If you are relocating to Spain and you choose Tenerife as your ideal location, you should research the matter thoroughly before arrival on the island. Whether you are seeking a property in the coastal areas of Tenerife or if you want to enjoy the diversity of large cities (Santa Cruz de Tenerife), the steps to follow are not always intuitive.
A common misconception made by first-time buyers is that the purchasing process is the same in Tenerife as in their home country. This can often lead to mistakes that either cause them to waste their time and/or spend more money than necessary.
In addition, it is important when buying a house in Spain to consider what taxes and expenses have to be dealt with. First, we highlight some common mistakes that foreign buyers make:
1. Insufficient property research
By not doing enough research into the property you would like to buy, you may risk encountering unexpected costs or additional parts of the process. Important considerations include:
- Has the house been built legally?
- Does it need any renovation work?
- Does it have building licences that cover any modifications required/desired?
- Are there any restrictions on modifications?
- Are there any urban planning records of the property?
- Is there a Community of Owners and how does it work
2. Not understanding your contract(s)
Buying a property in Tenerife is an important investment, so you need to make sure that when you sign any contract, you know the exact consequences. Misunderstanding the purchase contract, risks serious financial repercussions.
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3. No preparation for future fees
Remember, the purchasing of a property is not the end of the process. You still need to budget for ongoing costs, such as any mortgage repayments, home insurance, utility bills, and Spanish property purchase tax, for example IBI and non-resident property tax.
Spain’s utility costs are one of the highest in the EU, so it is essential to take this into account when budgeting your monthly outgoings. The most efficient way to avoid any of the above-mentioned problems is to consult an independent legal expert who can assist you with the entire process when purchasing a property in Spain, from NIE acquisition to conveyancing.
You should also try to choose a different, independent lawyer to the seller of the property or Estate Agent, guaranteeing that they are independent and have your best interests in mind.
4. Tips for buying a house in Tenerife
We would recommend that you:
- Visit the house personally before paying any amount, that is, check first-hand the condition of the house, the surroundings, the transport routes that connect to the area, etc.
- Know who owns the house. Make sure that you check any requirements, permits and legal status of the house from the area City planning office. Check for zoning, flood zone maps, architectural requirements and more. There are limitations on building size and any renovations might not be permitted. Many problems occur for these reasons.
- Once acquired, register the house in the Land Registry, to demonstrate that you have absolute rights on the house that has been acquired in Tenerife (what could happen if you buy an unregistered house?).
- If a deposit agreement is made prior to the signing at the Notary, look for an expert to verify the content of the contract and its effects.
- Hire a Solicitor to review any documents and include any clauses in the contract that will give you a way out in the event something goes wrong.
- DO NOT sign a contract without having your Solicitor review the document.
- DO NOT hire a Solicitor that was referred to you by the estate agent, or who works directly with the Real Estate Agency. We strongly suggest that you get an independent Lawyer.
- DO NOT sign any exclusive agreement with an estate agent.
To avoid these typical pitfalls of buying property in Spain, as well as the uncertainties and delays they usually cause, it is strongly recommended that you delegate all tasks to a lawyer experienced in dealing with conveyances in Tenerife.
5. Buying a House in Tenerife as a foreigner
As is generally the case with buying a property in Spain, the only essential requirement for buying a house in Tenerife is to obtain the NIE (Foreigner Identification Number). It is a personal and unique number, essential to carry out any transaction on the island, from opening a business to buying a house.
Once a non-resident obtains the Spanish NIE number, they can start the process for the purchase of the house. It is not mandatory to open a bank account in Tenerife, but it will facilitate the payment of taxes and expenses.
The purchase of the house is carried-out at a Notary and is registered in a public registry, that is, the Land Registry.
You should bear in mind, that before signing the deeds at the Notary, it is very common to sign a private contract of sale called “contrato de arras” (deposit contract), where a part of the price is already paid, on account of the final price which is paid when the house is transferred at the notary.
6. What taxes and expenses must be paid when purchasing a house in Tenerife?
The purchase of a house is subject to various taxes, which increase the cost of the house substantially. Among them are:
- The Value Added Tax (IGIC), in the case of new houses or first transmission of a property. Tax rate of 7 %.
- The Property Transfer Tax (ITP), in the case of second-hand residences or second transmission. The tax rate is 6.5 %. It must be paid if VAT (IGIC) is not applied in the transmission.
- Tax on Documented Legal Acts (AJD). It must be paid if the house is purchased and VAT (IGIC) is applied, and if it is purchased through a mortgage.
In addition, there are other expenses that must be taken into account:
- Public deed at the notary.
- Registration of the deed in the Land Registry.
- In the event that it is necessary to request a mortgage, it is also necessary to include the appraisal and the notary, the mortgage taxes and the registration of the deed in the Land Registry.
During the year you will also have to deal with other taxes, such as the Land Tax (IBI), property taxes, the Wealth Tax - if applicable -, the Personal Income Tax (IRPF) or, if you do not live in Spanish territory permanently, the Non-Resident Income Tax in Spain.
We can, of course, assist with ensuring compliance with all taxes relating to homeownership in Tenerife.
