People selling their homes in Spain have little to cheer about these days. To add insult to the injury of having to accept prices far below their expectations if they want to sell, there is a good chance the government will tax them as if they had sold at the top of the boom. That is because, in many of Spain’s autonomous regions, the local authorities estimate sales values for tax purposes, rather than use the prices declared by vendors. With property prices falling in most areas, the values the tax authorities are applying are now often higher than the actual sale price, reports the Spanish daily El Pais.

Take an example in Madrid, as described in a recent article in the Spanish daily El Pais. A flat in the city centre is on the market for 210,000 Euros. The tax authorities, on the other hand, believe it has a market value of 344,520 Euros. If the vendor is lucky enough to get the asking price, then the tax to pay based on the inflated value used by the tax authorities will be 24,000 Euros, compared to 14,700 Euros based on the real value. The vendor will have to pay more than 9,000 Euros tax too much, says the article.

However, it seems the author of the article was mistaken. In reality it is the buyer who has to pay the 7% transfer tax, based on a taxable value determined by the autonomous region. The vendor only has to pay capital gains at 18% in their annual tax declaration. So it is really buyers getting slammed. In some cases, where buyers find a real bargain, they may even be fined just on suspicion of under declaring the true sale value.

It may seem strange that the tax authorities don’t use declared values for calculating taxes, but there is a good reason for it. In Spain, the practise of under-declaring sales prices to avoid tax is widespread, which means that tax authorities have to come up with ways to estimate values to try and get their pound of flesh. That works well enough in rising real estate markets, but when prices start falling, the authorities are curiously slow to start revising down values.