Useful information for the acquisition, possession or use of a property in Tenerife and the Canary Islands.
How does the legal system for buying property on the Canary Islands work?
Properties in Spain are now registered at a Land Registry. Once a price has been agreed your estate agent or/and lawyer will carry out searches about the property at the Land Registry and Town Hall for undisclosed charges, and if he is satisfied, he will arrange for you to sign the contract. At the time of completion both parties appear at a Spanish Notary who draws up the Transfer Deed, the Deed is signed and the balance of the purchase moneys handed over. The Transfer Deed is then registered at the Land Registry and the Title Deeds will be delivered to you in due course.
What should I budget for extra expenses additional to the purchase price I have agreed on with the Seller?
The total expenses incurred in the purchase should not (on average) amount to more than 10% of the purchase price. This can be broken down as follows: Taxes: If you buy a new property from a developer, IGIC (Spanish VAT) is charged at the rate of 5% of the declared price. In addition, you will have to pay a further 0.5% for the Legal Documented Acts Tax. Resales are 6%. Land Registry Fees: The fees charged for registering the property at the Land Registry will generally be about 0.3% to 1% of the declared value. Notary Fees: These will amount to approximately 0.5% depending on the value of the property. Legal Fees: The fees that your lawyer charges will vary from firm to firm. You should allow between 1-2% of the purchase price. The agent fees are paid by the seller. Power of Attorney: If you are not able to appear at the Notary in person for the signing of the Escritura (Title Deed) you will need to authorise someone, such as your lawyer, to appear for you by means of a power of attorney. The cost of this will generally be about 60€.
The Seller has asked me to underdeclare the purchase price on the Transfer Deed to save the Transfer Tax. Is this a good idea?
Even though it may appear that by doing this you will be saving 6% tax on the underdeclaration, there are several reasons why you should think twice before doing so. The first is, that the underdeclared value is the figure on which your capital gains tax liability will be calculated when you sell. The current rate of capital gainst tax for non-residents is 35% and therefore you may be saving 6% now to pay 35% later. You will actually pick up parts of the Seller´s tax bill. The second reason is, that the Revenue can reassess the value declared and charge you the 6% tax on the difference between the declared value and the market value of the property.
Will I have to pay any taxes on the CanaryI slands if l only own a holiday home there?
Unfortunately yes. You are deemed a non-resident in Spain if you spend less than 183 days a year there. As a non-resident you will be liable for two annual taxes, wealth tax (patrimonio) and income tax (impuestos sobre la renta). Wealth tax is charged on the value of all your assets in Spain, but is only at a tate of 0.2% in general, so the amount payable is very small. Income tax is charged on the rental income from your holiday home and is charged at 25%. However, if your property is not let out then you will be taxed on a deemed income of 2% of the value of the property.
Do I need a Fiscal Representative?
It is necessary for a non-resident who owns a property in Spain to appoint a Fiscal Representative, resident in Spain to deal with his tax affairs. Without him you will have to attend to completion of the tax returns yourself, and any assessments will be sent to your Spanish address. If they arrive at a time when you are absent from Spain, you may well find that you are out of time to appeal against them if they are incorrect.
How can I minimise my liability to Spanish Death Duties?
As in the case of a non-resident of Spain it is worthwhile considering owning the property in joint names where appropriate, and passing your respective shares in the property to, for example children. If you pass your share to your spouse you will in effect be paying double Spanish death duties as there may be death duties on your death and in turn on your spouse´s death not only on her own share but on the share inherited from you. As mentioned above, each beneficiary has their own tax allowance and accordingly the more beneficiaries there are, the more allowances can be set against the value of the estate. In the case of a Spanish resident, where the worldwide assets are liable to Spanish death duties, the value of the estate can be minimised through careful tax planning through the use of offshore trusts and companies.
What about the use of a company to hold my Spanish property ?
This used to be a very tax efficient way of holding a Spanish property; the title to the property being registered in the name of the company and the owners holding the shares in the company. In case of sale or death, the shares in the company are transferred and as there is no change in the registered owner of the property, i.e. it remained in the name of the company, taxes are avoided. The Spanish authorities realised that this was losing them a considerable amount of revenue and accordingly they imposed a Special Tax of 5% per annum on such properties, subject to certain exemptions. The special tax has now been reduced to 3% per annum but there are no longer any exemptions.
