The realisation of a lifelong ambition to own a property overseas is often far easier to achieve than people realise. However, for the prospective purchaser, the lack of knowledge and understanding of the laws and regulations in a foreign country can make the whole idea daunting.
Tenerife - the Island of Eternal Spring - is wonderful for both residents and visitors and its popularity continues to grow as the ideal place to move to, or own a holiday or retirement home.
This article is aimed at helping the prospective purchaser understand a little more about the process here and perhaps relieve some of the doubts about buying a property in Tenerife.
The Estate Agent
The work of a good Estate Agent in Tenerife is far more comprehensive than that of his counterpart in the U.K. and mainland Europe. The importance of the professionalism and the range of services offered by the Agent therefore cannot be over-emphasised.
Once you have chosen the 'right' Estate Agent for you, and after satisfying yourself as to his experience and knowledge of the property market, he will begin to help you to find a suitable property. The agent will show you, after establishing your exact requirements, a good selection of properties advising as to the best areas to invest in, comparing prices and the merits of each location.
Often, when first-time buyers find their ideal holiday home, they are full of excitement and eager to become the new owner. In their euphoria they often throw caution to the wind, instead of proceeding with great care. All prospective purchasers should ask themselves if they would purchase a property in the U.K. without the assistance of a Solicitor. If the answer is "no" then why should they purchase in a foreign country where the language and laws are different, without even taking professional legal advice? Most reputable agents employ the services of an English-speaking Spanish lawyer to ensure "peace of mind" for all parties to the transaction - even the agent's! Alternatively, people can use a lawyer of their own choice.
The Purchase (or Pre-Sale) Contract
After agreeing the Purchase Price a Contract will be prepared and a Deposit paid. The Contract will contain details of the vendor (seller) and the purchaser, the purchase price and method and timescale of payment. It will also confirm that the Escritura de Compraventa (Title Deed) is in the name of the vendor and can be transferred to the purchaser at the time of completion of the sale. The Contract will normally set out stipulations regarding penalties for non-fulfilment.
Legal Procedures on Buying
All property sales and purchases in Spain must be registered in a local Land Registry and the title deed (escritura) must be prepared by a public official, called a Notary. Both the seller and the buyer then sign this deed in the Notary's presence when final settlement takes place.
The Notary is responsible for ensuring that the Deed of Conveyance is drawn up correctly, fully and accurately describes the property and that the purchase price, or an agreed proportion of it, has been paid to the vendor in the appropriate currency. The Notary then witnesses the signing of the deed and collects fees and taxes. The Deed is then sent to the Land Registry where the name of the new legal owner is registered. It can take some time before the title deed comes back from the Land Registry and in the interim an authorised copy is given to the purchasers.
Fees and Taxes
There are two fees and two taxes payable on all transfers of Spanish properties.
The Notary is entitled to a fee for preparing the escitura and there is a further fee for registering the property in the new owner(s') name(s).
The first tax is a combination of a Document tax (0.65%), and Transfer tax - currently 5% of the official value if you are purchasing a new property, or 6.5% if you are purchasing a resale property. The second tax is the Plus Valia - an annual tax based on the increased value of the property, which is levied at an official rate on the assessed annual increase in value since the previous sale.
There are many factors which enter into the calculations of the total fees and taxes, but as a general rule of thumb, if you allow around 8/10% of the purchase price you will not be far out.
Finally, on the day fixed for completion, your agent and/or your lawyer will accompany you to the Notary to sign the title deed, arranging at that time to make the final payment to the vendor who will simultaneously pass over possession of the property to you, handing you the keys. At this stage the sale is completed.
Immediately after completion, the Notary will fax details of the title deed to the local Land Registry to inform them of the identity of the new owner to prevent the property being sold twice. In this way the Notary and the Land Registry act in tandem to protect and guarantee your interests.
Once the relevant taxes are paid, you (or your Estate Agent, or Lawyer) will be able to collect the original title deed submitted to the Land Registry for registration of your title.
Identification Number (NIE) Any person wishing to purchase a property or have fiscal representation in Spain must obtain a certified identification number and appoint a qualified fiscal representative who is resident in Spain to deal with his tax affairs.
There is a 3% Tax Retention on the sale of a property when the vendor is 'Non-Resident' for Tax purposes. Under current legislation, it is necessary for this 3% of the declared purchase price of the property to be retained by the purchaser, or his representative, and for this money to be paid to the 'Hacienda' (Spanish Inland Revenue) within 30 days of signing for the deeds. This is payable whenever the vendor is a non-resident of Spain to ensure that any taxes he may owe to the Revenue are paid before he/she disappears into the sunset!
The responsibility for ensuring that the money is retained and paid to the Hacienda is placed squarely on the shoulders of the purchaser and his representative. It is then up to the vendor to instruct his fiscal representative to claim the money back if this tax is not due. Your lawyer or Estate Agent will ensure that this is done for you. If the vendor is a 'resident' (i.e. has 'Residencia' in Tenerife) this retention is not required, as the vendor would be expected to be making his own personal annual Tax Returns.