This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
Bag a bargain resale property in Spain, in particular in the Valencian Region, and you could get clobbered out of the blue by a hefty tax bill on the grounds that you must have diddled the taxman.
Spanish property prices have tumbled by 50pc or more, and bargains abound. But as is clear from various forum discussions on the “Spanish bargain tax”, some successful bargain hunters have been shocked by an additional tax bill of thousands of Euros slapped on them without warning by the local tax office. It might not negate the bargain, but it certainly leaves a bitter taste.
The bad news comes in the form of a letter from the local tax office, subject line “Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados” and “Propuesta de liquidación”, which translates as a payment proposal for the ITP asset transfer tax.
This letter demands that you pay an extra asset transfer tax, or penalty ITP tax, on the grounds that the declared purchase price was too low, in the opinion of the tax office. The letter usually comes out of the blue, often a year or more after the deeds were signed before notary.
“It’s not unheard of for buyers to get a bill from the regional tax office several years after buying a flat and paying the taxes,” tax specialist José Manuel Lara of Grupo Prevalúa is quoted as saying in a recent article on the subject by the paper El Confidencial.
B-Money
There is an old tradition in Spain of buying property with under-the-table cash payments (known as “B”) to avoid tax, which is why the tax office have their own set of tables with property values for tax purposes, often related to cadastral values. The tradition has been gradually dying out, though now that the Government has raised taxes on property sales, I wouldn’t be surprised if it made a comeback.
Buyers never had to worry about the “bargain hunter” tax when house prices were rising, because the tables used by the tax office were below market prices. Now that prices have crashed, in many cases below the values used by the tax office, some buyers are getting a nasty surprise.
The tax authorities know that prices have crashed, and that buyers are probably paying market values and declaring the full value, but that doesn’t stop them shaking down buyers for a few more Euros to help plug the gaping hole in public finances. In this respect, Spain is becoming more like Argentina.
Often just a few thousand Euros, most buyers just pay the bill, accepting it as the cost of bargain hunting in Spain. Few people fancy the hassle and extra cost of appealing against it.
But some choose to fight it, and many who do so win, according to an article in El Economista.
Battle stations
You would almost certainly need to user a lawyer or gestor to appeal, at extra cost, but here are some basic suggestions and ideas to help you understand how to appeal this “bargain hunter” tax:
- First of all, make sure you keep detailed documentation, correspondence, and notes of your purchase, especially the negotiation process; they might come in handy.
- When the tax notification arrives, you have 10 working days to register your appeal. Next comes a provisional payment order, which may or may not take into account your appeal, but which still has to be paid. If you win you’ll get your money back.
- Then you have a month to present either a recurso de reposición to the local tax office, which usually ends in failure, or a reclamación económico-administrativa to a regional economic administrative tribunal, which though slower usually ends in success. The latter is the obvious choice, though you should be guided by your lawyer or tax advisor.
- The appeal can take a year or more to conclude, but if you win you get your money back, though not with costs awarded. Even if you win, be warned the tax authorities might simply recalculate the tax and present you with another bill, in which case you have to go through the whole process again; if that happens, you are very likely to win a second time, after which the tax authorities tend to throw in the towel, according to tax specialist José Manuel Lara.
For anyone interested, what I am noticing in general terms today, is that the best bargains in cities are resale properties, whilst the best bargains on the coast are bank repossessions.
tg says:
The best bargain is to just not buy any property in Spain, life is to short having to deal with these thugs, just do not do it,
Spain is not a secure place for investments. You may encounter problems with bankrupt local governments and in addition to that hidden faults, sewer, electricity, structural problems, deed problems. Spain is not supposed to be returning to wealth, they knew how to sqrew EU thats easy, however, EU is bankrupt too now.
Nick Barton says:
Well this happened to us in France 15 years ago when we purchased our property which the bank was about to foreclose so the vendor was desperate to get anything above his bank debt. We got a bargain but then a tax bill subsequently. So it doesn’t just happen in Spain!
Ed says:
The utter incompetence corruption and ignorance of the political and administrative class in Spain surpasses comment.
This is just another example of their comittment to commit economic Seppuku (Hari Kiri). I feel so so sorry for the ordinary Spaniard who will suffer from their complete inability to understand the unintended consequences of the simplistic, populist, economic and market naievity that marks their every move in this crisis. As a foreigner, (and not British) I have biiten my toungue, out of respect for a wonderful country, and a brave and proud people, many of which over the years have become friends. I concurr entirely with tg. End of the day.. I will not be suprised if there is NO bounce in the property market here, and it turns into a Japanese experience where their current valuations have sunk for 20+ years and now stand at 1968 levels.
william midgley says:
DO not by a house in Spain you will lose money rent for 6 months to a year work out all the pit falls.
and do remember if you put the house in joint names and one dies you pay tax on there half of the house
and they tax you when you sell.
Malcolm says:
We are contemplating buying a property in Spain, however this ITP tax, levied after a year or so of ownership is a rip off. Why can’t you be told at the time of purchase what this tax will amount to? Why do spaniards tolerate this? Perhaps we will have to lower our offer just to cover this unknown future tax. Very unjust.
Andrew says:
The ITP can be calculated down to cent prior to purchase. All you need is a calculator and a IBI receipt. takes about 5 minutes.
Mark Stücklin says:
I think Malcolm is talking about the “bargain hunter” tax discussed in this article, which comes as a surprise, not the face value ITP, which anyone can calculate.
Andrew says:
Hi Mark,
But unless I am mistaken, this ‘tax’ is only applicable if you buy below the the minimum ‘fiscal value’. So if you buy at 100k, and the taxman says it should be 150k, then you pay the ITP on the difference. This ‘fiscal value’ given to a property is calculated on the ‘valor catastral’, with each municipalities having its own co-efficient for the calculations.
So in this case, even if buying for 100k the ITP you have to pay is on the property is 12.000€ not 8.000€ (assume at 8% for andalucia).
And as you say in the article in tends to ‘come out of the blue’ for a lot of buyers because they are simply not informed by their legal representatives (or agent) correctly.
Regards
Andrew
Chris Nation says:
I’d be interested to hear from Nick Barton what the general state of the French economy was at the time, and the property market in particular. Was it a case of grubbing for every cent whilst things were falling of an economic cliff?
The ridiculous thing about this move from the Spanish at this time is that it creates yet another reason to put off potential buyers. It creates three problems. 1] Will a revised tax bill be sent at all? 2] When and for how much? 3] Can central and local government be trusted not to pull other tax-grabbing stunts? Judging by this and the tax on producing your own energy, there is no limit to the stupidity of the bureaucrats and politicians.
The Spanish people seem to be utterly complaisant in the face of central and provincial governance of increasing incompetence – the worse things get, the looser the grip on reality – and endemic corruption. The people seem to be doing no more than wringing their hands and waving banners as the country reverses rapidly into the state it was under Franco.
Roy says:
Over the last few years I have been following the Spanish property market, as I intended to buy a nice villa with a pool.
However, considering the negative press that Spain is receiving and also some of the completely irrational legislation that is being introduced (penalising solar power generation, energy efficiency certificate scams, “bargain hunter” taxes, additional requirements for holiday rentals etc) it is obvious that the authorities are completely clueless and they are making a bad situation worse
It seems to me that it is simply too risky to buy property in Spain which will probably become a third world country before too long.
The Spanish economy is very weak, with no hope of any significant improvement in the short term.
Friends of mine living in the Northern Costa Blanca are very concerned about the lack of everyday services and the high unemployment rate which is resulting in more crimes being committed in their area.
Skip says:
So if you are getting ready to purchase, what are the precise steps to avoid the “bargain hunter” tax?
trev says:
I have an itp bill which amounts to 200% of the purchase price