The number of different taxes in Spain can be confusing, particularly where they are issued retrospectively. For example, there has been a lot of coverage in the expat press and online forums about a tax that is issued up to five years after you have purchased a property.
Complementary Tax - the background
The actual name of this complementary tax is 'notificación de liquidación provisional del impuesto de transmisiones patrimoniales y actos jurídicos documentados', The tax originated because many years ago in the hay day of property build and purchase in Spain it became common practice to declare a lower sale price than was actually agreed. This practice was not legal but was widespread. It meant that both vendor and buyer had less capital gains and Spanish transfer tax to pay at a time when house prices were increasing rapidly. A mutually agreeable arrangement for them to the detriment of the tax man.
The Spanish tax man fought back with complementary tax. A demand for this supplementary transfer tax can be issued anything up to five years after the property has been purchased. It occurs when the Tax Authority value your property higher than what you actually declared it to be and charge 7% tax on the difference. The official value is calculated by the floor size and a formula is applied that varies according to where the property is located and local coefficients.
So, for example:
Purchased property price: 100,000€ (7% tax paid: 7,000€)
Tax Authority valuation: 140,000€ (7% tax calculated: 9,800€)
-40,000€ (7% tax outstanding: 2,800€)
Increase in cheap property
The property boom might be over but complementary tax demands are being received in increasing numbers. Whereas before, it was purchasers and vendors collaborating to reduce their tax bill, now it is the multitude of bargain property available that is keeping the tax in the spotlight. Purchasers are genuinely buying property that is well below the valuation given by the Tax Authority. However, there is currently no account taken of the fall in prices or adjustments made for the changing market.
Purchasers receive two notifications from the Tax Authority. The first notification is Modelo B10 and includes the details of the demand and the factual information that the Tax Authority are basing it on. It is important to check these details as they do make errors and now is the time to correct any factual inaccuracies. This does not mean, at this stage, querying the Tax Authority's valuation but challenging any major mistakes such as whether the price taken from the Deeds and quoted in the notification is correct.
The second notification can be expected between 30 to 50 days after the initial letter arrives. This is the final communication and once you have received this you only have 30 days in which to lodge your appeal and up to 45 days in which to pay the tax or request stage payments.
Because of the tight and strict deadlines it is very important that non-residents ensure there is some means of them receiving the notification. It might be through making arrangements for a neighbour to check the post or through fiscal communications being received via a representative. The Tax Authority make only three attempts to contact you, one of which is through the 'bóletin', a list of transgressions and notifications, which would need to be checked daily to ensure your name wasn't on it. No allowance is made for a property owner being in another country when it arrives at their Spanish address.
This tax can be prepared for and contested. A solicitor or fiscal representative should be able to give a rough idea of how much the tax might be. A prospective purchaser can then choose to put this money aside in case a tax demand is issued.
However, there is another option for those faced with a complementary bill. Provided the home owner receives the second notification in sufficient time, they can appeal. In our experience, appeals have usually been successful and result in a substantial saving. You only have up to 30 days in which to do this, so need to take action fast if a letter arrives.
If you are considering buying a property at a vastly reduced price then don't be dissuaded. You might have to put a little more money aside but you will still have bought a bargain, especially if you appeal.
Written by: Abaco Asesores
About the author:
Suzanne O'Connell is information co-ordinator at Abaco Asesores, a firm of tax and legal advisers who specialise in Property Conveyancing, Property Taxes, Personal Income Taxes, Residence Permits, Spanish Wills, Probate and Inheritance matters.
They have offices in Torrevieja, in the city of Alicante and in Vera (Almería).
Tel: (+34) 96 670 3750
Fax: (+34) 96 670 3656
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