It Is Possible Not To Pay Enough For A Property - According To The Tax Man!

Published on 9/15/2009 in Buying Process

And you thought that you could sell the property at whatever price you wanted! Not so, according to the Spanish tax authorities.

To be fair to them they have traditionally had to struggle with chronic under-declaration of sale prices, with undeclared ‘B’ money cash payments on which transfer and capital gains tax was not paid, often being a substantial percentage of the price. So the tax authorities worked out a scheme and put into law that effectively the tax is levied on the higher of a notional 'market' value for the property or the price at which it is sold.

Tax manThis ‘notional’ value is calculated by applying a multiplier to the Catastral Value, which is a capital value estimate calculated for every property registered in Andalucía. It's the one that the annual property tax payment, the IBI, is calculated. As there are a huge number of properties, these Catastral values are regularly reviewed in rolling programme of Municipalities to reflect how market values change.

Thus, to achieve the ‘notional’ value, each municipality has it's own multiplier depending upon when the Catastral Value was last revised. For example, currently Estepona revalued in 2008, has a multiplier of 1.3, whilst neighbouring Benahavis has a multiplier of 3.2, not having been revalued since 1996. Right, so that all seems fair enough although it is effectively a bit of a ‘post code lottery’.

HOWEVER, let’s assume that you are desperate to sell, ‘distressed’ as it is termed, and you sell your ‘Bargain’ property at a genuine total price of say 300,000€ euros. BUT if the ‘notional’ value calculation shows say 400,000€ euros, it’s that latter value that the tax has to be paid on.

It affects both Capital Gains Tax and the 7% Transfer Tax, so both the Seller and the Buyer are hit. If the taxes are paid ‘only’ on the full price actually paid, which any honest buyer and seller would do unless the lawyers advising their clients point out this problem, the additional tax bill based on the ‘notional’ value can arrive many months after the sale.

If it's not promptly paid, bank accounts and other property can be embargoed. There is a right of appeal, but that involves getting independent valuers to provide reports showing the sale price was ‘fair’. But what if they cannot? What if the price was well below the market because the ‘distressed’ seller had to attract any buyer to urgently get ‘immediate’ money that maybe didn’t relate to the market value of the property.

Plus they will have the inevitable accountants and lawyers fees. All because the tax authorities have assumed, without any direct evidence whatsoever, that the buyer and seller are evading tax, which is now officially criminal money laundering.

Surely this cannot be right as it's ‘hitting a man when he is down’. Both buyers and sellers are being branded as criminals and forced to pay tax on non-existent money.

Written by: Campbell Ferguson

About the author:Survey Spain are Independent, Experienced, Professional Chartered Surveyors based in Marbella on the Costa del Sol, Spain, who speak both English and Spanish.

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lisamichelle1 said:
Wednesday, August 17, 2016 @ 6:20 PM

it is a hidden unfair tax , we got billed two years after buying , combined with the dishonest spanish workmen this venture has cost us a small fortune . The government are said to be corrupt this proves it . When it comes to money don't trust a Spaniard , and always ask for receipts .

Sarah said:
Thursday, July 12, 2012 @ 10:36 PM

We got a bill for 7000 euros extra. We logged an appeal in time. It cost me 1800 euros total for valuations and legal fees and we got the 7000 reduced to'2700.

Gordon said:
Sunday, June 26, 2011 @ 11:39 PM

Just been hit with an extra tax bill for 5900 euros. This was a complete suprise, and I was not aware that the taxman could move the goal posts like this.
We were told it was 7% of the declared sale price as agreed when the money was transferred at the notary. This was all carried out 100% honestly and above board, now the taxman says we have to pay more on some figure plucked out of the sky that may have been relevent some years ago when the building boom was at its peak. This is totaly illogical.

vinvent wright said:
Saturday, February 19, 2011 @ 3:01 AM

we have just received a bill for 5000 surely there should be more protection it will leave us with no money apart from our pension

Denise said:
Tuesday, April 6, 2010 @ 11:03 PM

We too have just been hit with a tax demand of an extra 3,500 euros. When we bought our land we paid the plus valia, 7% on the cost of the land,IVA on the work completed on the land to enable a house to be built on it and now we are being asked to pay this additional amount as the tax man stated we have underdeclared the value. Had we paid as the taxman requested we would hav paid 10% less. We feel conned. There is never any redress, they change the law or building requirements and you pay the consequences - just more demands an no support. We love Spain but wish we had never bought a property there. Its been nothing short of a nightmare.

Fenella said:
Tuesday, February 9, 2010 @ 5:23 PM

Yes we have been hit with a tax bill for €13,000, 4 years after purchasing.
Who is to blame, the lawyer, notory...who knows but apparently it has to be paid!

sandra said:
Tuesday, September 15, 2009 @ 2:49 PM

So much for all these 'bargains' we now hear are available.Who would want one when they are going to be hit with a huge tax bill when they buy and another ( I recently read the plus valia tax has just been raised to 20%) when they eventually sell?
Do the Spanish authorities not read the news, or do they wear blinkers and choose to ignore the prevailing economic circumstances and make these laws anyway?

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