October 8, 2006 at 1:26 pm #52333
We are purchasing a property and have been asked by the agent if we would be able to buy the property in ‘black money’ as this would help our tax situation. Can someone please explain what she means? Is this where the declared value of the property on the deeds is lower than the actual price paid? If it is, how does this work?
Thanks for your help – we’re a bit new to all this!
October 8, 2006 at 1:51 pm #66536
In short, don’t do it.
Vince wrote about this topic back in August:
Hi there everyone.
I wanted to warn you all that the cadastral are now clamping down heavily on underdeclaring.
I was called in to my local town hall last week to discuss improvements I made to the house so they can change the cadastral value. No problem with this. but the same day I also received a fine for underdeclaring my property.
Having told me that the property was was a run down apartment (nearly a ruin according to their claissification) with little value (and they agreed with me) they then tell me that the value they placed on the property at the time was some 50% more than I paid for it.
They then issued me with a fine for 2,300 euros.
However at the time – 5 years ago – I actually refused to under declare and declared tha amount I paid for it (and nearly lost the place because of it). Not only that the amount they say it was worth at the time you could have bought a brand new apartment right in front of me for this price with pool, garage and everything so how could they possibly think that a second hand apartment which was 40 years old and needed a lot of reform (done legally I hasten to add) be worth the same.
The recourse is to contest it.
However before I can do this I have to apparently instruct an architect to do a retrospective survey. This will cost around 1500 euros. I then have to go to court and appoint a procurador – another 1000 euros. (700 to go to courst and 250 for the procurador) plus any legal fees that may occur which I will have to pay until I can recover them if my case is successful.
And unless I can prove sufficiently the value of my property I am considered to have underdeclared it. So the burden of proof is on me – guilty until proven guilty.
So I warn you all now – NEVER under declare and make sure ALL your papers declare exactly where the money has come from. You will get caught if you do (and also if you dont) and all you are doing is paying someone elses capital gains tax bill – would you do that in the UK?
Best of luck
Vince knows very well what he is talking about, recommend you heed his words!
October 8, 2006 at 2:51 pm #66537
We are purchasing a property and have been asked by the agent if we would be able to buy the property in ‘black money’ as this would help our tax situation.
It’s not to help your tax situation (though of course it will reduce your taxes payable on purchase, but they’re minimal) – it’s to help the vendor’s tax “situation”!
As advised above, don’t do it! It will probably get you into hot (and costly) water in the long run. What they’re asking you to do is illegal.
October 8, 2006 at 4:56 pm #66539
Personally if anyone had suggested such a procedure to me I wouldn’t have walked away but run away.
It’s their’s and vendors tax they are saving not yours.
Property will be massively underdeclared and the onus is on you.
It’s illegal. Please don’t do it.
October 8, 2006 at 5:38 pm #66540
Take no notices of anyone requesting you to pay black money. If it means you lose your dream house they so be it walk away. Try to ensure that the vendor of the house you are going to buy knows that you propose to fully declare the value of the property, I have seen some good arguments even at the notary about this.
lots of people will tell you this process of underdecleration is normal in Spain.
Normal it may have been in the past but things are changing.
illegal it certainly is, not only will you guilty of Tax evasion, you will also be aiding and abeting the seller in tax evasion.
October 8, 2006 at 5:52 pm #66541
That cleared that up! Thanks to you all for your advice.
October 8, 2006 at 10:48 pm #66546
agents are particularly keen (well some anyway) on the buyer “underdeclaring”. In reality the underdeclaration, if any, is minimal in respect of what vendor is getting, the large difference is possibly going straight into agents pocket. this is why, vendor is often represented by poa, or a quick sale from original vendor to agent who then sells to buyer etc…. try to find out exactly what vendor wants for the property, not what the agent says he wants, and then that may account for some of the underdeclaration!
October 9, 2006 at 8:27 am #66547
here is an article Iwrote ont e subject about a year aho for a local paper. It explains what Black money in and whyyou shouldnt do it
Are you a fraudster and didn’t know it?
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
1. Making the final signing at the Notaries based on the private contract which must be brought along
2. Registering the method of payment on the escritura – ie cheque, cash, bankers draft etc.
3. 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.
1. 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.
2. 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.
3. 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.
4. 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.
October 9, 2006 at 10:06 am #66549
Are there any links to articles or other posts which actually detail examples of tax office campaigns against underdeclarers? What are the penalties ACTUALLY being levied and are the courts/taxmen treating both the seller and the buyer as equally criminal? (The buyer saved peanuts, presumably while the seller saved lots and lots).
October 9, 2006 at 10:21 am #66550
From personal experience (I received a tax demand from the cadastral in August time this year ) the Cadastral estimate the value of what your house would have been at the time of buying and what you actually declared, and charge the 7% tax of the difference. However what they base their value on I don’t know because the same day I received the Multa for under declaration I was summoned into their office to discuss the new cadastral value because I had done improvements (all legally and paid for) She even told me that at the time of purchase my apartment was considered a virtual ruin (number 7 on a scale of 1 – 9 with 9 being a ruin)
Right across the street from me were apartments (typical 2 bed 1 bath, 65M with pool and garage) being sold for 87,000. This was one year after I bought so how they could assess my property as being this value as well beggars belief. It seems there is no logic or reason behind it. But to contest it would cost more than the actual fine and even then you aren’t sure of winning.
They aren’t interested in the seller because the seller has moved on whereas you are still there, although I have heard of UK residents being sent invitations from the hacienda in Spain to attend a meeting to discuss the sale of their property.
Interesting enough it appears at first glance that ONLY foreign residents are receiving Multas for under declaring – I don’t know of a single Spanish resident who has been fined (and believe me I know a lot of Spanish people locally). In fact when I showed the multa to a Spanish friend of mine he said he had never heard of anything like that before – and he is a property promoter.
So although under law both buyer and seller would be equally responsible – it is easier to chase the buyer because they are still in their property whereas the seller would need to be chased.
Hope this helps
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