Beware Of Hidden Taxes When Buying Bargain Property In Spain

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Back a few years ago it was common practice for buyers in Spain to pay to sellers an element of the transaction in cash and declare the value of the property at completion at a lower amount than actual purchase price. Clearly, this activity was illegal and an avoidance of transfer tax on behalf of buyer and capital gain tax on behalf of seller. It was however indicative in the system with even Notaries turning a blind eye when briefcases full of cash were blatantly counted in front of them.

Because money was flowing into Spain tax authorities rarely questioned transactions where clearly the property price being seen as being paid was very low in comparison to either the formal valuation of the property, the minimum amount registered as value at Town Halls or the mortgage level.

How times have changed. Black money transactions have now disappeared from the Spanish system. The arrest and imprisonment of a number of Notaries and lawyers put paid to individuals involved in the transactions being willing to knowingly allow it to happen and it is now accepted by all that it is fact breaking the law not just something that is an accepted practice within Spain.

In 2 years, I have seen no completions where black money has even been suggested as part of the transaction. It just does not happen any more.

How perverse therefore it is that the tax authorities within the regional governments who are desperate for cash are now questioning perfectly legitimate transactions where buyers have bought and paid a price that reflects the current depressed property market or are achieving big discounts on asking price because owners are desperate to sell.

The authorities are now investigating closely all property transactions; as they have little else to do; taking the Town Hall value ( Catastral value) multiplying this by up to 2.5 times and then if you buy at a level below this sending out tax bills for the difference between the tax correctly paid on the actual purchase price and the value the regional government are stating you must have made.

It is almost impossible for you to prove you did in fact pay the amount you signed for at Notary and that no black money transaction took place and as with all tax authorities they can state what ever they believe to be true and apply a further taxation at will. Failure to pay the extra cash they are demanding will result in an embargo being placed on the property.

It is almost beyond belief that in an environment where everyone knows bargains are available and property prices have fallen so heavily and in an environment where Spain needs to kick start its tourist and property industry that regional governments who have very local agendas rather than national ones are using such tactics to fill their coffers.

In the days when they could have legitimately pursued individuals where blatant black money transactions happened on a regular basis they chose not to. Now this does not happen and the reason for the low purchase price is because that is how much is being paid for the property they are insisting that you in fact paid more The tax authorities at regional levels are now telling buyers what the purchase was in “their view” and therefore how much tax you owe.

It is important before you complete on a property in Spain you ask your lawyer to check the minimum Town Hall value apply the 2.5 times increase and then check what you are actually paying does not fall below this amount and if it does that the Lawyer makes you aware of what the tax authorities could say after completion you owe even though in fact you legitimately owe nothing.

Please get a grip Spain! you are ruining your own country. Lack of transparency, government departments who do as they please with no ability for you to argue they are wrong will eventually scare any buyers off and take Spain back to a third world economy.

Buyers before you complete on that great bargain take as many steps as you can to ensure a nasty tax bill is not going to hit you a few months down the line.

It is about time Europe stepped in let us hope someone finally challenges these practice via the European courts and the tax authorities get told to refund the tax they have illegally taken.

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