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07/09/2009 - "Bargains": Beware the taxman



People who buy or sell bargain properties in Spain are being fined by the
Spanish taxman, or even having their assets in Spain embargoed, on the
assumption they are not paying their taxes.

As it happens, genuine tax fraud brought this problem about. In response to
the widespread (though declining) Spanish habit of under-declaring
transaction prices to avoid paying taxes - mainly the 7% transfer tax paid
by the buyer, and 18% capital gains tax paid by the vendor - the tax
authorities started using their own price estimates or 'notional values' for
tax purposes, if the declared price looked too low.


"This 'notional' value is calculated by applying a multiplier to the
Catastral Value, which is a capital value estimate calculated for every
property in Spain," explains Campbell Ferguson, a chartered surveyor and
director of Survey Spain. "Each municipality has its own multiplier
depending upon when the Catastral Value was last revised. For example,
Estepona was re-valued in 2008, and has a multiplier of 1.3, whilst
neighbouring Benahavis has a multiplier of 3.2, having not been re-valued
since 1996."

None of this bothered many people when the market was buoyant, as everyone
was doing well out of rising property prices, and notional values were often
below real transaction prices. But now that prices are falling, in many
cases substantially so, buyers and sellers are being fined and over-taxed,
or worse, simply because the notional values have not adjusted down to
market realities.

"If the taxes are paid 'only' on the full price actually paid, which any
honest buyer and seller would do unless the lawyers advising their clients
point out this problem, the additional tax bill based on the 'notional'
value can arrive many months after the sale," explains Ferguson. "If it's
not promptly paid, bank accounts and other property can be embargoed. There
is a right of appeal, but that involves getting independent valuers to
provide reports showing the sale price was 'fair', which is not always easy.
"Plus they will have the inevitable accountants and lawyers fees. All
because the tax authorities have assumed, without any direct evidence
whatsoever, that the buyer and seller are evading tax, which is now
officially criminal money laundering."

Something to bear in mind if you are a distressed seller or bargain hunter
looking for the opportunities in this market.

 

Source : Spanish Property News