I have spoken to a number of people recently who have agreed to purchase one or more properties ‘off-plan’, and are now considering selling prior to signing the Escritura (ie before legal completion has taken place). The properties were often sold on the assurance that any profit made would not attract capital gains tax, and that each purchase was effectively risk-free. This is not the case however and I have attempted to explain the way in which the tax authorities will view the transaction.
Firstly, I would advise anyone considering investing in off-plan developments to think very carefully before proceeding. There is something of a glut of properties for sale along the Costa Blanca at the moment, and it is no longer the ‘get-rich-quick’ scheme it was once considered to be. As a general point, it is essential to ensure that you have sufficient funds available to complete the purchase, and that if you are considering raising those funds by way of a mortgage you will be able to meet the mortgage repayments. In addition, you need to make sure that all of the necessary paperwork is provided once you do complete. Many people are simply unable to sell their property because the ten year insurance policy was not provided at completion for example, or because the final payment has been made but the Escritura has not been signed. You should never hand over the final balance to the vendor/developer until the signing of the Escritura, at which time your independent lawyer should check that all of the documents are in place. If there are unfinished works then a retention should be made so as to give the developer an incentive to complete the outstanding items. Many buyers are now looking to purchase with the assistance of a mortgage and the lending bank will refuse to grant the mortgage unless the paperwork is complete.
Regarding capital gains tax (“CGT”) relief, this will only be applied to your principal residence in Spain. It goes without saying that an unfinished off-plan property cannot be classed as one’s principal residence, and for this reason tax will be payable. I have heard of deals being done where the developer changes the names of the purchasers as though the final buyer had contracted to purchase the unit from the outset. This is becoming less and less achievable by legal means, and legal advice should be taken before signing any documents.
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