New Law to Clean up Spanish Property Industry

A new Spanish law brought into force on the 1st July has been designed to bring greater transparency to the planning system and increase confidence in the Spanish property industry.

This new Spanish law, which covers the Land Legal System, Property Valuation, and Citizens Rights and Duties, will address the issue of how to sustain and manage growth in cities and urban sprawl and the protection of the environment. The new law also expressly rules on ownership rights, landowners’ obligations and the right of citizens to participate in urban planning proceedings.

In an attempt to prevent abuse of the planning system, it will now be against the law not to make public who will benefit from land that has been reclassified as available for building. This means that public officials who have ties to the property industry or a property developer will be obliged to disclose this publicly as part of the planning process.

Based in the Marbella office of law firm Irwin Mitchell Abogados, Isabel Perez Blanco said: ‘If the law is adhered to then the levels of corruption which have gained the Spanish property market a bad reputation should be significantly reduced.’ She added that: ‘It appears that, in the most part, the new law will alleviate many concerns that people have surrounding buying a property in Spain.’

The law firm points out that, while Spanish nationals have the right to appeal against any parts of the law, no appeals have currently been lodged. ‘At the time of writing, there are no appeals in the pipeline and with days to go until the law goes live it looks like this law will be the first land law to come into force without any objections,’ said a spokesperson.

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Tax Residency in Spain

If you move to Spain permanently for six months or more you will almost certainly become tax resident and be obliged to pay income, capital gains, and wealth taxes on your worldwide assets and be subject to Spanish inheritance and gifts tax rules.

You will become tax resident in Spain under Spanish rules if:

1. You spend more than 183 days in the calendar year in Spain. These days do not have to be consecutive, and temporary absences from Spain are ignored unless you can show habitual residence in another country for more than 183 days in the year
2. Your 'centre of interests' is in Spain, e.g. the base for your economic or professional activities is in Spain
3. Your spouse is resident in Spain and you are not legally separated, even though you may spend less than 183 days there (unless you can show habitual residence in another country for more than 183 days in the year)

The tax year in Spain ends on 31st December. You are either resident or not resident for the whole tax year (subject to any residence elsewhere under treaty rules).

So, the date from which you become resident will largely depend on the time of year you arrive in Spain.

If you arrive in Spain in the first six months of the year with the intention of staying there indefinitely, you are likely to be regarded as tax resident for the full calendar year. However, if you move directly from the UK, then it is likely that, because of the UK/Spain Tax Treaty, you will be regarded as UK resident up to the date you leave the UK and resident in Spain thereafter.

If you move to Spain in the latter half of the calendar year, then you are likely to find that you are regarded as non-Spanish resident for that year, on the basis you have not spent 183 days there during the year. However, if you have made previous visits to Spain and these have been significant or frequent, the Spanish authorities could deem you to be resident in Spain from an earlier date, and regard any subsequent time spent outside of Spain as a temporary absence (unless you were clearly resident at that time in another 'tax treaty' country such as the UK).

The UK/Spain Double Tax Treaty has a tie-breaker clause that comes into operation if you are resident both in the UK under the UK rules and in Spain under the Spanish rules. The purpose is to determine in which country you will ultimately be regarded as tax resident it cannot be both.

The agreement works as follows:

• If you are dual resident in practice, you are deemed to be tax resident in the country in which you have a permanent home available to you
• If you have a permanent home in both countries (or neither), you are deemed to be resident in the country where your 'centre of vital interests' lies. Vital means the whole pattern of your life
• If this test is indeterminate, you are deemed to be resident in the country in which you have an habitual abode (a place where you spend most of your time during the tax year), but if this is not clear you are deemed to be resident in the country of which you are a national. UK nationals will at this point be regarded as UK residents.

If you are thinking of making a permanent move to Spain it might be worth giving some careful consideration as to the timing of your move. As the UK tax year runs from 6th April until the following 5th April, you could, for instance, leave the UK near the end of a tax year, move to another country for a few months, or travel, and be in Spain for the latter part of the year for less than 183 days. This way you can avoid becoming Spanish tax resident for that tax year.

It is always best before making the move to Spain to take professional tax advice from a specialist who knows both UK and Spanish tax legislation.

Story by Blevins Franks

Nightmare in the sun as home dreams fall apart

Following news of the EU resolution into 'rampant construction' in Spain, Jon Robins of the Observer takes a look at the situation in Albox – one of the towns in the spotlight of MEPs in Brussels.

'I HAVE sold up in the UK, invested my life savings in this piece of ground, and the house that stands on it,' says Bob Naya, a 62-year-old British man living in Almería in the south-east corner of Spain. 'Now my home faces demolition.'

Bob Naya spent about 150,000 euros on his home in the sun in Albox and he stands to lose his entire investment. He is one of hundreds of expats who unknowingly bought houses that had been built illegally. These properties now cannot be sold, and could even face the bulldozers.

Many of Bob Naya’s friends and neighbours were sent into a panic when the Almeria civil court recently ordered the demolition of 11 such properties in the inland town of Albox. Those houses were built on suelo no urbanizable (land not designated for urban construction).

The court also ordered building on the Almanzora Country Club to stop, bringing a halt to work on 1,500 houses.

The pressure on those who came out to the south of Spain with the hope of a retirement in the sun on their modest pensions has been unbearable. Mr Naya, a former local government officer, has set up a residents’ group called Abusos Urbanisticos Almanzora No and in two months 200 members have signed up.

'Many Brits out here are physically ill and suffer from all kinds of anxiety syndromes caused specifically by this situation. My wife could not take the stress and strain of it any more. She has gone back to live in England with our daughter,' says Mr Naya.

Irwin Mitchell Abogados, the Spanish branch of a British law firm, recently hosted an advice clinic at Albox town hall, together with Naya’s group; 100 concerned residents, all Britons, turned up.

The firm specialises in class actions; so far, 40 ex-pats have signed on to its books and two or three new clients arrive each day.

'Unfortunately, British buyers have been caught up in a fever over the last few years, as properties have been dirt cheap,' says one of the firm’s partners, José Maria de Lorenzo.

So how does your Spanish dream home become the stuff of nightmares? Illegal in this context means the property is without a licence, or the correct licence, or that it does not meet the planning regulations.

At the most extreme that means a breach of the country’s criminal code, and sanctions can range from fines to imprisonment.

However, according to the law firm, the most severe punishments are to be reserved for developers and government officials. A number of regional officials have already been sent down for taking bribes over the granting of licences.

'What appears to have happened is people have been giving bungs to the local authorities to actually issue licences when they should not have,' explains Peter Esders, a partner with the British-based International Law Partnership, which covers the Spanish market.

'On the face of it, the purchases look perfectly legal. They have the proper stamps and seals. When people carry out the relevant searches, it looks as though they have planning permission.'

The bad news is even a diligent lawyer would probably fail to spot the scam. He adds: 'No solicitor is going to check behind a planning permission. You just cannot.'

Esders says the good news is that the extent of the scandal has been revealed and the authorities are now tackling the problem. 'People should have a lot more confidence in the area,' he says.

And, unsurprisingly, estate agents are keen to calm nerves. 'The problems are largely historical now,' insists Chris McCarthy of Viva Estates in Almeria, which has about 3,500 properties for sale.

'There are people with very real problems but I think that is going to be resolved. This part of Spain is currently about the safest area to buy in because everybody now has to be extremely careful.'

None the less, there is concern at how many Britons have rushed into buying properties without proper advice.

'Most people, when they are buying abroad, tend not to use an independent lawyer. I find that amazing,' says Esders.

He suggests there are a number of reasons for this. For example, buyers possibly mistakenly believe the Spanish notarial system offers protection.

'People think the notary public is signing a deal off, and that is all they need; but the notary does not check they have planning permission,' he says.

Agents and developers also routinely advise would-be buyers they can rely on their lawyers. But the agent’s commission on a new-build property can be as much as 20 per cent, giving them a vested interest in seeing the deal go through, reveals Brian Marson, a British property law expert who moved to Marbella in 2003 and set up Legalanswers, a legal practice employing locally qualified lawyers.

'Unfortunately, when people get off their plane at Málaga, they have left their brain at Gatwick,' he says. 'The sky is blue, everything is lovely and people want to believe what they are told.'

'The idea was to retire, enjoy the life, and live the dream,' says Mike Phillips, a 63-year-old former electrical engineer who moved with his wife, Jan, to Albox in 2004. 'Instead, we are living in a nightmare and trapped in a house we cannot sell.'

The couple spent 205,000 euros on their villa, but their problems began before their home was even finished, when 'the builders went into liquidation,' Mike recalls. However, the big problem was that the couple’s home was built without the proper licence.

The couple blame their Spanish solicitor, whom they say 'misled them from the start.'

'Our solicitor assured us that although the house was suelo no urbanizable, licences were not a problem,' Mike says.

The contract stipulated if the builder failed to obtain licences, the purchaser would get a refund. That was little consolation, however, as the builders disappeared.

The fact the property is illegal under local law has not stopped the couple having to pay hefty costs, including 11,000 euros for electricity and water to be supplied.

It transpired the couple’s land was half of a parcel of land owned by the builders. When they went bankrupt, the couple was effectively forced to spend 30,000 euros buying the other half because parcels could not be split under local law.

'Now I have 5,350 square metres of land, half of which I cannot do anything with,' says Mike.

Story from theolivepress.es

Spain referred to Court of Justice over Valencia

The European Commission has decided to refer Spain to the European Court of Justice over its laws on land-and-town planning that apply to the Valencia Community (known as 'LRAU' and 'LUV').

The Commission has already sent a letter of formal notice and reasoned opinion (IP/05/1598, 14 December 2005) to Spain regarding law 6/1994 on land-and-town planning ('LRAU') of Valencia. In these, the Commission took the view that the award of integrated action programmes (Programas de Actuación Integrada – 'PAI') constitute public works and/or service contracts that should be awarded in accordance with Directives 93/37/EEC and 92/50/EEC (now consolidated and amended by Directive 2004/18/EC). PAI are contracts awarded by local authorities that include the provision of services and performance of public infrastructure works by property developers ('agentes urbanizadores') selected by the local authority. The LRAU was revoked by law 16/2005 ('LUV'), which entered into force on 1 February 2006.

The Commission sent a second letter of formal notice on 4 April 2006 (IP/06/443, 4 April 2006) and a second reasoned opinion on 12 October 2006 (IP/06/1370, 12 October 2006), asking the Spanish authorities for their observations on several provisions of the LUV and on their compliance with previous warnings regarding the continued award of contracts and in breach of the EU procurement Directives.

The Commission considers that, although the LUV streamlines the procedure to select property developers, it still contravenes the EU procurement Directives in several respects. These include the position of bidders who request contracting authorities to open a procedure to award a PAI, the contents of contract notices and tender documents, some of the criteria for the award of the contract, and the possibility to make various amendments to the contract at the time of the award or during its performance. The Commission further considers that the Spanish authorities did not comply with their EU obligations, by failing to adopt measures to prevent the award of contracts and in violation of EU legislation. Finally, there is still a difference of opinion as regards the core issue of whether PAIs are public contracts subject to the EU procurement rules. The Spanish authorities maintain that PAIs are not public contracts, and therefore, that neither the LRAU nor the LUV contravene the EU Directives. The Commission holds the opposite view.

The latest information on infringement proceedings concerning all Member States can be found at: ec.europa.eu

Lifetime Loan – A Case Study

Following on from my recent features on the Seniors Money Lifetime Loan I thought it would now be useful to present a case study to illustrate how such a loan would work in practice.

Mr & Mrs Johnson retired to Spain in 1985 and bought a lovely rural property in Tenerife which they converted to suit them. After 21 happy years they would hate to move elsewhere. They are in good health and looking forward to many more years in their Tenerife home. Unfortunately they had begun to think that it may be necessary to downsize their property and move to a cheaper apartment, although it was the last thing they wanted to do. They had four main concerns:

1. When they arrived in Spain they had plenty of money in the bank and while they were careful not to overspend they were able to live comfortably off their savings. However today they don’t have much money left, their pensions are small, their income does not go nearly as far as it used to and their capital reserves have dwindled. They have tightened their belts to a point which can no longer be called comfortable. They were aware that if they sold their property, now worth 300,000 euros, they could buy a cheaper place and free up capital, but they knew they’d be unhappy anywhere else.

2. A car is important for them because they live far from town, but their car is on its last legs and they desperately need a new one, but cannot afford to buy one.

3. The age of the house is starting to show and various repairs and home improvements need to be carried out but they cannot afford most of them.

4. While they are both healthy they are aware that medical issues may come up in the future and are worried about not having the capital to avail themselves of the best possible care.

Instead of selling their home, however, Mr & Mrs Johnson discovered that a Seniors Money Lifetime Loan will help them with all their concerns. Mr Johnson is 79 and his wife is 77. With a Lifetime Loan, the minimum age is 60 and at that point you can borrow 15% of the value of your Spanish property. The amount that can be borrowed increases by 1% for each year, to a maximum of 45% at age 90 and over. Where there are two 'nominated residents', the age of the younger is used to determine the loan limit.

Since Mrs Johnson is 77 they are able to borrow 32% of the value of their property. On their 375,000 euros property they can borrow up to 96,000 euros. The Johnsons decided to apply for the maximum loan available to them and to break up this loan as follows:

- They will leave 20,000 euros as a reserve, which is not drawn down at the outset and no interest is charged on this amount until it is. The Seniors Money Lifetime Loan allows them to take 'Express Top Ups' during the life of the loan. This way they can take four express top ups of 5,000 euros over the remainder of their lives should an emergency come up.

- They will then take a lump sum payment of 30,000.euros This will enable them to buy the new car and carry out the various home repairs needed.

- The balance of 46,000 euros will be divided over staged payments. They plan to take quarterly payments over the coming years to increase their income and enable them to live more comfortably. No interest will be charged on any payments drawn down from their maximum facility until it is received.

The Johnsons will retain full ownership of their Spanish property until both of them die. At this point it will be sold to repay the loan, plus costs and interest, they will not need to make any interest payments during their lifetime and the 'no negative equity' guarantee will protect their home.

The Johnsons' story is an example of what could go wrong on retirement in Spain. It is not a true story, but this scenario, or something similar, could easily happen. In situations like this a Seniors Money Lifetime Loan could prove very useful.

Story from Bill Blevins of Blevins Franks