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This sent to me by http://www.spainsolicitors.com
The Spanish Inland Revenue ‘penalises’ anyone who buys a bargain-priced home
The tax authorities have minimum prices for residential properties
When you buy a second hand home you have to pay a property transfer tax (PTT), established by the Autonomous Communities, which comprises 7% of the sale price which appears in the title deed. Although this is normally straightforward, there has been a recent increase in the number of cases where purchasers have received a tax demand from the tax authorities for an amount which is higher than the PTT they have already paid.
This is particularly true when a homebuyer has bought a home at a low price – a bargain price. The reason for this is because the Autonomous Communities have several minimum-price tables, which are used to calculate the minimum PTT that the purchaser has to pay when they buy a house. The purpose of these tables is to prevent the fraudulent practice of registering a purchase price in the title deed that is lower than the real sale price. As a result, the tax authorities have a reference minimum price for each residential property, and consequently a minimum tax amount. This is not a problem if the purchaser pays more than the minimum tax, but if the tax authorities think that the purchase price has been too low it uses the tables to claim outstanding tax.
An unpleasant surprise for the purchaser
Therefore, anyone who buys a second hand home, and is not familiar with all the procedures, may find themselves in the situation where, after having paid the taxman 7% of the property’s purchase price, they receive a tax claim from the tax authorities informing them that they have to pay additional PTT. The amount in question will be 7% of the difference between the purchase price that appears in the title deed, and the price that the tax authorities consider to be the minimum price of the property, plus the interest due for late payment.
For example, if you buy a home for 200,000 euros, you have to pay 14,000 euros as PTT. If the minimum price of your property, according to the tables of the tax authorities, is 300,000 euros, the minimum PTT is 21,000 euros, which means that the taxman will send you a tax claim for the difference: 7,000 euros plus interest.
For this reason, if you are thinking about buying a property whose price, perhaps due to the crisis, has dropped significantly, you should find out its minimum price in the minimum-price tables in order to know how much tax you will have to pay, and to avoid any unpleasant surprises or tax claims at a later date. The minimum prices are usually below the sale price, but in some areas where home prices have plummeted as a result of the crisis, it is increasingly common for this not to be the case.
It is therefore extremely important that before executing the title deed for the property, you contact the tax department of the Autonomous Community where the property is located to find out what the mini mum price of the property is, according to the tax authorities´ tables. This will enable you to find out how much tax you will have to pay, and allow you to plan your finances accordingly. In particular it will save you from being subject to unpleasant surprises in the future in the form of a tax claim from the tax authorities.
Is it possible to appeal to the tax authorities to avoid paying “extra” tax?
If the purchase price that appears in your title deed is less that the minimum price given by the tax authorities, and you pay less PTT than is due, the tax authorities will send you a tax claim informing you that you have to pay the difference. After you receive the notification, you will have a limited period in which to appeal, and present your arguments to justify why the property’s purchase price is less than the price that is given in the minimum-price tables. Typical grounds for appeal are that the purchased property is in poor condition, or that it has a sitting tenant (which lowers its value). You can also provide a valuation report from an independent expert that shows that the market value of the property is less than the value assigned to it by the authorities. However, it is extremely unlikely that your appeal will be accepted, and that you will not have to pay “extra” tax, as this only happens when there are extremely strong grounds. Therefore you should not count on the appeal being accepted, as the tax authorities “accept” that you have purchased a bargain-priced home, but they will tax the sale using the property’s minimum price in the event that the sale price is lower.
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Hi,
Last January I had an offer of E150,000 on my apartment (the price it was for sale at the time was E180,000) I explained to the agent the catastral value was E171,000 and if I accepted offers below this the purchaser would have to pay a tax on the difference – I don’t think she knew what I was talking about and needless to say it fell on deaf ears so I lost the sale because of being honest.
Angela
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Hi,
Last January I had an offer of E150,000 on my apartment (the price it was for sale at the time was E180,000) I explained to the agent the catastral value was E171,000 and if I accepted offers below this the purchaser would have to pay a tax on the difference – I don’t think she knew what I was talking about and needless to say it fell on deaf ears so I lost the sale because of being honest.
Angela
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I have just bought a small apartment as an investment and the purchase price is below the tax mans value. This was pointed out to me by my lawyer before I completed and he warned me that a future tax bill may be forethcoming. However, he has assured me that he will appeal it and he is succesful in “most of these cases.” It’s just a case of proving that the value has fallen from the official figure. I have used this lawyer for years and have confidence in what he says but we shall see!!
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I have just bought a small apartment as an investment and the purchase price is below the tax mans value. This was pointed out to me by my lawyer before I completed and he warned me that a future tax bill may be forethcoming. However, he has assured me that he will appeal it and he is succesful in “most of these cases.” It’s just a case of proving that the value has fallen from the official figure. I have used this lawyer for years and have confidence in what he says but we shall see!!
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@Man in Marbella wrote:
However, he has assured me that he will appeal it and he is succesful in “most of these cases.” It’s just a case of proving that the value has fallen from the official figure. I have used this lawyer for years and have confidence in what he says but we shall see!!
Yes of course he will appeal….at an inflated fee. The extra tax has to be deposited with the authorities on appeal too. There is also a fee to pay for valuers (2 I think) to view property. After all that most cases fail. Happened all the time during last recession in the 90’s.
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@Man in Marbella wrote:
However, he has assured me that he will appeal it and he is succesful in “most of these cases.” It’s just a case of proving that the value has fallen from the official figure. I have used this lawyer for years and have confidence in what he says but we shall see!!
Yes of course he will appeal….at an inflated fee. The extra tax has to be deposited with the authorities on appeal too. There is also a fee to pay for valuers (2 I think) to view property. After all that most cases fail. Happened all the time during last recession in the 90’s.
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Yes of course he will appeal….at an inflated fee. The extra tax has to be deposited with the authorities on appeal too. There is also a fee to pay for valuers (2 I think) to view property. After all that most cases fail. Happened all the time during last recession in the 90’s.
Firstly, my lawyer will do the appeal as part of his normal 1% fee for purchasing a property. No extra cost.
Secondly, he is very confident of success. I have used the same lawyer for over 12 years and he has never let me down.
Thirdly, I am not too bothered as I feel I have bought a property which will prove to be a good investment over time and I wiuld have gone up in price taking it to the taxable value. My reason for posting was to explain to the first poster on this subject what I believe the postion is.I may be wrong. Or rather my lawyer of 12 years may be wrong but I would be suprised. Do you have practical experience to back up what you are saying?
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Yes of course he will appeal….at an inflated fee. The extra tax has to be deposited with the authorities on appeal too. There is also a fee to pay for valuers (2 I think) to view property. After all that most cases fail. Happened all the time during last recession in the 90’s.
Firstly, my lawyer will do the appeal as part of his normal 1% fee for purchasing a property. No extra cost.
Secondly, he is very confident of success. I have used the same lawyer for over 12 years and he has never let me down.
Thirdly, I am not too bothered as I feel I have bought a property which will prove to be a good investment over time and I wiuld have gone up in price taking it to the taxable value. My reason for posting was to explain to the first poster on this subject what I believe the postion is.I may be wrong. Or rather my lawyer of 12 years may be wrong but I would be suprised. Do you have practical experience to back up what you are saying?
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Yes, happened to us in 1995. Our Lawyer did not include the appeal in his fee though. However, on his advice we decided not to go ahead as we had a fantastic bargain. Even though he was losing work he advised us that hardly any appeals win. I personally know 2 people who lost appeals around the same time. The authorities have an official price and they will not budge.
In your case if the appeal is included in the fee you may as well go ahead as you have nothing to lose.
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Yes, happened to us in 1995. Our Lawyer did not include the appeal in his fee though. However, on his advice we decided not to go ahead as we had a fantastic bargain. Even though he was losing work he advised us that hardly any appeals win. I personally know 2 people who lost appeals around the same time. The authorities have an official price and they will not budge.
In your case if the appeal is included in the fee you may as well go ahead as you have nothing to lose.
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In view of recent posts I have checked this again with my layer and he is adament that it is a staight forward process and it really is just a case of proving the declared purchase price is correct.
This system was, aparantley, put in place to stop the practice of under declaring the purchase price thus buyer and seller saving on tax. It’s trying to combat illegal practices of buyers (both spanish and foreigners) and so I think it’s a little unfair to use this as an example of typical Spanish dishonest practices etc. I think most countries have some some sort of procedure to stop underdeclaration. I am sure if you buy a house in the UK for 300k and furniture for 250k to avoid the higher rate of stamp duty something will trigger a warning at the tax office.
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In view of recent posts I have checked this again with my layer and he is adament that it is a staight forward process and it really is just a case of proving the declared purchase price is correct.
This system was, aparantley, put in place to stop the practice of under declaring the purchase price thus buyer and seller saving on tax. It’s trying to combat illegal practices of buyers (both spanish and foreigners) and so I think it’s a little unfair to use this as an example of typical Spanish dishonest practices etc. I think most countries have some some sort of procedure to stop underdeclaration. I am sure if you buy a house in the UK for 300k and furniture for 250k to avoid the higher rate of stamp duty something will trigger a warning at the tax office.
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“I am sure if you buy a house in the UK for 300k and furniture for 250k to avoid the higher rate of stamp duty something will trigger a warning at the tax office”
I understand that the above is an extreme example. Inland revenue has indices from the land registry of properties sold in the area. A loop hole was used i.e. declaring free standing furniture as the difference.
These days the solicitor are asked to provide a list of furniture etc. The majority will not fiddle as the Law society will come down very heavy on them & may even lose their practising licence
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“I am sure if you buy a house in the UK for 300k and furniture for 250k to avoid the higher rate of stamp duty something will trigger a warning at the tax office”
I understand that the above is an extreme example. Inland revenue has indices from the land registry of properties sold in the area. A loop hole was used i.e. declaring free standing furniture as the difference.
These days the solicitor are asked to provide a list of furniture etc. The majority will not fiddle as the Law society will come down very heavy on them & may even lose their practising licence
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I agree with you Angela, What I am trying to say is that it would be very neive to expect the Agent to tell you all such matters. Frankly its not his/her job.
His job is to sell & such he should know his product. Like the agent should knows his it for the buyer to know all that affects him/her i.e. the laws, suitability, price, taxes, working practises, their reason for the purchase & its short & long term utility of the purchase.
After all the buyer is not buying potatoes or apples in the market and even these items people look at them i.e. state of the freshness, sell by dates etc.
I have sympathy with people who did almost everything right & bought it it good faith and were swindeled by a larger system.
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I agree with you Angela, What I am trying to say is that it would be very neive to expect the Agent to tell you all such matters. Frankly its not his/her job.
His job is to sell & such he should know his product. Like the agent should knows his it for the buyer to know all that affects him/her i.e. the laws, suitability, price, taxes, working practises, their reason for the purchase & its short & long term utility of the purchase.
After all the buyer is not buying potatoes or apples in the market and even these items people look at them i.e. state of the freshness, sell by dates etc.
I have sympathy with people who did almost everything right & bought it it good faith and were swindeled by a larger system.
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Thankfully I researched various taxes and what I would be paying in Spain before I bought but the amount of people in my urbanisation didn’t know this or that or what taxes they had to pay or how to go about things – I found them extremely naive. Even still with property prices some of the neighbours don’t really comprehend how much their property has dropped in value and they’d think your mad if you accept E60,000 below the original price.
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Thankfully I researched various taxes and what I would be paying in Spain before I bought but the amount of people in my urbanisation didn’t know this or that or what taxes they had to pay or how to go about things – I found them extremely naive. Even still with property prices some of the neighbours don’t really comprehend how much their property has dropped in value and they’d think your mad if you accept E60,000 below the original price.
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As they say “knowledge is power” or ” better informed better equipped”. I agree the majority are neive & get taken for a ride. To me it does not matter if they are taken for a ride by the English, Spanish, German, Dutch etc.
Another matter that concerns me is the fact that these people are so blinkered and think that all taxes, legal system is the same in other Countries as in England. I wont even use the Britain.
I remember a few years ago I met up with a friend in Marbella. His mother in law was visiting him and was in Spain for the first time. To make polite conversation I asked if she is having a good holiday and she replied in a very muted fashion. I of thing that she was not happy about was the fact that the television is not in English.
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As they say “knowledge is power” or ” better informed better equipped”. I agree the majority are neive & get taken for a ride. To me it does not matter if they are taken for a ride by the English, Spanish, German, Dutch etc.
Another matter that concerns me is the fact that these people are so blinkered and think that all taxes, legal system is the same in other Countries as in England. I wont even use the Britain.
I remember a few years ago I met up with a friend in Marbella. His mother in law was visiting him and was in Spain for the first time. To make polite conversation I asked if she is having a good holiday and she replied in a very muted fashion. I of thing that she was not happy about was the fact that the television is not in English.
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@Man in Marbella wrote:
In view of recent posts I have checked this again with my layer and he is adament that it is a staight forward process and it really is just a case of proving the declared purchase price is correct.
.How would he prove this though 😕 Your Lawyer could not show that black money did not change hands. This is why the system is as it is now. Still, if it is part of the 1% fee, go for it.
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@Man in Marbella wrote:
In view of recent posts I have checked this again with my layer and he is adament that it is a staight forward process and it really is just a case of proving the declared purchase price is correct.
.How would he prove this though 😕 Your Lawyer could not show that black money did not change hands. This is why the system is as it is now. Still, if it is part of the 1% fee, go for it.
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I have bought an apartment in Spain this year and was swindled as was my vendor by the agents who were seemingly desperate. I never signed a reservation contract and I bought a different flat from the one advertised in the agents window. I have a difference of £7000 between the price in the vendors reservation contract and the escritura lower price. I am proposing when I fill in my first Spanish tax return to declare the price in the vendors contract and pay them the difference which is less than 20% and pay the vendors tax too . At 13% for both it is in any case less than the 19% that I would have to pay on a sale. I am planning to recover this by recovering money from the agents by threatening to embarrass themin a local paper where they have been mentioned for something else recently if I can. However if I do this might the Spanish Hacienda not accept that it was done in error and require an inspection? I value the property at about 5500 euro more than the price I propose to assert but the actual price would have been reasonable at the time due to the volcano. Any experience would be appreciated
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I’ve just learnt about a British couple in Valencia who bought a bargain home in La Viña (Valencian Community) from La Caixa bank, and have now been hit with an extra €12,000 “bargain tax” they can’t pay, and fines for late payment. So it’s still going on, and buying from a bank doesn’t seem to reduce the risk. In the Valencian Region, in particular, you have to be careful when buying a bargain. Just to make it more complicated, the bargain tax varies by municipality.
This is truly appalling behaviour by the Spanish tax man
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Its an utter disgrace, so the spanish taxman can just pluck a number out of thin air and tax you extra on it, the price you pay is the price of that property end of, this cannot be fair under European Law.
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If you own a property in Spain and eventually become an elderly couple it is important to remember that unlike in the UK there is inheritance tax between husband and wife and that tax is payable in six months. The issues of PTT become almost irrelevant. PTT exists because of the tax evasive practices which were and still are practised between buyer and seller; assessing what you might have paid for a property using the catastral value is not so untoward in a normal market but normality is many years away in Spain.
It is however possible to legally put one’s home in a UK company with dual spanish and english tax status paying corporation tax should you rent out your property. When the time comes to sell you then sell the company [or perhaps even a proportion of the shareholding] whose sole asset is your home.
So it would be preferable to buy a UK company rather than bricks and mortar in Spain and perhaps for a seller to do this even at the point of sale . . . This is an initially expensive option and there are ongoing expenses such as annual returns, registered office costs, notary costs, annual accounts etc but it would remove so much heartache and stress at both ends of the process. The value of the asset in the company would still be liable for UK inheritance and other taxes so this is not a tax evading offshore exercise.
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