FAQ: Owning property – Janet Anscombe

People have all sorts of questions about owning property in Tenerife, whether about going to the notary, the costs involved in a purchase, how to sell, valuations, taxes, you name it. Below are some of the questions I’m most often asked. If your question hasn’t been answered below, please just ask in the comment box at the bottom of the page. Just click on any question to expand it to show the answer.

If your question is about complexes, community life or the Law of Horizontal Division please see the Complexes FAQ page HERE.

Buying

When you buy an apartment. does the money have to be paid by bank draft or can it be transferred electronically? Also, does it have to be in Euros to go into a Spanish bank or can it be in Sterling if the seller wants it to go straight to the UK?

Monies can be arranged however the buyer and seller agree. Normally this is by bank draft from a Spanish bank in Euros at notary, but payment can equally be made by bank draft in Sterling, or drawn on a British bank, or even transferred electronically to any bank anywhere. Any notarial costs have to be deducted before the seller gets his or her money, but the way that money is paid to the seller at that point is purely a matter of negotiation between seller and buyer. Do be aware that it is in the interests of the buyer not to hand over any money until sure the new escritura has been signed, and in the seller’s interests to have the money before signing. Given the two conflicting interests, and the astronomical risks involved, it is worth going back to basics in my opinion and to hand over a bank draft in notary at the point of signing.

If a buyer pays a deposit and changes his mind, who gets the deposit: seller or agent or both?

Do you hand the notary the bank draft at the point of signing or give it to your solicitor to do so in our presence? Does the banker’s draft have to be for the agreed full amount? How does it all work?

To save time, paperwork, monies and keys are all arranged in the notary’s office before coming face to face with the notary himself. The money is never actually handed to the notary anyway, but to the vendor, and it would be entirely normal for each side’s lawyer or other legal helper to exchange monies and keys before the moment of actual signing. The bank draft can be for any percentage of the purchase price – how the monies are paid are entirely a matter of agreement between buyer and seller, though there is now a small limit of the percentage that can be paid in cash. The only rules in this respect are that the method(s) of payment must be listed in the escritura, and that all monies are traceable.

We were thinking about buying our Spanish property in the children's names for convenience and inheritance tax purposes but I'm worried about any tax/legal implications of doing such a thing. Any advice?

There are no legal implications as such. They would own the property outright and legally it would be nothing to do with you. I’ve known several people buy a property in their children’s name (or transfer it to them later) for such reasons. Any monies involved in a purchase must always be accounted for at notary, but there are no other issues unless you gift them the money in Spain, in which case there would be an issue of Gift Tax: adult children have an allowance of around €16,000 and then a rising tax rate which are the same as for inheritance tax in Spain).

Do all the same things apply to buying a mobile home, same taxes, ongoing costs etc?

A mobile home isn’t considered a “property” in the sense of purchase taxes, so it’s more like buying a car. I believe there will be taxes payable on the transfer of ownership, but they won’t be anything like the order of magnitude payable if you were buying an apartment. As to ongoing costs, this will vary on ground-site to site, and you’d need to speak to a tax adviser as to whether tax would be payable on an ongoing basis – from what I understand, it’s not clear whether the same non-resident assessment system applies to mobile homes as it does to bricks and mortar.

Do we need to do anything about the rates after we buy or will we just be sent a bill when they are due?

You need to take your escritura to the ayuntamiento and confirm that the property’s change of ownership has been registered by the seller. It should have been because it is the vendor who pays the plusvalia, and this involves submitting a copia simple of their sale, which gives the council the details of the new owner. It will be worth double checking, however, and while there you will be able to set up a direct debit for future payments.

Costs & Taxes

Could you tell me what costs are involved in buying a property, and how much I should allow for ongoing expenses?

We own an apartment but don't rent it out. We only use it for family holidays. We have just found out that we should be paying property tax based on assumed rental income? Is this true?

Yes, there is a notional rental income tax, which assumes legal but undeclared rental income. Please note that this is a tax imposed not just on “foreigners”, but any non-resident property owners, and so it is also payable by Spaniards themselves who perhaps live on the mainland with a holiday home in the Canaries. Please have a read HERE for all costs you might expect to have to cover as a result of owning property.

How and when is the Spanish tax due and payable? We have been told once a year, quarterly, that we both need to submit a tax return, even that we can and can't submit the declarations ourselves - all conflicting information. We know we cannot claim utilities against the income, only community charges and local taxes and we think we have to pay 24% on the rest.

Resident owners of property here should be submitting annual tax returns, but non-resident owners must also submit returns. These non-resident returns are made via the modelo 210 and will be annual or, if receiving declarable rental income, quarterly. Those submitting quarterly returns should bear in mind that the notional rental income tax is charged on any parts of a year for which no rental income has been received and so the annual return has to be made in this respect as well. Non-resident owners also have to prove they are fiscally resident outside of Spain, so will need to get an annual certificate of fiscal residence from the Inland Revenue or other national tax department.

With regard to the tax rate, it went from 24% to 24.75% for 2012, 2013 and 2014 as a “special temporary crisis measure”, but from 2015 was reduced to 20% (24% for non-EU nationals); it was reduced further to 19% in 2016 (again, 24% for non-EU nationals). As far as deductions are concerned, non-resident property owners who let out can now deduct all expenses connected directly with the letting of the property, eg electricity, water, cleaning services, etc. A gestor, asesor or accountant will help with the computations so that the deductions are allowed for the period of rental.

For jointly owned properties, a return has to be submitted in the name of both owners but this can be a single joint return rather than two separate ones. To answer a frequently-asked question, owners can do this themselves or employ someone to do it as they please: the obligation to employ a “fiscal adviser” was dropped years ago.

Could you please advise me where I can download the modelo 210 declaracion ordinaria for impuesto sobre la renta de no residentes?

Just within 4 years of buying my property I received a notice from the tax office saying that their valuation was more then stated in the escritura and that I had to pay the purchase tax on the difference between the two prices. I complained about the valuation and the time they had taken to ask for their tax, but they replied that the law allows them up to 4 years to notify and charge you interest on the delay. What else can be done about this?

This happens frequently when prices are far below what would normally be expected, and the tax office is correct to say that they have four years to demand a “top-up” sales tax. The problem has arisen, though, because of abuse in the past on the part of those directly involved with property transactions. “Black money” has traditionally been a standard part of such transactions and everyone, even notaries, knew it was happening.

The tax authorities’ only recourse was to take an independent view of the transaction and “assess to tax” any property for which they did not believe the price noted in the escritura. The problem has grown over the past five to ten years with prices genuinely falling, and buyers paying sometimes just 50% of a “tax value”. What will happen, for example, to all those properties bought as repossessions from the banks? These are sometimes at knockdown prices, abusive in several other senses, of course, but there could well be a serious tax bill waiting up to four years down the line for anyone who buys property far below what the tax office will accept as the tax value. As to what can be done about it – nothing, I’m afraid, as far as I know.

Please can you tell me what a Plusvalia is and why Solicitor says it must be paid by the Vendor and what it is based on?

We have been advised that we should arrange to transfer the ownership of our apartment into a UK Company to avoid substantial inheritance tax should anything happen to either of us, can you advise us on the above issues please?

I have to advise against it in the strongest possible terms. Unless the company is already trading in its own right, the scheme runs a clear and significant risk of being considered fiscal fraud by the Spanish tax authorities, and that is a very very serious issue indeed. There are occasions when such a transfer into a company can work, but very often it is not to the advantage of anyone. Do note that this is not my own personal view, but legal opinion: please read what I wrote HERE and seriously consider an alternative solution to the inevitable inheritance tax bill.

I would like to transfer ownership of the apartment wholly into my wife's sole name and to do this officially and with no loose ends.how long would this take, what would the likely cost be, and would my wife have to be present at the notary where I assume this process would take place?

There is a set legal procedure known as a Deed of Dissolution of Joint Ownership. Under the Deed system, the 6.5% transfer tax is not payable, rather there is a stamp duty of (I believe) 0.75% of declared property value or of the purchase price, if higher. Non-resident owners will also face a 3% retention taken in lieu of any capital gains tax due: this will only be levied on the transferred half, and only if the value declared is in excess of the purchase price. There will also be notary fees because the procedure is conducted at notary, land registry fees because the official record of ownership needs to be changed, and a lawyer’s fees if you were to use one, which I would strongly recommend.

So in total, you are looking at combined fees (lawyer, notary and land registry) of around €2000 or so, plus the stamp duty (o.75% of 100%), plus the non-resident retention (3% of 50%), this last being reclaimable as normal provided that tax affairs are in order (non-res returns, deemed notional rental income tax paid, for example). For the rest, it operates as though it were a sale-purchase, and so both parties have to be physically present or represented by someone holding either a general power of attorney or one specific for the purpose. Thereafter the Deed is registered with the land registry and the ownership details changed, and it all happens just as quickly as a sale would.

Valuations

Can I get a valuation of an apartment I am considering buying to submit to the tax people BEFORE I sign anything? If so, who gives me this valuation? and is this something my solicitor would do as part of his searches etc.

Yes, you can get a valuation up front, and it’s a good idea if someone is in some doubt about whether the tax office will accept the escritura price. It is provided by the tax authorities themselves, and can take up to a couple of months to get, but once it is given, the Hacienda has to stick with the value. It’s not an automatic part of a search, no, but it’s something they would do if specifically requested. You then keep it as a record of the fiscal value of the property so that the tax is known beforehand, and cannot be surcharged later.

Is there any way of finding out recent sold prices in the area rather than relying on an estate agents estimate of value that has been given to the seller?

Letting

We are considering letting out our residential apartment for three months. How can I find out what we are required to have or provide – things like complaints book (what form should this take?), fire extinguisher, smoke alarm etc?

You don’t need those things. A fire extinguisher and smoke alarm are a good idea of course, but not legal requirements. Complaints books are for commercial lets so won’t apply to you (and would only apply to the sole agent anyway if you had a tourist property). You just need a contract. For your own security, please read my “Renting a property” page in the Your Rights tab (direct link HERE) before committing yourself to anything.

Is there a list of residential property areas to assist buyers?

What is to stop a sole agent on a touristic complex basically hiking up the % they take from an owner each year. Are there any safeguards in place legally to restrict the % they can take/charge for their services?

Nothing to stop them, and no restrictions, other than the law requires them to act legally within their business model (a very broad definition!). But owners are entitled to remove their properties from the agent’s books, and if another would-be agent can get the requisite number, s/he would become the new agent. I suppose that voting with their feet is the only control they have, though it’s not much of a control because sometimes there aren’t enough who’ll walk, and they wouldn’t be able to let legally in the meantime. These are all the reasons why so many argue for changes in the legislation about the sole agent system, but it hasn’t happened.

Mortgages

How are hipotecas (mortgages) registered? Is it registered against the Referencia Catastral of the property?

I've been told it's compulsory to have life and buildings insurances with my mortgages. Is this correct?

It is compulsory to have buildings insurance with a mortgage under all circumstances, but despite what the banks frequently say, life insurance is not compulsory unless it is written into the terms of the mortgage document itself. Any policy you have for life insurance is likely to be very evasive about how to cancel. Most, though, have a clause somewhere allowing that the policy will lapse “if you cease payments”. Anyone with life insurance on a mortgage should also note that in the sad event that this becomes payable, it will come off the mortgage amount, not be paid as a cash lump to the insured.

I am a 50% owner of a property which is mortgaged, but the mortgage is in the name of my co-owner. What happens if he stops paying?

We have paid off our mortgage. What happens now?

Selling

What are the costs involved in selling our property in Tenerife?

Please have a look at the Notarial System & Costs page HERE: as you will see, as vendors you will be liable for plusvalía. Please also look at the Capital Gains & Inheritance Taxes Page HERE for an explanation of the capital gains tax payable, and the retention in lieu made for non-resident vendors. If you are using an estate agent, then there will be commission involved if they find you a buyer – this is normally 5% of the sale price but might be more or less depending on the particular agent.

I am thinking of putting a for sale sign outside my house. I have it with a few estate agents. Would estate agents have any problem with this.

They shouldn’t – it’s your house, and even an exclusive agreement with an agent wouldn’t preclude you trying to sell privately! If your property is part of a complex, technically you may not put up se vende (or se alquiler) signs, but a blind eye is frequently turned to them. The biggest problem you will find is that agents will be less likely to bring clients to view, fearing that they will jot down your number and deal directly.

The agent selling our house says we need an energy certificate before they can show our house to clients. Is this true? and who should do this job as the agent said they have there own people.

Anyone in the Canaries wishing to organize one of these certificates, or to confirm that someone else is legally able to issue them, should contact the Consejería de Empleo, Industria y Comercio. Dirección General de Industria y Energía, C/ León y Castillo, 200; Edificio Servicios Múltiples III , Planta 4ª; 35071 Las Palmas de Gran Canaria – tel: 928-899-400 . The full details on what is actually required (no, agents don’t need to be in possession of the physical certificates before they do viewings) are HERE.

What happens if you receive a fine, either refuse to pay or don’t have the means to pay and then a charge is levied against the property? Does this just stay there then until such time that the property is sold?

Yes, though a fine will attract “legal interest” of around 6% or so, plus possible penalties and costs so will end up being more than the fine levied. A fine charged against a property will show up when the new buyers’ conveyancer carries out a land registry sesarch – it will show up in the same way as any charge on the property, e.g. a mortgage. If a property is never sold but inherited on the death of the owner who was fined, inheritance tax would be payable before the property could be transferred. When it is transferred, it is treated like a sale, indeed the tax payable on a transfer is the same tax as that paid on a sale because a sale is, effectively, a transfer of title. Any fine would be payable at this point, along with interest, and along with transfer and inheritance taxes, before the property could be registered in your heirs’ names.

Can you advise of how long you have between selling and buying a property in Tenerife have you got to reclaim retention tax of 3%?

Is it correct that a resident over 65 who has been living in a house for three years is exempt from capital gains tax upon sale?

First, please read my page on capital gains tax HERE. As I say, “Fiscal residents over 65 who are selling a main home in which they’ve lived for more than three years are exempt from CGT without the requirement to reinvest.” So it’s not just a case of being over 65 and living somewhere for three years: the person must be both legally and fiscally resident, and have the property as a main home. As always, though, with tax issues, speak to a qualified adviser. You can contact Blevins Franks through links on this website – just put “Blevins Franks” in the search box above.

I am selling an apartment and have been asked for a certificate of fiscal residence from the tax office. Is this correct, and if so, how do I go about getting one?

It’s a normal and required process for vendors who are tax residents because they are required to prove they are fiscally registered and compliant in order to avoid the non-resident 3% retention being taken against any capital gains tax that might be due (also see HERE). You’ll need an appointment with the tax office and to take in personal ID and proof of ownership (copia simple would do) because the certificates are issued for specific transactions so the address of the property being sold will be recorded, as will the fact that it is being transferred to a new owner (who will also then be liable for taxes on the property). You will be given a date to go back and collect the certificate: it takes at least a couple of weeks so give them time to produce it before you have to sign at notary. Click HERE and select the first option (cita previa) for an appointment, then choose the option for certificates … you’re after a “certificado de residencia fiscal”.

If anyone has any further questions about the above, and can’t find answers through the search box or in the information behind any links given, please send an email to janetanscombe@gmail.com with your question.