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!