Tenerife Property Taxes
When buying or selling property in Tenerife, there are a number of taxes which may be due. Here we try to explain the Tenerife property tax system in simple terms. Overall when purchasing a property in Tenerife you should budget for an extra 10% of the purchase price in taxes and costs.
I.G.I.C. & Purchase Taxes
On resale property in Tenerife a 6.5% property transfer tax is levied, whereas on new developments purchased directly from the builder, 5% I.G.I.C Tax is payable.
Plus Valia is a tax based upon the increase in land value of a property between the last sale and the current sale. The land values are recorded in the local town-hall and are updated every 2-3 years. Plus Valia Tax applies to the seller, with the payment averaging between a few hundred euros but may be considerably more if the property has been owned for more than ten years.
Anyone purchasing a property from a person or company that does not have its residence in Spain, should withhold 3% of the purchase price. This sum has to be paid to the tax authorities by Non-Residents on account of any liability of the sellers for Capital Gains tax. However, in certain circumstances this does not apply.
Captial Gains Tax is payable by the vendor whenever they make a profit from the sale of a property, except in the following circumstances.
(A) When you sell a property which you have owned for more than 10 years and it is your primary residence, you do not have to pay capital gains tax. If you are a resident there will be no 3% retention but the sale will have to appear on you annual tax decleration.
(B) When the proceeds of the sale are used for the purchase of a new home. The proceeds must be reinvested in another property within two years of the sale. To qualify for this exemption, the property you are selling must be your permanent home, meaning you have to be a resident in Tenerife for tax purposes.
Urban taxes or I.B.I. have to be paid by the owner of a property once a year between the 1st of May and the 15th July (dates may vary between Councils). This is payable in addition to any community charges, and they depend on the condition, size and age of the property. The owner is responsible even if he does not receive a rate demand; it is his responsibility as well to find out the exact amount of the tax and to pay it between the dates stated above. Failure to do so will make you liable for a 20% penalty.
In order to avoid this penalty it would be wise to set up a direct debit. This means filling out a form, authorising that the demands for the tax are made directly to your bank, (possible after receiving the first invoice) thereby giving you peace of mind knowing that you will never be in arrears.