People who buy or sell bargain properties in Spain are being fined by theSpanish taxman, or even having their assets in Spain embargoed, on theassumption they are not paying their taxes. As it happens, genuine tax fraud brought this problem about. In response tothe widespread (though declining) Spanish habit of under-declaringtransaction prices to avoid paying taxes - mainly the 7% transfer tax paidby the buyer, and 18% capital gains tax paid by the vendor - the taxauthorities started using their own price estimates or 'notional values' fortax purposes, if the declared price looked too low."This 'notional' value is calculated by applying a multiplier to theCatastral Value, which is a capital value estimate calculated for everyproperty in Spain," explains Campbell Ferguson, a chartered surveyor anddirector of Survey Spain. "Each municipality has its own multiplierdepending upon when the Catastral Value was last revised. For example,Estepona was re-valued in 2008, and has a multiplier of 1.3, whilstneighbouring Benahavis has a multiplier of 3.2, having not been re-valuedsince 1996."None of this bothered many people when the market was buoyant, as everyonewas doing well out of rising property prices, and notional values were oftenbelow real transaction prices. But now that prices are falling, in manycases substantially so, buyers and sellers are being fined and over-taxed,or worse, simply because the notional values have not adjusted down tomarket realities."If the taxes are paid 'only' on the full price actually paid, which anyhonest buyer and seller would do unless the lawyers advising their clientspoint out this problem, the additional tax bill based on the 'notional'value can arrive many months after the sale," explains Ferguson. "If it'snot promptly paid, bank accounts and other property can be embargoed. Thereis a right of appeal, but that involves getting independent valuers toprovide reports showing the sale price was 'fair', which is not always easy."Plus they will have the inevitable accountants and lawyers fees. Allbecause the tax authorities have assumed, without any direct evidencewhatsoever, that the buyer and seller are evading tax, which is nowofficially criminal money laundering."Something to bear in mind if you are a distressed seller or bargain hunterlooking for the opportunities in this market.
Source : Spanish Property News