Buying a property in Tenerife
Buying a property in Tenerife can be a dream come true, as it can be both a good investment and a way of feeling at home. But one must be aware that the Spanish legal system is different from that of the UK, and to avoid misunderstanding, disappointments and possible fraud, it is essential to seek expert advice from the very beginning. Below, we have set out the main stages involved in the purchase of a property in the Canaries. This is only a guideline to help you understand the procedure, and it will vary in detail according to the particular circumstances of each transaction.
The first step is to get what you want from a property as clear as possible in your mind. Is it as a holiday home, for retirement, investment, a lifestyle move? How much room do you need for yourselves, visitors or tenants? What are your prorities, proximity to the beach, golf course, work, schools?
Mortgages
Spanish lenders will allow you to borrow against Spanish property and can usually be arranged in most major currencies normally over terms of up 25 years for 70% ( for non resident) of the buying price
Searches and Statutory Undertakings
The property to be purchased should be searched against and investigated by your Spanish Lawyer before any contract to purchase is signed in order to ascertain the following:
1. To check the legal description of the property and its boundaries see that it agrees with what you think you are purchasing.
2. The names of the person or company listed as the owner of the property. All land in Spain must be registered in the name of the owner at the Local Land Registry. Purchasers will not be full owners of the land until their names appear on this document and its registration via the Notary. The only people who are capable of legally transferring full ownership are those that are registered. An investigation of the Local Land Register will show who the legal owners are and it is their names which must appear in the contract to purchase
3. A record of existing debts or mortgages against the property. If there are any mortgages affecting the property then the proper steps will need to be taken to see that these are fully paid off before legal ownership of the property is transferred to the purchaser.
4. Building restrictions, if any, are complied with such as planning consents, building permits, road construction or extension projects properly approved and any fines charged by the Local Authority for breach of planning control properly paid. If there is no planning permission granted for the development then it will be an illegal development in the eyes of the authorities.
Purchase agreement
Buying a Spanish property will normally be contained in a private contract with a deposit of around 10% payable which is binding by law. It is possible to agree a contract where either party may change their minds at a financial cost. The private contract should contain details of the agreed deposit payment, purchase price and details for payment of the outstanding balance of the agreed buying price plus any additional extras and your intended completion. A Notary will prepare the official contracts and make sure it complies with Spanish regulations. If there is common ownership a Community of Owners must be established through which community charges can be shared. If your property is contained in an apartment block then the law will relate to the Horizontal Division and this should be clarified, especially in new developments. Any property sale or purchase in Spain should be registered in the Land Registry and its important to make sure any relevant taxes are paid before this is done.
Please note:
It is common practice for the sale and purchase price to be understated by Spanish sellers, enabling them to reduce their tax liability and reducing your stamp duty fees. However, you could be liable for Capital Gains tax on additional profit once the true price is declared and non residents will normally be expected to deposit 5% of the sale proceeds with local tax offices until any agreements are reached.
Fees
You would expect to pay a total of around 10% of the purchase price for real-estate in Spain. This could include Stamp duty, charged at 6.5% of the official selling price and 0.5% for contract documents Land Registry is charged against a ratable table held by local authorities. There will also be a tax on the increase of the land your property lies on since it was last sold and should be paid by the vendor. Notary fees will also be included in the total costs.
Property Tax
All your Spanish property taxes will be based on the official price registered, not on selling prices and you would expect to pay under 1% annually, plus additional service taxes set by the local authority. Wealth tax charges apply for residents after 102,000 euros of net assets; if you don´t apply for residency you could be charged tax for all your net assets. Rate varies from fractions of a percent to over 2% depending on net assets.
