Naive couple want to buy a house in Spain!

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This topic contains 14 replies, has 9 voices, and was last updated by Profile photo of Anonymous Anonymous 10 years, 3 months ago.

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  • #52142
    Profile photo of Anonymous
    Anonymous
    Participant

    Hi there, this is a great forum but at the same time it’s making me a little nervous! We want to buy a house in Sapin but don’t know what Under Declaring means nor IVA. Any help would be greatly appreciated.
    Thanks Bopsy

  • #65025
    Profile photo of Anonymous
    Anonymous
    Participant

    Hi Bopsy,

    IVA is the Spanish equivalent of VAT currently 7% which is applied to all property purchases in Spain.

    Whether you buy off plan or a resale property, the amount is the same, the name is different, so you need to account for 7% of the purchase price.

    Under declaring you don’t want to get involved with 😉 This is when you under declare the value of the property, when sold, the value under declared doesn’t show up on the books, therefore you are not liable for capital gains tax on this amount.

    Be very careful on this as in the past a lot of sales have gone through with Black Money for the under declared amount leading to a chain of problems later on.

  • #65031
    Profile photo of Anonymous
    Anonymous
    Participant

    Thanks Rockitt. I’ll keep reading the forum and hopefully will avoid pitfalls!

  • #65070
    Profile photo of Anonymous
    Anonymous
    Participant

    I’m told that if a property is undeclared in value, then your home free after two years and they cannot fine you! This issue is a bit confusing for me also…

  • #65071
    Profile photo of Anonymous
    Anonymous
    Participant

    Under- Declaring

    While you may not be fined by the authorities for under declaring the property value after two years have passed, your problems may not end there….

    What happens if you agree to under declare the purchase price when you buy BUT when you come to sell YOUR purchaser refuses to? The result is that the value of your property, at least on paper and as far as the authorities are concerned, has increased substantially and you will be liable for all the tax on that increase. In effect, you have paid your vendors tax liability for him with absolutely no benefit to yourself.

    This is especially the case in a buyers market when you may be struggling to sell and cannot find another buyer who is willing to under-declare by the same amount.

    Only my tuppence worth…..

  • #65074
    Profile photo of Anonymous
    Anonymous
    Participant

    That makes sense Smiffy. Although I don’t know how bad that problem is in the costa, but definately down my neck of the woods (near Gibraltar) the problem is rife. In fact alot of agents etc don’t even see it as a problem, its a normal process!

    I remember a friend at work telling me that she went ahead on a purchase and didnt even know about the black money thing until she was practically at the door of the Notary. When she probed further (almost too late), the agents and lawyers waved it away, irritated by her questions. They told her to ‘shut up’ basically and just do what she was instructed. That’s horrendous. People around here simply shrug it off as normal, which is not only bizarre, but nasty to ignorant buyers.

  • #65079
    Profile photo of Anonymous
    Anonymous
    Participant

    If you join the chain by accepting to pay black money to a vendor, this is decreasing your chances of potential buyers in the future. I.E. you can only sell to someone that is aware and prepared to do the same.

    Basically it is a TAX dodge and WILL eventually be found out.

    If you start the chain off, then you are leading yourself down a slippery slope as everything once found out can be traced to source.

    If someone is asking you for a briefcase full of cash to purchase, turn on your heels and walk away.

  • #65080
    Profile photo of Melosine
    Melosine
    Participant

    Only last week a couple ended up in hospital ,in Mojacar, when leaving the bank with cash to go to the notories office. Robbers were caught .
    This is not a one off incident in Spain apparently. Often in the newspapers .

    Are these coincidences or ???????

    Notories everywhere have a habit of leaving the room when money changes hands.
    What is practicable ,but illegal , and works for the Spanish 🙄 is not for us Brits.

    Underdeclaring is like pyramid sales only those at the top reap the benefits that others are paying for.

  • #65081
    Profile photo of Anonymous
    Anonymous
    Participant

    Hi there Bopsy and everyone else

    It is a fallacy that you cannot be fined after two years. I have recently received a fine for underdeclaring (even though I declared the correct amountt) after five years and I know many more who have also been fined. The short answer is do not do it.

    Also keep a very careful record of every penny you spend on the house and get certification from the bank for it as to where it comes from. Then if they do fine you later for under declaring you can prove you didnt. No guarantee they will drop it but thye just might if you can prove it. If not forget it.

    Also read the article below which is entitled Are You A Fraduster And Didnt know it, which explains about the process of black money and what to do if confronted

    Best wishes

    Vince

  • #65082
    Profile photo of Anonymous
    Anonymous
    Participant

    Are you a fraudster and didn?t know it?

    We mentioned in our first issue of the Coastal Trader about under declaring the value on your property and, how many, are now receiving fines. Many of you will have unwillingly done the same, but perhaps what you don?t realise is that this is fraud and you, the buyer and seller, are liable.

    Common practice or common sense?
    Many of you will have been told by your agent or lawyer, that some money is ?Black? and is passed under the table when the Notary leaves the room. Whilst it is common practice – so common many regard it as a right they don?t t want to lose – what it amounts to is Fraud. Agents even call the Notary beforehand to find out the best value to declare – so ingrained into the fabric of Spanish culture is this practice.

    And many Owners will not sell you the property unless you give them black money.

    What is black money?

    Black money is the difference between the declared price and the actual sales price. So if you bought your property for ?100,000 and declared ?80,000 the black money element would be ?20,000. The reason why it happens is because the seller is liable to pay upto 35% of the profit as capital gains tax and the buyer pays IVA and taxes based on the sale price Also, many new developments are being built by illegal workers (in spite of Spain?s open policy on immigration) who are paid in black money. ? so in effect both parties gain ? don?t they?

    Current EU Directive (2001/97/EC which came into force on Dec 28 2001 and had to be implemented in all EU members states by 15th June 2003) means the Spanish Government has a duty to clamp down on all forms of tax avoidance and money laundering. Especially since the recent fraud in Marbella, where a firm of Lawyers was involved in laundering money, to the tune of ?250M from Eastern European Mafia gangs, they are taking their duty seriously

    Closer to home in Oliva the hacienda have started issuing fines to owners, most of whom were quite happy to declare the full value of their property and pay the full taxes but were advised by their agents to under declare. Some lawyers have many hundreds of such fines to deal with from their clients. So whilst you may gain short term you will probably be caught out in the long run and it will be you who has to pay the price not the seller.

    Up until now the chances of being caught have been slim.

    But bear this in mind,

    The government has easy access to your bank accounts so can check things easily. Did you withdraw ?30,000 and take it to the Notaries office? ? Do you think this wouldn?t be noticed?

    Although Spain?s Banks are not as diligent in declaring transactions as in the UK, things are changing. They now have a duty to report any extraordinary transactions ? when you put more than ?3,000 into your account you have to declare where it came from ? including the bank account it came out of.

    This makes it much easier for the tax man to trace illegal payments ? and trace them they will. The government are putting together a new Bill with measures aimed at stamping out this and other such practices. These include

    Making the final signing at the Notaries based on the private contract which must be brought along
    Registering the method of payment on the escritura ? ie cheque, cash, bankers draft etc.

    Including the Catastral number on all documents ? bills, IBI and the escritura itself making it easy to trace any monies.

    What if the seller refuses to sell unless Black money changes hands?

    Many have paid their deposit and have been told they need to pay some of the money in ?Black? money. They have been shocked and appalled as it goes against the grain of their decency, but have been persuaded to do so. Some have refused only to be told the house is no longer for sale ? and they will lose their deposit.

    Clearly not knowing the law, they relent or lose their deposit. But what other option would they have?

    Walking away is the best option. So in order that you do not lose your deposit ? DO NOT sign the private contract until you sort this thorny issue first. If you really cannot live without that dream house then here?s what you can do.

    Have written into the private contract the actual selling price, the deposit to be paid and the amount to be declared. Make sure this is signed by the seller.

    You then have a legal document that states the price paid and that under declared. Use this to your advantage and make sure you put the full amount, that would have been paid in taxes, aside for future fines you WILL be issued with.

    Whatever you do make sure you get good sound legal advice from an abogoado ? and try to stay away from agent recommended solicitors unless you really trust the agent.
    If you still feel uncomfortable but really cannot live without that house, then why not offer to pay the sellers taxes or meet them part way ? then at least everything is above board

    If you under declare there is one simple fact. You have broken the law. Period.

    If you get caught you cannot say later you didn?t know about it ? ignorance is no excuse. It is common practice, but so is speeding ? and you accept the risk when you speed on the motorway. That doesn?t make it right ? you just hope you don?t get caught. So you can accept the risk and hope you don?t get caught or plain don?t do it. .

    What are the consequences?

    If you don?t under declare you may well lose the sale.

    If you do you commit fraud. At the very least you could be liable to pay these taxes at a later date anyway (when you probably don?t have the money to pay them), and will certainly be liable once you come to sell because the increase in value of your property will include the undeclared amount. For example, you bought your house at ?100,000 but declared ?70,000. You sell it in 3 years time at ?150,000, but by this time no one will under declare. You then pay Capital Gains tax (for non residents at 35%) on ?80,000 instead of ?50,000 meaning you are paying an additional ?10,500 in taxes. Compare this to the ?3,000 or so you saved by under declaring and make your own decision.

    But worse still ? you could be liable to a prison sentence. Perhaps not many have gone to prison for this offence, but that doesn?t mean it wont happen. You would be just as guilty as the East European Mafia gangs

    It is a buyers market at present and the onus is on you the buyer, to make sure you declare the true value. Walking away may have the desired effect and if enough people do it then the practice will cease to exist.

    By the way it also works the other way. If you are selling a house to move back to UK, and under declare, what are you going to do with the money you didn?t declare?

    Think it will be easy to get rid of?

    Put it in your UK bank account and the tax man will be informed immediately which will start an investigation on you. Tell them it was from the sale of your property and you must show the tax receipts for the full amount of the money. Try buying a car with cash ? the dealer has a legal responsibility (under the pain of a 2 year mandatory prison sentence) to inform the tax office of every cash purchase that he is suspicious of. Just to be on the safe side he will inform the tax man anyway ? better that than a jail term.

    Buy furniture in cash ? the same. The UK now has a policy that any unusual cash purchases are declared to the tax man ? what?s worse is that the informers are not allowed to tell you they have informed the tax man. So think very long and very hard before you decide to under declare when you buy or sell. Because the tide is changing and there will be very soon little likelihood of escaping the tax man ? and you may see the inside of a prison cell to boot

  • #65083
    Profile photo of katy
    katy
    Spectator

    What do people do with this envelope full of cash?? If you try to pay more than 6000 euros cash into a bank in spain a form has to be completed for the bank of spain. There has to be a paper trail. I only sold a car for cash and I had to pay it into two different bank accounts. Could keep it under the bed I suppose.

  • #65084
    Profile photo of Melosine
    Melosine
    Participant

    That,Katy,is what we have been told a lot of Spanish do !!!!!

  • #65085
    Profile photo of Anonymous
    Anonymous
    Participant

    Very soon banks will have to inform of all those customers that either ask for or put into the bank 500 euro bank notes….and there is no limit on the amount, with one bank note is enough…

  • #65103
    Profile photo of Anonymous
    Anonymous
    Participant

    @vbtudor wrote:

    Are you a fraudster and didn?t know it?

    We mentioned in our first issue of the Coastal Trader about under declaring the value on your property and, how many, are now receiving fines. Many of you will have unwillingly done the same, but perhaps what you don?t realise is that this is fraud and you, the buyer and seller, are liable.

    Common practice or common sense?
    Many of you will have been told by your agent or lawyer, that some money is ?Black? and is passed under the table when the Notary leaves the room. Whilst it is common practice – so common many regard it as a right they don?t t want to lose – what it amounts to is Fraud. Agents even call the Notary beforehand to find out the best value to declare – so ingrained into the fabric of Spanish culture is this practice.

    And many Owners will not sell you the property unless you give them black money.

    What is black money?

    Black money is the difference between the declared price and the actual sales price. So if you bought your property for ?100,000 and declared ?80,000 the black money element would be ?20,000. The reason why it happens is because the seller is liable to pay upto 35% of the profit as capital gains tax and the buyer pays IVA and taxes based on the sale price Also, many new developments are being built by illegal workers (in spite of Spain?s open policy on immigration) who are paid in black money. ? so in effect both parties gain ? don?t they?

    Current EU Directive (2001/97/EC which came into force on Dec 28 2001 and had to be implemented in all EU members states by 15th June 2003) means the Spanish Government has a duty to clamp down on all forms of tax avoidance and money laundering. Especially since the recent fraud in Marbella, where a firm of Lawyers was involved in laundering money, to the tune of ?250M from Eastern European Mafia gangs, they are taking their duty seriously

    Closer to home in Oliva the hacienda have started issuing fines to owners, most of whom were quite happy to declare the full value of their property and pay the full taxes but were advised by their agents to under declare. Some lawyers have many hundreds of such fines to deal with from their clients. So whilst you may gain short term you will probably be caught out in the long run and it will be you who has to pay the price not the seller.

    Up until now the chances of being caught have been slim.

    But bear this in mind,

    The government has easy access to your bank accounts so can check things easily. Did you withdraw ?30,000 and take it to the Notaries office? ? Do you think this wouldn?t be noticed?

    Although Spain?s Banks are not as diligent in declaring transactions as in the UK, things are changing. They now have a duty to report any extraordinary transactions ? when you put more than ?3,000 into your account you have to declare where it came from ? including the bank account it came out of.

    This makes it much easier for the tax man to trace illegal payments ? and trace them they will. The government are putting together a new Bill with measures aimed at stamping out this and other such practices. These include

    Making the final signing at the Notaries based on the private contract which must be brought along
    Registering the method of payment on the escritura ? ie cheque, cash, bankers draft etc.

    Including the Catastral number on all documents ? bills, IBI and the escritura itself making it easy to trace any monies.

    What if the seller refuses to sell unless Black money changes hands?

    Many have paid their deposit and have been told they need to pay some of the money in ?Black? money. They have been shocked and appalled as it goes against the grain of their decency, but have been persuaded to do so. Some have refused only to be told the house is no longer for sale ? and they will lose their deposit.

    Clearly not knowing the law, they relent or lose their deposit. But what other option would they have?

    Walking away is the best option. So in order that you do not lose your deposit ? DO NOT sign the private contract until you sort this thorny issue first. If you really cannot live without that dream house then here?s what you can do.

    Have written into the private contract the actual selling price, the deposit to be paid and the amount to be declared. Make sure this is signed by the seller.

    You then have a legal document that states the price paid and that under declared. Use this to your advantage and make sure you put the full amount, that would have been paid in taxes, aside for future fines you WILL be issued with.

    Whatever you do make sure you get good sound legal advice from an abogoado ? and try to stay away from agent recommended solicitors unless you really trust the agent.
    If you still feel uncomfortable but really cannot live without that house, then why not offer to pay the sellers taxes or meet them part way ? then at least everything is above board

    If you under declare there is one simple fact. You have broken the law. Period.

    If you get caught you cannot say later you didn?t know about it ? ignorance is no excuse. It is common practice, but so is speeding ? and you accept the risk when you speed on the motorway. That doesn?t make it right ? you just hope you don?t get caught. So you can accept the risk and hope you don?t get caught or plain don?t do it. .

    What are the consequences?

    If you don?t under declare you may well lose the sale.

    If you do you commit fraud. At the very least you could be liable to pay these taxes at a later date anyway (when you probably don?t have the money to pay them), and will certainly be liable once you come to sell because the increase in value of your property will include the undeclared amount. For example, you bought your house at ?100,000 but declared ?70,000. You sell it in 3 years time at ?150,000, but by this time no one will under declare. You then pay Capital Gains tax (for non residents at 35%) on ?80,000 instead of ?50,000 meaning you are paying an additional ?10,500 in taxes. Compare this to the ?3,000 or so you saved by under declaring and make your own decision.

    But worse still ? you could be liable to a prison sentence. Perhaps not many have gone to prison for this offence, but that doesn?t mean it wont happen. You would be just as guilty as the East European Mafia gangs

    It is a buyers market at present and the onus is on you the buyer, to make sure you declare the true value. Walking away may have the desired effect and if enough people do it then the practice will cease to exist.

    By the way it also works the other way. If you are selling a house to move back to UK, and under declare, what are you going to do with the money you didn?t declare?

    Think it will be easy to get rid of?

    Put it in your UK bank account and the tax man will be informed immediately which will start an investigation on you. Tell them it was from the sale of your property and you must show the tax receipts for the full amount of the money. Try buying a car with cash ? the dealer has a legal responsibility (under the pain of a 2 year mandatory prison sentence) to inform the tax office of every cash purchase that he is suspicious of. Just to be on the safe side he will inform the tax man anyway ? better that than a jail term.

    Buy furniture in cash ? the same. The UK now has a policy that any unusual cash purchases are declared to the tax man ? what?s worse is that the informers are not allowed to tell you they have informed the tax man. So think very long and very hard before you decide to under declare when you buy or sell. Because the tide is changing and there will be very soon little likelihood of escaping the tax man ? and you may see the inside of a prison cell to boot

    Thank you sooo much, very informative and as you say I hope with the changing market that all this under declaring goes by the way side. Thanks again for your help
    Bopsy

  • #65221
    Profile photo of Anonymous
    Anonymous
    Participant

    I thought it was 5 years to catch you……… something on papers if get a nota simple……..

    The other thing is that many under declarations….. aren’t really, well NOT to the extent one may think. Vendor sells for 100k, will declare 80 ( many lawyers will advise 80% is safe margin!!!) but greedy agent sells for 120k (or more!!!). greedy and stupid buyer goes for it, saving 7% on 40k, but he’s NOT ………only on 20, cos commissions etc, are not part of purchase price. But this black money, is also how and why many agents get away with the large (extortionate) commisiions/mark -ups, which I have seen as high as nearly 200% mark up!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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