Telegraph, Richard Crockett

Paying for a good lawyer will help avoid property quicksand, writes Richard Crockett

More Britons are buying a home in the sun but they must note that conveyancing law and property taxes do not end at Dover.
Holiday home
Place in the sun: beward of the pifalls of buying abroad

Sticking to the rules, just as you would at home, may appear to add to costs but cutting corners could prove penny-wise and pound-foolish. Apart from anything else, the law is there to protect buyers and sellers.

Property hunters scouring the Spanish costas for a new holiday or retirement home could be forgiven for wondering what they might be getting into in the light of the corruption scandal that has erupted in Marbella.

For residents, the surprise is not so much allegations of multi-billion euro municipal backhanders but the fact the national authorities are at last doing something about it. However, a little protection money, spent on a decent lawyer, should keep Brits out of shark-infested waters when it comes to investing in the off-plan sector.

The idea is that a developer sells yet-to-be-built property at competitive prices, which means he gets cashflow and his clients get a bargain.

The hope is that a year or two later you can pick up the keys to a new apartment or villa having already notched up a decent gain over the purchase price. The buyer pays anything between 20 per cent and 50 per cent after signing on the dotted line and the balance on completion. A competent lawyer will check all the paperwork is correct, particularly building permits and land use regulations.

A large proportion of new dwellings in the coastal areas go up on former agricultural land. The regional government, or junta, is the final arbiter on land use and publishes any accepted changes in a daily gazette.

A lot of the money in Marbella allegedly came from some officials brazenly charging developers for connivance in building illegally on green land. It is estimated that some 30,000 out the town's 80,000 homes may have been built without the correct permits.

In theory, Madrid and the courts could eventually order some or all of the properties to be demolished. But this is highly unlikely except in the most extreme cases. Innocent buyers are protected by the "good faith" clause of Spanish consumer law.

Granada-based lawyer José García-Valdecasas of Lexur Abagados says: "The government will always protect the consumer if you have all the correct paperwork." After all, he adds, "it is not in the interests of Spain to have a negative impact on tourists and foreign residents".

However, buyers who have been persuaded to turn a blind eye to the planning laws do so at their own, considerable, risk. This underlines the importance of only dealing with reputable developers. British buyers who wish to minimise risks may consider dealing only with developers who have an established presence, and a reputation to protect, in the United Kingdom.

Another potential landmine for the unwary comes in the shape of hard-sell agents who claim there are easy, tax-free profits to be made by selling off-plan property before completion comes around.

It is a widely-held belief that sales of unfinished homes in Spain are exempt from the local equivalent of capital gains tax, which runs at 35 per cent for non-residents.

Mr Valdecasas says residents and non-residents alike are obliged to declare all capital gains made in Spain, whatever their source. As to those get-rich-quick schemes promoted by unscrupulous estate agents and spreading across the internet, he says: "This is very dangerous tax advice."

Martin Gow, group marketing manager for Parador Properties, which markets off-plan homes in Spain and elsewhere around the Mediterranean, said: "What has happened in the Costa del Sol for example, is that investors have bought off-plan at pre-construction prices and, before they complete, sold the property on at the new market value.

''The taxman doesn't see this transaction and the profit because the property has still not been completed and therefore not been registered. This is a high-risk strategy as the Costa del Sol proved."

Instead of saving a few thousand euros, bad advice could lead to months of worry, a hefty legal bill and a fine.

There is relief of sorts on CGT levels. The European Commission is taking the Spanish government to the European Court of Justice over what it claims are discriminatory practices as residents only pay 15 per cent CGT (due to rise to 18 per cent).

Expect to be billed about one per cent of the purchase price for a lawyer's conveyance services. When searching for that dream villa, allow for an extra 10 per cent above the asking price. This will be made up of VAT at seven per cent, stamp duty at one per cent and the rest for fees such as the lawyer, the notary and mains electricity and water connections (see box).

Also keep in mind you will need to have a will drawn up in Spain covering your property to avoid complicated inheritance issues.

Resist being hurried into signing the private purchase contract until you are satisfied it is explicit about the property particulars.

This also means buyers have recourse at the completion stage if the property doesn't quite match that picture in the brochure.

The contract should include a bank guarantee stating your deposit funds will be held in the builder's accounts until specific conditions are met. This means buyers can get their money back, maybe plus a bit of interest, if for some reason the project is abandoned.

Reputable builders will also state a target completion date. In practice, this means if a project runs more than three months late you can haggle for some money off or perhaps an upgrade for the white goods as compensation.

So, get a reputable lawyer and play a straight bat with the taxman. Then relax, open a bottle of Rioja and watch the sun set behind the palm trees.