People who buy or sell bargain properties in Spain are being fined by the Spanish taxman, or even having their assets in Spain embargoed, on the assumption they are not paying their taxes.
As it happens, genuine tax fraud brought this problem about. In response to the widespread (though declining) Spanish habit of under-declaring transaction prices to avoid paying taxes – mainly the 7% transfer tax paid by the buyer, and 18% capital gains tax paid by the vendor – the tax authorities started using their own price estimates or ‘notional values’ for tax purposes, if the declared price looked too low.
“This ‘notional’ value is calculated by applying a multiplier to the Catastral Value, which is a capital value estimate calculated for every property in Spain,” explains Campbell Ferguson, a chartered surveyor and director of Survey Spain. “Each municipality has its own multiplier depending upon when the Catastral Value was last revised. For example, Estepona was re-valued in 2008, and has a multiplier of 1.3, whilst neighbouring Benahavis has a multiplier of 3.2, having not been re-valued since 1996.”
None of this bothered many people when the market was buoyant, as everyone was doing well out of rising property prices, and notional values were often below real transaction prices. But now that prices are falling, in many cases substantially so, buyers and sellers are being fined and over-taxed, or worse, simply because the notional values have not adjusted down to market realities.
“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,” explains Ferguson. “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’, which is not always easy. “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.”
Something to bear in mind if you are a distressed seller or bargain hunter looking for the opportunities in this market.