Costs when buying property on the Canary Islands

In this blog, costs when buying property on the Canary Islands, we will give you an overview of the extra costs you should take into account when buying, owning or selling real estate on the Canary Islands. Obviously, the actual costs may be subject to changing regulations or local exceptions. We strongly recommend you to consult a legal advisor when you buy or sell property in Spain, and therefore also on the Canary Islands. Ask your consultant for an overview of all possible costs for your specific situation.

Costs when buying property on the Canary Islands

Costs when buying property on the Canary Islands

Compared to other Spanish regions, tax rates on real estate in the Canary Islands are remarkably favorable. So, the total extra costs for buying property remain relatively low, around 10% of the purchase value.

The transfer tax on real estate constitutes the largest part of the costs when buying property on the Canary Islands. The rate depends on whether you buy a newly built or a second-hand property. If you are buying a new property in the Canary Islands, you will pay 7% IGIC (General Indirect Tax of the Canary Islands) + 1% of the purchase price. If you are buying a second-hand home, the rate is 6.5% of the purchase value.

On top of that, you will have to pay registration fees. These usually amount to only a few hundred euros, depending on the purchase value of your property.

In the same range are the costs for the registration of the purchase agreement in the Spanish Land Register. These costs are also calculated on the basis of the purchase price.

When buying a property in the Canary Islands, it is advisable to seek legal advice from an independent advisor or a legal consultancy. A legal advisor can help you with your tax returns and can assist you with advice on those legal aspects of your purchase for which the notary is not responsible. The role of a notary in Spain is rather limited. For advice from a legal advisor on the purchase of your property, you will pay approximately 1% of the purchase value.

However limited the role of the notary, you will have to take into account notary fees. The notary fees depend on the purchase price of your property and, as in the rest of Spain, average about € 1,000.

Finally, you will also have to pay certain administrative costs, such as for switching utilities. Of course, these costs vary from company to company.

Costs when owning real estate

As a property owner in Spain you pay an annual property tax, the Impuesto sobre Bienes Inmuebles (IBI). If you do not file your annual personal income tax return in Spain but in the country where you officially reside, then you are not a tax resident in Spain and you will have to pay an additional non-resident tax on your property, the so-called Impuesto sobre la Renta de no Residentes (sin establecimiento permanente).    

The calculation of the property tax is based on the income you generate from your property. For periods when you rent out your property, 19% tax is charged on your gross rental income. Note that this rate only applies if you are a resident of the EU, Norway or Iceland. If you reside in another country, your tax will be 24% of your income. If you do not rent out or for those periods when your property is not rented out, a notional income tax is applied, calculated on the basis of the cadastral value of your property. Both the rates applied and the cadastral value may vary from one municipality to another.    

Note that the Spanish tax authorities do not send you a formal notice to file your tax return. As the property owner, you must submit the annual property tax return on your own initiative.

Also note that if there are several owners of the same property, a joint tax return cannot be filed. In that case, each owner must file a separate tax return for his/her portion of the property.

It is highly recommended to entrust your tax return to a legal representative.

Tax on the Canary Islands

Costs when selling real estate

When you sell Spanish real estate, you must pay a capital gains tax. This applies to both residents and non-residents. For residents some exemptions or reductions are possible.

For tax residents, a four-tier tax structure is used. For a capital gain from € 0 to € 6,000 the rate is 19%. The rate for a capital gain between € 6,001 and € 50,000 is 21%. On a capital gain from € 50,001 to € 200,000 23% is charged. From € 200,000 capital gains are taxed at 26%.

For non-residents a fixed rate of 19% is applied.

Certain costs you made for your property are deductible: renovation costs, notary fees, estate agent fees, etc. The official invoices serve as proof. 

The payment of this capital gains tax must take place within 90 days after the sale of your property. If you are a non-resident, 3% of the sale price is deducted as an advance payment. The exact amount must be settled with the Spanish tax authorities afterwards.    

As a seller of real estate in Spain, you must also pay a municipal capital gains tax, the so-called plusvalía municipal. This is a tax on the increase in value of the land. The calculation of the tax takes into account the term of your ownership, the location of the property and the taxable land price according to the cadastral data. The plusvalía is for the seller's account, unless the buyer agrees to bear the cost. This is something to take into account when concluding an agreement, both for the buyer and the seller.

Finally, in Spain an energy certificate, issued by an accredited inspector, is a requirement for any homeowner wishing to sell or rent. The cost varies, depending on the size of your property, between €100 and €500. However, those costs are deductible from the capital gains tax.

Conclusion

You should not be discouraged by this list of costs, fees and taxes. Compared to the mainland, buying, owning and selling property in the Canary Islands remains relatively cheap. It is however advisable to seek legal advice from a consultant who is familiar with the legal context, also for information on gifts of real estate and inheritance regulations. Be sure to ask us for the contact details of our partners in this field.

Do you want to make your dream: "your home under the Canary sun" come true? Then be sure to discover our unique way of working:

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Sources:

https://www.confianz.be/2018/09/11/kopen-canarische-eilanden/

https://www.sebleeson.com/vastgoed-kopen-in-tenerife/

https://www.spanjekoophuis.nl/informatie/tips/3/

 https://www.confianz.be/2018/01/11/meerwaardebelasting-in-spanje/


Costs when buying property on the Canary Islands

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