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.
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.
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.