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Tax Shock for Poorly Advised Buyers of ‘Bargain’ Spanish Properties

Sale of Spanish AssetsPosted by Andrew Thu, February 02, 2017 15:15:12

January 8th, 2014

Expert professional legal advice is always necessary when purchasing properties in Spain, both to avoid legal problems; and also to avoid unwelcome tax surprises.

A detailed fiscal analysis is essential in order to evaluate costs and taxes at the time of the transaction. But furthermore, to assess the risk of exposure to future tax liabilities.

Anyone who has bought or sold property in Spain will be aware that Spanish properties have two values- the market value; and the official fiscal value.

Prior to the collapse in Spanish property prices over the last 5 years, in the majority of cases, the market value exceeded the fiscal value. But now in many cases with reduced market values, the fiscal value exceeds the market value.

Buyers of Spanish properties pay a transfer tax of 8-10% of the declared purchase price.

But if the fiscal value of the property is greater than the declared purchase price, during the 4 year period following the transaction, the Spanish Tax Authority can demand an additional amount of transfer tax, by substituting the (higher) fiscal value for the declared purchase price.

For example, take a Spanish house previously fiscally valued at 500,000 Euros. Quite commonly, this may now be sold for 250,000 Euros. The buyer now pays the transfer tax of 25,000 Euros. However, the buyer must budget for a further 25,000 Euro tax liability, which may be demanded (along with interest/ penalties) any time within the 4 years following the purchase.

This is nothing new- but it is convenient for many advisers involved in Spanish property transactions to ‘play down’ the risks. Also, many advisers are inexperienced; or lack legal and fiscal expertise; and are therefore simply unaware of the risks.

At Legal 4 Spain, our mission is to be clear with our clients as to the risks and liabilities in Spanish property dealings. This ensures that all relevant legal and financial details are ‘factored in’ to the negotiation of a price and budgeting.

Armed with the correct advice and knowledge, property investment in Spain needn’t be viewed as the risky proposition many commentators would have you believe.