7% tax on property purchase vs capital gains tax

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This topic contains 25 replies, has 10 voices, and was last updated by Profile photo of Anonymous Anonymous 3 years, 8 months ago.

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  • #56339
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    Anonymous
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    We recently purchased a house in Alicante province and we got a very good bargain. We weren’t desperate to own a house so we put in very low offers on a few homes before we evevtually found an owner who really wanted to sell. We got the house at approx 40% less than it was valued at in 2005.

    I have read all these stories on the internet where the Spanish tax authority comes after you for more tax. I guess a lot of properties, at least in the past, changed hands with part of it being in cash to avoid the 7% on the full amount. Our house was purchased completely legal and I have all the negotiations in writing because it was done by e-mail. Is that enough to keep the tax man off my back?

    If the tax authority did come after me anyway and let’s say they managed to up the value to more than I paid for the house and got the extra 7% from me now. What happens when I sell the property in the future? The house was valued at 1,500,000 in 2005 and I paid 900,000 this year. If they want me to i.e. pay tax on a perceived value by them for 1,200,000 and if I sell the house in the future for 1,600,000 do I pay captal gains tax 19% on the difference between 1,600,00 and 1,200,000 or the price I paid €900,000. The Spanish tax authority can’t have it both ways.

  • #105576
    Profile photo of Anonymous
    Anonymous
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    @Faltenborg wrote:

    We recently purchased a house in Alicante province and we got a very good bargain. We weren’t desperate to own a house so we put in very low offers on a few homes before we evevtually found an owner who really wanted to sell. We got the house at approx 40% less than it was valued at in 2005….. The house was valued at 1,500,000 in 2005 and I paid 900,000 this year.

    Who in their right mind would pay 900,000 euros for a property in Spain? Did you know that you will have thrown away approximately 100,000 euros in transaction costs alone in making that purchase! What a waste!

    You obviously think that house prices in Spain have reached the bottom in buying a property now but I reckon they have alot further to fall and anybody in the future putting in a bid for your property will put in cheeky offers of 500,000 euros, given the deteriorating economic situation in Spain.

    So far you have lost 100,000 euros in transaction costs in buying your property and the most anyone in the future will pay for your property will be 500,000 euros which is 400,000 euros less than what you paid for it and so taking into account transaction costs I reckon that you have lost in total 500,000 euros in buying that property! THAT IS HALF A MILLION EUROS THROWN AWAY – WHAT A WASTE OF MONEY!

    I know of one person who bought a house in spain for 450,000 euros at or near the height of the boom and it is now valued at 150,000 euros and he still can’t sell it and he will probably be lucky to get 75,000 euros for his property (that is a 375,000 euro loss on his original purchase price!)

    I wouldn’t worry about capital gains tax if I were you because your property won’t be appreciating in value any time soon, well at least for the next ten years!

  • #105577
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    @Faltenborg wrote:

    We recently purchased a house in Alicante province and we got a very good bargain. We weren’t desperate to own a house so we put in very low offers on a few homes before we evevtually found an owner who really wanted to sell. We got the house at approx 40% less than it was valued at in 2005.

    I have read all these stories on the internet where the Spanish tax authority comes after you for more tax. I guess a lot of properties, at least in the past, changed hands with part of it being in cash to avoid the 7% on the full amount. Our house was purchased completely legal and I have all the negotiations in writing because it was done by e-mail. Is that enough to keep the tax man off my back?

    that won’t have any bearing at all unfortunately. But if they state the value is say 1.2€ You can get a counter valuation done. As long as it is no more than 10% below theirs, they will accept the new figure.

    @Faltenborg wrote:

    If the tax authority did come after me anyway and let’s say they managed to up the value to more than I paid for the house and got the extra 7% from me now. What happens when I sell the property in the future? The house was valued at 1,500,000 in 2005 and I paid 900,000 this year. If they want me to i.e. pay tax on a perceived value by them for 1,200,000 and if I sell the house in the future for 1,600,000 do I pay captal gains tax 19% on the difference between 1,600,00 and 1,200,000 or the price I paid €900,000. The Spanish tax authority can’t have it both ways.

    well yes they can. if you pay 900.000€, you should be paying 72.000€ on the 8% tax. (In andalucia property over 400.000€ pays 8% instead of 7%. I am assuming it is the same in alicante.) if the say the min value is 1.2€ then you will pay total 96.000€ tax.
    If in the future you sell for 1.6 they will look at the 900.000€ you paid + 96.000€ in tax. So 18% on the difference between 1600000 and 996000.
    This is not the same as the difference between 1600000€ and 1296000€.

  • #105578
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    @desolation wrote:

    @Faltenborg wrote:
    We recently purchased a house in Alicante province and we got a very good bargain. We weren’t desperate to own a house so we put in very low offers on a few homes before we evevtually found an owner who really wanted to sell. We got the house at approx 40% less than it was valued at in 2005….. The house was valued at 1,500,000 in 2005 and I paid 900,000 this year.

    Who in their right mind would pay 900,000 euros for a property in Spain? Did you know that you will have thrown away approximately 100,000 euros in transaction costs alone in making that purchase! What a waste!

    You obviously think that house prices in Spain have reached the bottom in buying a property now but I reckon they have alot further to fall and anybody in the future putting in a bid for your property will put in cheeky offers of 500,000 euros, given the deteriorating economic situation in Spain.

    So far you have lost 100,000 euros in transaction costs in buying your property and the most anyone in the future will pay for your property will be 500,000 euros which is 400,000 euros less than what you paid for it and so taking into account transaction costs I reckon that you have lost in total 500,000 euros in buying that property! THAT IS HALF A MILLION EUROS THROWN AWAY – WHAT A WASTE OF MONEY!

    I know of one person who bought a house in spain for 450,000 euros at or near the height of the boom and it is now valued at 150,000 euros and he still can’t sell it and he will probably be lucky to get 75,000 euros for his property (that is a 375,000 euro loss on his original purchase price!)

    I wouldn’t worry about capital gains tax if I were you because your property won’t be appreciating in value any time soon, well at least for the next ten years!

    considering all the threads you have started asking the most basic of questions, maybe you should back yourself up with some real facts and figures before throwing your opinions around? J

    Just as thought

  • #105579
    Profile photo of Anonymous
    Anonymous
    Participant

    @fuengi wrote:

    considering all the threads you have started asking the most basic of questions, maybe you should back yourself up with some real facts and figures before throwing your opinions around?

    Just as thought

    Nobody is going to pay 900,000 euros for that property in the future. He has certainly lost almost 100,000 in transaction costs, now you cannot argue with that figure!

  • #105580
    Profile photo of Anonymous
    Anonymous
    Participant

    I am an adult and can do what I want with my money. What is it to you what I do with my very own money. What is the difference of buying a €300,000, €500,000 or €1,500,000 house. I assume people only buy what they can afford. I am hoping to get away from the cold and enjoy a bit of sunshine.

  • #105581
    Profile photo of peterhun
    peterhun
    Participant

    @fuengi wrote:

    If in the future you sell for 1.6 they will look at the 900.000€ you paid + 96.000€ in tax. So 18% on the difference between 1600000 and 996000.
    This is not the same as the difference between 1600000€ and 1296000€.

    So what you are saying is they when you buy you are taxed on the 1.2million imaginary price but when you sell you are taxed at the 960k real price?

    I get the message; do not buy property in Spain.

    One question, will there be time, a few years hence when these imaginary valuations can no longer be justified?

  • #105582
    Profile photo of Anonymous
    Anonymous
    Participant

    @Faltenborg wrote:

    I am an adult and can do what I want with my money. What is it to you what I do with my very own money. What is the difference of buying a €300,000, €500,000 or €1,500,000 house. I assume people only buy what they can afford. I am hoping to get away from the cold and enjoy a bit of sunshine.

    Paying 900,000 euros to get a bit of sunshine is a little expensive if you ask me. It is nice and sunny in England at the moment and with global warming it is expected to get even hotter in the coming years. Why pay 900,000 euros to live in a country where the sunshine causes premature ageing and can give you skin cancer.

    If it is hot weather that you are after then stay in Britain and go to a lovely hot sauna instead and save all the expense of going abroad and buying a property! Alternatively go to Spain and live in rented accommodation rather then buying.

    I find it really odd why people go to all the expense of buying a holiday home in Spain when they are going to spend just two weeks in the year living in it when they would be much better off just paying for a two week package holiday to Spain instead which will be much cheaper and avoid all the expense of owning a property in Spain.

  • #105583
    Profile photo of Anonymous
    Anonymous
    Participant

    @peterhun wrote:

    @fuengi wrote:
    If in the future you sell for 1.6 they will look at the 900.000€ you paid + 96.000€ in tax. So 18% on the difference between 1600000 and 996000.
    This is not the same as the difference between 1600000€ and 1296000€.

    So what you are saying is they when you buy you are taxed on the 1.2million imaginary price but when you sell you are taxed at the 960k real price?

    I get the message; do not buy property in Spain.

    One question, will there be time, a few years hence when these imaginary valuations can no longer be justified?

    Even after buying a property in Spain I do have to agree with the above. It is not for the faint hearted and not something I recommend if you are trying to keep your blood pressure down. It is amazing what Spain gets away with.

    It is surprising that their Wild West style of running the country is still holding up even after joining the EU and also being part of the Euro. If they want to be part of the civilized world things have to change but I do realize that will take a long time.

    I am not planning on selling the property anytime in the near future and hopefully the EU rules have caught up with Spain when it comes to that time.

  • #105584
    Profile photo of Anonymous
    Anonymous
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    @desolation wrote:

    @Faltenborg wrote:
    I am an adult and can do what I want with my money. What is it to you what I do with my very own money. What is the difference of buying a €300,000, €500,000 or €1,500,000 house. I assume people only buy what they can afford. I am hoping to get away from the cold and enjoy a bit of sunshine.

    Paying 900,000 euros to get a bit of sunshine is a little expensive if you ask me. It is nice and sunny in England at the moment and with global warming it is expected to get even hotter in the coming years. Why pay 900,000 euros to live in a country where the sunshine causes premature ageing and can give you skin cancer.

    If it is hot weather that you are after then stay in Britain and go to a lovely hot sauna instead and save all the expense of going abroad and buying a property! Alternatively go to Spain and live in rented accommodation rather then buying.

    I find it really odd why people go to all the expense of buying a holiday home in Spain when they are going to spend just two weeks in the year living in it when they would be much better off just paying for a two week package holiday to Spain instead which will be much cheaper and avoid all the expense of owning a property in Spain.

    Please get a life! If you are from the UK you know that €900,000 doesn’t even get you a one bedroom apartment with view of a brick wall in London. So please don’t discuss prices with me since you are from a country with some of the most stupidly priced real estate in the world.

    NO, I am not from the UK.

    Maybe €1,000,000 is to me what €100,000 is to you. Therefore the price I paid is irrelevant and not what the discussion is about.

  • #105585
    Profile photo of Anonymous
    Anonymous
    Participant

    @Faltenborg wrote:

    I am not planning on selling the property anytime in the near future and hopefully the EU rules have caught up with Spain when it comes to that time.

    Some people just have to learn the lessons the hard way. If you only took some advice before making your property purchase you would have been better off.

    Don’t hold your breath in waiting for Spain to change its rules on the way it calculates capital gains tax on property, with the Spanish Government desperate for cash as a result of its financial problems they will be out to screw you for every penny you’ve got!

  • #105586
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    @peterhun wrote:

    @fuengi wrote:
    If in the future you sell for 1.6 they will look at the 900.000€ you paid + 96.000€ in tax. So 18% on the difference between 1600000 and 996000.
    This is not the same as the difference between 1600000€ and 1296000€.

    So what you are saying is they when you buy you are taxed on the 1.2million imaginary price but when you sell you are taxed at the 960k real price?

    I get the message; do not buy property in Spain.

    One question, will there be time, a few years hence when these imaginary valuations can no longer be justified?

    Hi peter, sorry if it was not clear.
    capital gains is based on revenue minus costs. the 1.2 is a hypothetical figure. What I am saying though is he has to pay nay additional tax, due to minimal sales price given in hacienda, etc… then those costs can be added when working out capital gains in the future.

    you can argue these valuations now. But the sensible thing it to find out this figure first. Only takes a day to find out the minimum.

  • #105587
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    @desolation wrote:

    @fuengi wrote:
    considering all the threads you have started asking the most basic of questions, maybe you should back yourself up with some real facts and figures before throwing your opinions around?

    Just as thought

    Nobody is going to pay 900,000 euros for that property in the future. He has certainly lost almost 100,000 in transaction costs, now you cannot argue with that figure!

    you have not even asked what he has bought, the location, qualities, etc… So yes you statement are still unsupported

    EDIT: Although I do agree if the valuaiton was 1.5 several years ago a valuation should come out to about 1000000 now (assuming the valuation was accurate and not inflated). If so a further 20% should be knocked of to give a market price. So around 800/850.000€. With an offer around 700.000€.

    But this is easy to say without more knowledge of the property in question.

  • #105588
    Profile photo of Chopera
    Chopera
    Participant

    @Faltenborg wrote:

    We recently purchased a house in Alicante province and we got a very good bargain. We weren’t desperate to own a house so we put in very low offers on a few homes before we evevtually found an owner who really wanted to sell. We got the house at approx 40% less than it was valued at in 2005.

    I have read all these stories on the internet where the Spanish tax authority comes after you for more tax. I guess a lot of properties, at least in the past, changed hands with part of it being in cash to avoid the 7% on the full amount. Our house was purchased completely legal and I have all the negotiations in writing because it was done by e-mail. Is that enough to keep the tax man off my back?

    The local council should hold their own valuation of your property, regardless of what you actually paid for it, and you can find this out from them. If their valuation is significantly higher than what you declare you paid they can fine you, because they’ll assume you under declared the price to avoid tax (even if you didn’t). So if you don’t want to risk having them on your back then you can declare to them that you paid their valuation for your property, and pay the additional tax. It sounds incredible that the councils can behave like this, but this is Spain.

    As an annecdote I know somebody who bought a cheap property in Zamora about 10 years ago, and did everything legally and above board, but the council still went after him because they valued the property much higher than what he actually paid for it. He ended up declaring that he paid their valuation for the property to avoid the fine. Also I bought a property last year and had a similar situation: we paid €330k but the council valued it at €350k. So we declared we bought it for €350k and paid the extra tax to avoid any hassle.

    @Faltenborg wrote:

    If the tax authority did come after me anyway and let’s say they managed to up the value to more than I paid for the house and got the extra 7% from me now. What happens when I sell the property in the future? The house was valued at 1,500,000 in 2005 and I paid 900,000 this year. If they want me to i.e. pay tax on a perceived value by them for 1,200,000 and if I sell the house in the future for 1,600,000 do I pay captal gains tax 19% on the difference between 1,600,00 and 1,200,000 or the price I paid €900,000. The Spanish tax authority can’t have it both ways.

    Good question. I assumed they’ll tax you on any profit you make above the declared purchase price, i.e. the difference between 1,600,00 and 1,200,000 in your example above, but I’m not sure.

  • #105589
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    @chopera wrote:

    Good question. I assumed they’ll tax you on any profit you make above the declared purchase price, i.e. the difference between 1,600,00 and 1,200,000 in your example above, but I’m not sure.

    I don’t think so, because the capital he still put is was 900.000€ plus 96.000€. Not 1.2 plus 96.000€.

    So 1.600.000€ minus 996.000€ = 604.000€ profit

    of course there a more costs that are deductible, but no need to get into this right now.

    It all comes down to the capital you have put in. (that seems like the most sensible thing anyway)

  • #105590
    Profile photo of Chopera
    Chopera
    Participant

    @desolation wrote:

    @Faltenborg wrote:
    I am an adult and can do what I want with my money. What is it to you what I do with my very own money. What is the difference of buying a €300,000, €500,000 or €1,500,000 house. I assume people only buy what they can afford. I am hoping to get away from the cold and enjoy a bit of sunshine.

    Paying 900,000 euros to get a bit of sunshine is a little expensive if you ask me. It is nice and sunny in England at the moment and with global warming it is expected to get even hotter in the coming years. Why pay 900,000 euros to live in a country where the sunshine causes premature ageing and can give you skin cancer.

    If it is hot weather that you are after then stay in Britain and go to a lovely hot sauna instead and save all the expense of going abroad and buying a property! Alternatively go to Spain and live in rented accommodation rather then buying.

    I find it really odd why people go to all the expense of buying a holiday home in Spain when they are going to spend just two weeks in the year living in it when they would be much better off just paying for a two week package holiday to Spain instead which will be much cheaper and avoid all the expense of owning a property in Spain.

    You spent last week posting loads of new threads trying to find out very basic information about Spain, and now you talk as if you are an authority on something you know nothing about! You don’t know where the property in question was bought, how big it is, etc. For all you know Faltenborg might have bought the Alhambra for €900k! In which case it would have been a bit of a bargain, don’t you think?

  • #105591
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    @chopera wrote:

    You spent last week posting loads of new threads trying to find out very basic information about Spain, and now you talk as if you are an authority on something you know nothing about! You don’t know where the property in question was bought, how big it is, etc. For all you know Faltenborg might have bought the Alhambra for €900k! In which case it would have been a bit of a bargain, don’t you think?

    😆

  • #105593
    Profile photo of Anonymous
    Anonymous
    Participant

    @chopera wrote:

    You spent last week posting loads of new threads trying to find out very basic information about Spain, and now you talk as if you are an authority on something you know nothing about! You don’t know where the property in question was bought, how big it is, etc. For all you know Faltenborg might have bought the Alhambra for €900k! In which case it would have been a bit of a bargain, don’t you think?

    You are making an assumption that just because I ask some questions about the Spanish property market that it somehow means that I don’t know anything about the Spanish property market. Well, you are wrong, I know alot more than you think I do. Besides, I am pretty sure that what is am saying will turn out to be correct. After all it is pretty much agreed by many people that the bottom in house prices in Spain has yet to be reached and house prices in Spain are still over valued and will continue falling for several years to come.

  • #105594
    Profile photo of Chopera
    Chopera
    Participant

    @desolation wrote:

    You are making an assumption that just because I ask some questions about the Spanish property market that it somehow means that I don’t know anything about the Spanish property market. Well, you are wrong, I know alot more than you think I do.

    I have made no assumptions about your knowledge about the Spanish property market. I have no idea what level of knowledge you have. I just pointed out that last week you were asking a lot of basic questions and now you are speaking as an authority on a property transaction that you know nothing about. I find that odd.

    @desolation wrote:

    Besides, I am pretty sure that what is am saying will turn out to be correct. After all it is pretty much agreed by many people that the bottom in house prices in Spain has yet to be reached and house prices in Spain are still over valued and will continue falling for several years to come.

    I happen to be one of those people who thinks house prices in Spain will keep falling for several years to come. However that doesn’t put me in a position to judge whether Faltenborg made a good decision on buying his property. I don’t know anything about the property (apart from the price) and I don’t know anything about his circumstances. Without that knowledge (and it really is none of our business anyway) we are not in a position to comment.

  • #105607
    Profile photo of Anonymous
    Anonymous
    Participant

    It’s an interesting question that I am not sure anyone can answer.

    I suspect that you will have to pay capital gains tax on the increase based on the declared escritura and not the nominal value that the tax authorities are using for the 7% sales tax.

    I state this because when people come to sell in 5, 10, 15 years time etc, there will be no records held (or available) by Hacienda that show the price you purchased except the escritura. In addition when they ask for proof of purchase price they will turn to the escritura.

    I might be wrong.

    The alternative is that they agree you paid too much sales tax and state that it will be refunded from the capital gains payable on the larger gains value. In this way they receive the maximum tax possible.

    If I were to be really sceptical, in the alternative scenario, I would suggest that in refunding, to you, the excess sales tax they could apply the existing time scale limits and state that you are outside of them and no refund of sales tax is possible.

    Time will tell!!

  • #105624
    Profile photo of Mexberry
    Mexberry
    Participant

    If Faltenborg wishes to purchase a particular house and has pockets deep enough to afford it then go for it and who the hell is anyone else to be critical. My only suggestion would be for Faltenborg to get himself a solicitor with connections with the particular govt. ministry to get their decision modified to reflect market conditions.
    Mexberry.

  • #105638
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @chopera wrote:

    For all you know Faltenborg might have bought the Alhambra for €900k! In which case it would have been a bit of a bargain, don’t you think?

    Top point of the week, very good, where do these people pop up from and my goodness what an agenda…. 😆 😆

    Faltenberg, you sound like you know what you are doing, sounds like you made a great buy and yep you might get hit for the tax, but yep sit it out and just enjoy your new home for the next decade or so, I have a feeling Spain will be a very different place by then, just as it is from 10 years ago.

  • #105657
    Profile photo of Inez
    Inez
    Participant

    Capital gains on selling will be charged on the difference between the declared purchase price as per escritura and declared selling price as per new escritura MINUS allowed costs (ie purchase costs and renovations where there are receipts).

    The purchase tax is decided by Hacienda using their own valuations – most outdated and far too high, but if you declare too much lower than their valuation then you will be charged the difference. As will the new buyer unless valuations are adjusted before that time.

  • #116764
    Profile photo of Anonymous
    Anonymous
    Participant

    Inez, or similar expert. Can you clarify what you are allowed to add to the original selling price. For example

    Apartment boought 2002 for 100.000

    Legal fees 1.000
    Tax paid on purchase 7.000
    Kitchen fitted (bought as shell) 7.000
    Notary fee 1.000
    Other costs (beds, tvs etc) all with invoices 2.000

    Total purchase cost €118,000
    Sale price €130.000

    Taxable gain, €12.000

    Or are you also allowed to claim inflation indexation on the original amount?

    If you know a website i could use to calculate the liability this would be helpful.

  • #116775
    Profile photo of Fuengi (Andrew)
    Fuengi (Andrew)
    Participant

    Hi,

    further, if using a lawyer for the sale you can include their fees, also estate agent fees, etc….

    if in the figure of 130k furniture is included, make sure its also reflected. 125k for the apartment and 5k for the furniture.
    You can also calculate for inflation since 2002. That should shave a little more off.

    But I would suggest you talk to you gestor. S/he should be able to cover everything.

    Also make sure you have invoices for everything!

  • #116778
    Profile photo of Anonymous
    Anonymous
    Participant

    Now that this thread has been resurrected, it’s interesting to note that the 1.5 million Euro property, could probably be picked up for another circa 20% less today.

    So the original poster is probably down a quarter of a million Euros or more on this purchase in under 2 years.

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