a property in Spain

Real Estate Tax (IBI) and municipal fees

IBI (Impuesto sobre Bienes Inmuebles) is a municipal tax whose taxable base is determined from the cadastral value and any applicable reductions. The amount depends on the rate and the applicable tax benefits.

Other municipal fees or charges may also apply. It is worth reviewing the relevant ordinances and organising their payment.

Non-Resident Income Tax (IRNR): rental and imputed income

If you are a non-tax-resident individual, taxation depends on the use of the property:

• If it is rented, the rental income must be declared under the applicable rules.
• If it is an urban dwelling for own use or is unoccupied, imputed property income (renta inmobiliaria imputada) may apply.
• If it is sold, the capital gain or loss must be analysed.

The imputed income is not an estimate of market rent. It is calculated under tax rules, normally on the cadastral value and taking into account the period and percentage of ownership.

For the income and imputations covered here, the general rate is 24 %, or 19 % for tax residents of another EU or EEA state with effective exchange of tax information. Nationality alone does not determine the applicable rate.

The deduction of expenses, filings and deadlines must be analysed according to the income, the tax year and the taxpayer’s situation. There is no single calendar for all IRNR cases.

Wealth Tax and large fortunes

Owning property may create obligations under Wealth Tax (Impuesto sobre el Patrimonio). The valuation of assets, deductible debts, exempt minimums and the applicable rules must be reviewed.

The duty to file does not necessarily mean having to pay. A return may be required even with no tax payable when the assets and rights counted exceed two million euros under the rules of the tax.

For larger estates, the Temporary Solidarity Tax on Large Fortunes (Impuesto Temporal de Solidaridad de las Grandes Fortunas) and its relationship with Wealth Tax must also be analysed.

8. Community debts, planning legality and short-term letting

Community debts can affect the acquired home within legal limits. Under the state Horizontal Property Act (Ley de Propiedad Horizontal), the lien covers the outstanding part of the year of acquisition and the three previous calendar years. In Catalonia, its regulation covers the current year and the four previous ones.

IBI has its own lien regime. Utility debts must be analysed separately, and not automatically equated with the above.

On planning matters, the local plan, the legality of works, the enabling titles and any proceedings affecting the property must be checked. Not all regions use a habitability certificate: occupation licences, responsible declarations or other documents may apply instead.

The energy performance certificate must be available, valid and registered where required, subject to statutory exceptions.

If you buy to let, especially for short-term tourist use, check the viability of the use, the regional and municipal requirements and the relevant owners’ community restrictions beforehand. Buying a home does not automatically authorise its tourist exploitation.

MH Legal & Seguros: advice for your property transaction

Property regulation combines general rules with territorial particularities. Reviewing them before signing lets you understand the commitments you take on and the issues that must be resolved.

At MH Legal & Seguros we help you analyse the legal status of the property, review and negotiate the contracts and plan the tax obligations of the transaction.

Contact our team and tell us where the property is, what use you want to make of it and what stage the purchase is at.