Article written by Eduardo Amat Alcaraz, notary public of Puerto Lumbreras (Murcia)
An outright payment is when the buyer pays the full amount for a good or service at the time of purchase. They do not need to postpone part of the payment at a later date and the the seller is fully paid.
In this sense, purchasing a property for which the buyer takes out a loan, usually with a mortgage guarantee, would be an outright payment as long as no part of the price remains unpaid. In practice, however, the expression is associated with the buyer having the necessary money available at the time of purchase without seeking external financing.
From this perspective, the basic premise of buying the property outright is obvious: the buyer has the money available, for which he will normally give a part to the seller as a deposit or down payment, which should always be formalised in writing.
However, it is important to consider the limitations established by law regarding payment methods. Thus, if one of the parties is a businessperson or professional (whether an individual or a legal entity), they cannot pay in cash for transactions for an amount equal to or greater than €1,000 (before 11 July 2021, it was €2,500).
However, when the payer is a natural person, without tax residence in Spain and not acting as a businessperson or professional, the limit is €10,000 (previously €15,000). Cash is basically understood to mean currency or cash, whether domestic or foreign and bills of exchange, securities and bearers (such as a promissory note).
A financial penalty proportional to 25% of the amount paid in cash is applicable if these amounts are breached. For transactions exceeding these cash payment limits, parties must keep the payment receipts used for five years.
For purchases not involving businesspeople or professionals, cash payments of up to €100,000 may be made, as individuals who, whether on their own account or on behalf of a third party, carry out cash movements within Spain of €100,000 or more are obliged to report them in advance to the Commission for the Prevention of Money Laundering by submitting an S-1 form. The amount is €10,000 for movements of cash, cheques or bearer bills of exchange entering or leaving Spain.
On another note, we have said that outright purchase requires the buyer to have the money at the time of purchase but sometimes, they need to carry out other transactions before or at the same time to obtain this liquidity.
Think, for example, of parents who want to leave their child the money they need to be able to buy their home; in these cases, it would be advisable to document this act, whether it is a loan contract (if the money is returned) or a donation (if the money is given free of charge). It's recommended to seek notarial advice for these cases due to varying requirements and tax implications.
Similarly, as we pointed out, the buyer may have the total amount at the time of purchase, but because at the same time, a loan is granted with a financial institution – normally with a mortgage guarantee on the property to be purchased; and this is the case whether they necessarily need this amount to cover the agreed purchase price, or if they have the necessary liquidity but do not want to decapitalise themselves and prefer to finance the investment.
In these cases, notarial advice is also desirable, which is practically obligatory – and always free of charge – as a consequence of the Spanish Law on Real Estate Credit Contracts.
In short, when buying a property – whether an outright purchase or not – the notary's work is fundamental, controlling legality and endowing the act with full legal certainty.