In a recent legislative amendment the national government has empowered local authorities to reduce the amount of IBI payable according to the energy efficiency of a property. There is a sliding scale of reductions ranging from 4% for a class E property to 20 % for a class A property. But don’t get too excited. Firstly, of all of the properties we have sold since the requirement for a certificate came into effect in June 2013 only one has achieved a D rating. The remainder have all been F to G. Country properties are likely to remain so. Secondly, the legislation AUTHORISES local authorities to offer this reduction. It does not OBLIGE them to do so. It is entirely discretionary. Given that every local authority is desperate for cash, this move seems like political gesturing.

Author: Allan Hilder

Last week I met an English resident of rural Andalusia who, around a year ago, went to see his local GP complaining of chest pains. It was diagnosed as bronchitis but, three weeks later, when it hadn't go away he returned to the surgery. A second doctor immediately arranged for him to have tests at a hospital. Guess what?

The result was that he had cancer. Fortunately, it was caught early and with radiotherapy treatment he has been able to clear the cancerous growth. I asked him about the treatment he had received. Exemplary, he said. Couldn't have been better. Right through from the nurses to the consultant specialists. And any time I need an appointment locally, I get it straight away. I've never had to wait more than the next day.

Each time he needed transport to the hospital an ambulance came down the narrow winding track through the olives to his cortijo to collect him. You wouldn't get that in U.K., he said.

This is an expression I have heard before. And I’ve heard even worse said about the health service in the Netherlands.

This man’s experience echoes that of a client of mine. Lawrie was rushed to hospital complaining of chest pains and difficulty in breathing. He ended up spending several weeks in hospital and was operated on for a heart by-pass. A week after the operation, he was back home and active once again.

Imagine you are a Spanish home owner unable to meet your monthly mortgage repayments. You have two choices: either sell the property, pay off the loan and pocket whatever difference remains or sit tight and do nothing until the bank eventually obtains an order to evict you.

In countries such as the United Kingdom the lender takes the risk that the security obtained (i.e. a charge on the property) will be sufficient to liquidate the debt in the event of non-payment. At the worst the mortgagee can simply hand over the keys to the property and say "take it, it's yours, do what you will". If there is a shortfall when the property is disposed of, the lender loses.

In Spain however, this system, known here as dacia, is not available to homeowners. And the risk of the shortfall is carried not by the lender but by the borrower. If a homeowner is unable to repay the debt he/she is liable to pay not only the outstanding amount but also punitive interest charges and costs. And, even worse, the value at which the property is taken over into the bank's ownership is largely under the control of the bank itself. In other words the bank can acquire the property at a low price and the outstanding balance, plus interest, remains payable by the borrower. All of his/her other assets can be called upon in order to repay this.

There are loud calls to end this harsh practice but the Rajoy government doesn't want to know. Introducing the dacia would lead to irresponsible borrowing, they say. Good citizens have the responsibility to ensure that they borrow only what they know they can repay, seems to be the logic.

How does this influence the stock of properties available from bank repossessions? Homeowners who find themselves in difficulties will do everything they possibly can to sell their property, even at a loss, because their liability is likely to be far less than if the property is repossessed. So, those properties that reach the banks' portfolios are, basically, pretty unsaleable.

Each time a property is transferred from one person (physical or legal) to another, the transaction attracts an Impuesto Sobre Transmisión de Patrimonio (I.T.P.). Or, in English, Tax on the Transfer of Wealth.

This tax is payable by the buyer and is levied by the Autonomous Region level of government. In the case of Andalucia it is the Junta de Andalucia who levies it. On 31st December 2011, when everyone was out celebrating the coming of the New Year, the Junta quietly raised the level of taxation, in particular for more expensive properties. Current rates are shown in the table below:

The tax is levied on the declared purchase price, i.e. the price set out in the escritura (title deed).
Here are two examples of the tax payable:

Example One: Cortijo sold at €159.000. Tax at 8% x €159.000 = €12.720.
Example Two: Finca sold at €880.000. Tax at 8% x €400.000 + 9% x €300.000 + 10% x €180.000 = €77.000 (an average of 8.75%).

There is a legitimate way to reduce at least some of this tax!