Antonio Flores’ Blog

Spanish tax law is slow to keep up with the new times and so when buying (and selling) at discounted prices, a common occurrence these days, it may well happen that in 6 months from completion we receive a letter from the tax office asking us to pay more tax.

This is exactly what happened to a client who approached us after purchasing a property in Benahavis for €250,000, when he was sent the letter asking him to pay an extra €3,850, on account of Transfer Tax (7%) on €305,000 which is the value property should have, according to the tax office.

Why does this happen? Well, the regional Tax Offices in charge of transfer taxes uses a calculator which tells us what the minimum value each property should be sold at and therefore, if any property is sold under this value they will recalculate our tax declaration and will request that we pay the balance, using the property which has been bought as a guarantee of payment (a charge is immediately placed in the land registry).

Possible scenarios and options:

• What can be done before you buy? If you are buying a property at a discounted price we suggest that the minimum value is known prior to entering into negotiations with a seller and if there is a likelihood that the tax will be more then use when negotiating a price, to your advantage. So if you want to know what is the assessed value for tax purposes of a property in Andalusia, according to the Tax Office, you can do so by using this calculator (note that although an accurate calculation it is not legally binding).
• And if you have already bought and receive the letter…? If it was already known and made part of the deal then it gets paid, but if we receive the letter “out of the blue” (because we never suspected it could happen) then it can either be paid or appealed, a process likely to run into a 2 year period (but nowadays they can be won as judges consider that a calculator is no substitute to a proper valuation to be carried out in situ).
• And what if we are selling? This is a more complex case as the tax office in charge of capital gains tax (CGT) is the national AEAT, which does not use the above calculator but does actually send over property valuers. If this is the case, of which our firm has had very few in the last seven years, we will analyze the facts and merits of the case and advise on what the best course of action is. In one case we had our client had sold cheap (€350,000) because he had personal financial matters to resolve and soon after selling he left the country with the proceeds (very small, incidentally), so we have not heard more from the AEAT Tax Office who reported the real value to be of €450,000. Again, an appeal here is also an option.

If you want to avoid surprises it is possible to apply for a legally binding value report, whether you are buying or selling, which your lawyer can apply and obtain for you.

Some of you may have been advised by your bank that you need to provide them with a non-resident certificate or have the account frozen. The measure is still confusing as different lenders are applying existing legislation (a mixture of 1991, 1997 and 2007 sets of regulations) differently and whilst some are requesting the certificate electronically, from the appropriate government offices (at a charge of around 15 to 20 Euros), every year, others have requested that the bank account holder provides a hard copy obtained at the Police Station within 15 days from being notified failing which their bank account will be frozen. In these cases the certificate is valid for 2 years after which date the bank will request it electronically.

It does seem however that with the inevitable tightening of money laundering controls all banks and savings banks will eventually request it and therefore it may be wise to apply for a hard copy and send it to the bank.

This is one of the measures implemented by the Spanish government to improve the economic situation. It also affects non-residents, to whom a special mention is made, and it will be immediately applicable (1st January 2008). This means that if you have purchased your property this year you will only have to pay Property Income Tax (PIT) next year, and if you purchased prior to 2008 this will be the last year in which you have to pay both taxes, paying only PIT next year.

On a 250,000 € property owned by two persons with a 100,000 € mortgage the measure will save them 300 € approximately, and on a 500,000 € property with no mortgage owned by one person the saving is of 2,000 €. I tend to subscribe to the notion that ‘every little bit counts’ and so we can only welcome the measure. Properties owned by Spanish or foreign companies are unaffected by the measure.

As December is quickly approaching, we recommend that you get in touch with your Spanish solicitors as soon as possible in order for them to start arranging the payment.

If you don’t have a solicitor and would like to be assigned one who can offer you this service, please visit the Fiscal Representation page on this site.