Taxes when Selling Spanish Property

[Mo Chapman]

I am hoping you can help. My mum purchased a property in Spain in 2004 and paid 210,000 euros she thinks that they may have paid part cash (is this called "black money")? but is unsure currently how much and needs to look back at the records.

She is now looking at selling and has had an estimated valuation of 145,000 euros. She is a UK resident and will be bringing the money back to the UK so please could you give me some indication of how much in taxes and any additional charges she may have to pay.

Many thanks

[Lawbird Lawyer]

Dear Sir or Madam

Black money means underdeclaring. For example If I buy a property for an agreed price of €300,000 ina Private Purchase Contract but only end up declaring in the Title deed that I'm paying €200,000 I have effectively underdeclared €100,000.

The reasons why a buyer would do this are many i.e. money laundering, saving yourself 7% or 8% (depending on whether it's a resale or a new build property) on the underdeclared amount etc.

This practice, which used to be rife in the boom days, is illegal and in fact most of the times only benefits the vendor, not the smug buyer who mistakenly believes he's being smart but is actually being outsmarted by the vendor on not having done his Maths.

As a buyer you are saving yourself either 7% on a resale (Property Transfer Tax) or 8% (VAT) on a new build but when you sell the property later on you will be taxed for the "profit" you've made (difference between what you declared you paid for and what you are receiving now). And this is taxed by Capital Gains Tax (CGT, for short):

If you are non-resident in Spain, CGT is 19%

If you are tax resident in Spain it's 19% for the first €6,000 profit and a flat rate of 21% for what exceeds said amount.

So effectively you are going to pay much more taxes on selling than what you were trying to elude initially on buying; in some cases even double the amount of taxes (21-7 = 14% tax difference).

So basically on underdeclaring you are actually paying, in the future, for the vendor's taxes, you are actually subsidizing the vendor's taxes!

You can pay for a property part cash at a Notary Public and this does not mean its underdeclaring or "black money" so long as its declared (meaning tax is paid on this cash element). It would only be underdeclaring if this cash element was not declared in the Title deed which means that no taxes are paid on this cash element as it has gone undeclared before the Notary witnessing the transaction.

I cannot give you an estimation because you are not giving me the facts correctly.

One thing is what your mother paid, 210k, and a different matter altogether is what she actually declared in the Title deed which can be 210 or less.

Vendors are liable for both Plus ValÃ*a tax (local tax levied by the Town Hall) and for Capital Gains Tax.

I would advise you to hire one of the British currency exchange companies to send back your money to England, they have excellent rates and your mother will save considerable money. If you want names, just register and PM me.

When you have your figures right come back here and ask me again and I'll give you an estimation.

Yours sincerely,
Raymundo LarraÃ*n Nesbitt

[bobby]

Can you help please, I agreed to sell my spanish house in may 2008, A 6 month contract was agreed before completion was to take place and a 20,000 euros deposit was received by me, after 6 months the buyer could not get a mortgage but stayed in the house and paid rent along with another deposit of 25,000 euros, the contract was extended till dec 2009 where a further 13500 euros was given, this left a balance of 135,000 euros which is the mortgage amount, they buyer did not renew the sales contract but continued to pay rental with covered the mortgage, unfortunately the rental monies have not been recieved and the bank are wanting there money, but the buyer is still in the house, i have been informed that the buyer has got a mortgage but doesn't want to pay the arears, sale price was 193500 euros, my purchase price was 140,000 euros + purchase costs, i also spent 35000 euros updating the property, what tax would i be liable for or what can i do.
Kind Regards

[GILL MORGAN]

Re: July 20th reply above :

Does the age 65 still apply if you are already in receipt of the UK State Pension ? I am now 63. I have residencia, and am taxed in Spain.

[lynne hamilton]

I have a company automonus here in spain, am a resident, I have read above that to sell my house, it is 19% on the first 6000 capital gains, and 21% flat on the balance, which would equate to a hefty sum of 52000, approx, taking into account the amount we paid for the villa, and the costs and subtracting these from the sale price, would I still pay the same taxes if I waited until I am 65 years of age in spain, and what happens if I do not want to roll over the money in another property here in spain, but want to go back to the U.K.

Also another problem, one of my family has not paid his mortgage for 6 months and the bank, even after we agreed to restart the payments sold it on to another company without informing them. It is now 11 months and we sought legal advice today and they say we should restart the payments and back payments of some 10,000 euros as when this company go to the judge to reposes the house, the payments will be up to date, and the courts will not allow them to take the house as from December 2009 the clause in the hipoteca is deemed abusive by allowing them to sell this mortgage on. The people who have bought the mortgage are not in communication with us at all, at this stage, and I am worried that if this solicitor is not right, we have paid the 10,000 euros into their account for nothing, please give me your views, as we can ill afford as a family to lose this money.

[Miss Kar]

First question - I am a uk resident. I sold my british home and invested all profits in a spanish house in 2006, I was going to move there permenantly. However, I had to return to the uk and rent accomadation in 2007 as my mother was dying. I have continued to rent here in uk since. I want to sell the spanish house now to buy in the uk again. Do I still have to pay CGT if my spanish house is the only house/home i own?
Second question, I took out a loan to complete spanish house improvements, I paid for new kitchen and air con by credit card which I have not managed to repay yet! Can I offset any of this debt against CGT?

[Wicker]

We moved to Spain in 2004 as pensioners and became fiscal residents in 2005. Having lived in the same property for more than 3 years we believe that when we sell we beome exempt from capital gains.
However, we have heard that if we sell between the months of January and July in any year and return to the UK we automatically revert to non residents and become liable to CGT. Is this correct.

[aflores]

Dear Wicker,

I have never heard of this perverse and illogical regulation but would be grateful if you could advise on the source! (I am already thinking on the prolific expat legal-gossip activity!).

[aflores]

First question - I am a uk resident. I sold my british home and invested all profits in a spanish house in 2006, I was going to move there permenantly. However, I had to return to the uk and rent accomadation in 2007 as my mother was dying. I have continued to rent here in uk since. I want to sell the spanish house now to buy in the uk again. Do I still have to pay CGT if my spanish house is the only house/home i own?
Second question, I took out a loan to complete spanish house improvements, I paid for new kitchen and air con by credit card which I have not managed to repay yet! Can I offset any of this debt against CGT?

Mis Kar, you need to be a Spanish resident to avail from the exemptions applicable on CGT for residents for tax purposes because this is only way to prove your commitment to pay your taxes in Spain. Think about it, how do the Spanish authorities know that you dont have property in say Japan or Chile?

You are able to deduct from CGT improvements on the property that are not movable, and a kitchen is in principle such an item, althought not the appliances.

[elaine grant]

we have lived in spain for 6 years.we bought a house with my father and when he died we paid inheritance tax along with funeral expenses etc., which left us with little money as well as a monthly income of about 400 euros a month.We were hoping to sell the house at a profit-buy another and have enough money left to tide us over until my husband got his old age pension in 2012.Things got desperate and we had to sell the house at half the price we wanted as the market was and still is very bad.Thing is we are in rented accomodation and paying 600 euros a month plus electric which is all coming out of our 150,000 euro profit.We cannot afford to buy another house and will soon be landed with a CGT bill for around 10,000 euros.Is there any way we can avoid paying this tax as we are on the bread line!We are of course residents.Any help would be appreciated.Also if we reinvested,do we have to buy in Spain or anywhere in the EU??