The truth about "Under-declaring"
Monday, June 23, 2008 @ 8:11 PM
Over the last few years, people buying in Spain have been bombarded with the notion of 'under-declaring'. Thankfully now this practice is being flushed out.
What is 'under-declaring?
Sorry to state the obvious: Basically, many people who have bought in the past may have agreed to buy a property for a set price, but on completion were asked to declare on the deeds (escritura) that they were buying it for less - with the difference being paid in 'readies'. In short this would greatly advantage the sellers, as it would reduce their overall Capital Gains Tax liability (by reducing their declared profit).
The buyer was sold the story by being told that 'under-declaring' would reduce their purchase costs. While this was true to a certain extent, what the buyers did not realise was that when it comes to selling in the futrue , they will be lumbered with a much greater Capital Gains Tax bill, as their 'perceived' profit would be deemed to be greater than it actually is. As most buyers tended not too think this far ahead, many, as sellers, have now been stung with a higher bill to pay than expected as the authorities tighten up.
In short, under-declaring is illegal, and provides no real no long term benefit to the buyer. So those of you planning to buy, make sure the price you pay is the price on the deeds - stand your ground and be firm.