Costs of Buying Property in Tenerife
When buying a property in Tenerife, the purchase price is only part of the total cost. There are several taxes and professional fees to budget for, and the amount you pay depends on whether you are buying a resale property or a new-build property.
Understanding these costs before you start looking will help you establish a realistic budget and avoid surprises later.
The Main Costs of Buying Property in Tenerife
The main costs can include:
- Property Transfer Tax (ITP) on resale properties
- IGIC and Stamp Duty (AJD) on qualifying new-build purchases
- Notary fees
- Land Registry fees
- Legal fees
- Mortgage-related costs, if you are borrowing
- Property valuation fees, where applicable
- Other administrative costs
The exact amount will depend on the property, how you are financing the purchase and your individual circumstances.
Resale Property: Property Transfer Tax (ITP)
When purchasing a resale property in Tenerife, the buyer will normally be liable for Impuesto sobre Transmisiones Patrimoniales (ITP), the Canary Islands Property Transfer Tax.
The general rate for the transfer of real estate in the Canary Islands is currently 6.5%. There are specific reduced rates and conditions in some circumstances, so the rate applicable to an individual purchase should always be confirmed before completion.
For example, a 6.5% tax on a €300,000 taxable property value would be:
€300,000 × 6.5% = €19,500
The tax is not necessarily calculated simply from the price agreed with the seller. The applicable taxable value and the Canary Islands tax rules need to be considered.
The Canary Islands Tax Agency provides tools for determining the tax value of properties and publishes the applicable valuation information.
Important
The tax position can be different if the property is intended to become your habitual residence and you meet the relevant conditions. For example, a 5% rate can apply in certain circumstances to qualifying habitual residences with a taxable base of €200,000 or less.
Your Spanish tax adviser or lawyer should confirm the rate applicable to your particular purchase.
New-Build Property: IGIC
New-build properties are treated differently from resale properties.
Instead of ITP, the purchase may be subject to IGIC (Impuesto General Indirecto Canario), the Canary Islands' indirect tax.
IGIC is the Canary Islands' equivalent of VAT in many transactions, although it is a separate tax system with its own rules.
The typical rate of 7% is more reasonable that the UK. However, the precise tax treatment depends on the type of property and transaction, so buyers should establish the applicable rate and whether any other taxes apply before committing to the purchase.
Stamp Duty (AJD)
Certain property transactions and notarial documents are also subject to Actos Jurídicos Documentados (AJD), commonly referred to as Stamp Duty.
Whether AJD applies, and the amount payable, depends on the nature of the transaction.
This is another reason why it is important to have the complete costs confirmed before signing a purchase contract.
Legal Fees
Using an independent Spanish property lawyer is strongly recommended when buying property in Tenerife.
Your lawyer can carry out important checks on the property and the seller, review contracts and help ensure that the purchase proceeds correctly.
Legal fees vary between firms and according to the complexity and value of the transaction, so ask for a clear quotation before instructing a lawyer.
Using an independent lawyer is particularly important for overseas buyers who may not be familiar with the Spanish property system.
Notary Fees
The purchase deed is signed before a Spanish Notary.
Notary fees are regulated and depend on the nature and value of the transaction.
Your lawyer or notary should be able to provide an estimate of the expected cost before completion.
Land Registry Fees
Once the purchase has completed, the new ownership needs to be registered with the Spanish Land Registry.
There is a fee for registering the transaction, with the amount depending on the circumstances of the purchase.
Your lawyer will normally deal with the registration as part of the completion process.
Mortgage Costs
If you are taking out a Spanish mortgage, there may be additional costs associated with arranging the finance.
These can include:
- Property valuation
- Mortgage administration
- Bank-related charges
- Insurance requirements
- Other costs associated with the mortgage
The exact costs depend on the lender and mortgage product.
If you are considering finance, obtain a full breakdown of the costs from the lender before committing yourself.
Other Costs to Consider
The purchase itself is not the only financial commitment.
Community Fees
Apartments and properties within managed developments may have regular community fees. These can vary considerably depending on the development and the facilities provided.
Property Insurance
Buildings and contents insurance should be considered, particularly if the property will be left unoccupied for periods of time.
Local Property Tax
Property owners are generally liable for local property taxes, commonly known as IBI. The amount depends on the property and its cadastral value.
Utilities
You will also need to budget for electricity, water, internet and other household services.
Maintenance
Allow for routine maintenance, repairs and replacement of appliances or furnishings.
How Much Should I Budget?
There is no single percentage that applies to every Tenerife property purchase.
The total additional cost depends on factors including:
- whether the property is new or resale
- the purchase price
- the taxable value
- whether you are using a mortgage
- the legal and professional services you require
- your individual circumstances
As a result, it is better to calculate the costs for the specific property rather than relying on a general percentage.
Your lawyer or tax adviser should provide a detailed estimate of the taxes and fees applicable to your purchase before you commit to the transaction.
Example: A €300,000 Resale Property
As a simple illustration, suppose you are buying a resale property for €300,000 and the applicable ITP rate is 6.5%.
The ITP would be:
€300,000 × 6.5% = €19,500
You would then need to add the applicable legal, notary, Land Registry and other costs.
This is only an illustration. The actual tax calculation must take account of the applicable taxable value and your circumstances.
Get the Costs Right Before You Buy
Understanding the full cost of a property purchase before making an offer is an important part of planning your budget.
At Tenerife Property Finder, we help buyers understand the purchasing process and identify suitable properties based on their requirements and budget.
If you are considering buying property in Tenerife, we can help you take the next step.
Thinking about buying in Tenerife? Get in touch with us today.
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