Antonio Flores’ Blog

About to wind down for the weekend, yesterday evening I received an email from Alexandra Goss, personal finance reporter for the Sunday Times, in relation to a few enquiries sent by Spanish property buyers, and sellers, that were unexpectedly receiving letters from the Spanish tax office challenging the prices at which they had bought, and sold, their properties in Spain, respectively.

Indeed, one thing came to her mind considering the state the Socialist Government has left Spain in: the Spanish Tax Office (AEAT) is desperate for revenue and are finding avenues to levy extra demands for transfer tax from property buyers, and so, if the Spanish property market was not an already depressed sector of Spanish economy, they now come, as real predators, to make it even harder for people to buy, and sell.

This is the real paradox of it all: the Spanish Interior Minister flies out to England to do his silly property-selling road show, and in Spain, those buyers get shafted by the Inland Revenue his Government controls. The good thing? That courts are, mostly, not contaminated with the wrong ideology and will employ reasoning and logic to counteract this property-buying prevention scheme, and will mostly, again, throw out of court these extra tax demands.

What should one do if one receives one of these letters, after of course all the understandable cursing and imprecating? Well, go get a lawyer that knows his stuff and appeal within the stipulated timeframe, by choosing one of the 2 legally available avenues:

1. Challenge the “unreasoned”, “standardized” valuations made by the tax office that happen to be nothing else than some formulas being applied on unknown coefficients by a computer program that pumps out wholly impossible valuations (a 2-bedroom flat on a 200-unit empty development in Manilva worth €280,000?). The funny thing about this is that University graduates sign off these valuations, knowing that they are essentially wrong and untrue (land registrars in most of Andalusia are in charge of the Transfer Tax collection, and/or “arquitectos tecnicos” employed by the Andalusian Government, the same graduates that think that the property is twice as expensive!).This is what the courts in Spain think about these predatory extra tax demands:
   • Supreme Court 14^th December 1998: The valuation carried out by the architect for the Tax Office is a standardized printed form full of scant references that have the weight of an opinion rather than that of a property valuation, and therefore one cannot assume it has any reasoning or justifiable criteria, losing its legally binding effect.
   • Economical Administrative Tribunal 20-06-1995: The legal mandate granted to the Tax Office to raise supplementary tax demand fails due to the Tax Office not following a logical process when arriving at property values but rather by using abstract figures when calculating these. Also, the Tax Office fails to properly provide a valuation when they simply perform arithmetical calculations on the basis of a unitary basic module, without reasoning or justification, and certainly can never comply with the law when to this value or figure, a stereotyped all-purpose text is added on as reasoning. (Tantamount to calling the “arquitecto tecnico” a dumbass).
2. Carry out a proper valuation by a proper “arquitecto técnico”, or as they don’t like to be called, “aparejador”, who will surely determine that the property’s real value is either the price you paid for or sold it for, or perhaps less, and submit it, hoping that the “arquitecto tecnico” working for the Tax Office will abide by the norms of ethics of their profession and admit to being wrong. Because the funny thing here is that, depending on whether these university graduates work for you, or the Tax Office, their opinion of what the quoted property is worth will be €140,000 or €280,000, respectively. It´s funny, certainly, but it is also very worrying.

This subject matter is very very interesting, and so expect some interesting, and surprising, developments very soon, including a legal suit against the Andalusian Tax Office.

Anyhow, check tomorrow the Money Section in the Sunday Times, I am quoted there.

Antonio Flores Property, Taxes spanish property taxes, Spanish Tax Office, spanish transfer tax

A recent report by the Association of Tax Inspectors in respect of rental income highlighted what we all knew: that very few landlords do actually declare any rental income. According to the inspectors, the biggest tax evaders are in Andalucía, where it is believed that only 26% of property owners declare this income to the Spanish Inland Revenue (of which, ostensibly, foreigners amount to…0 percent!). In total, €2,450 million of lost tax revenue.

It is not clear however how have they reached these conclusions but one thing is clear to me: I don’t know of anyone on the Costa del Sol (mostly foreigners) who has ever asked where should they pay their taxes.

The reasons, below:

1. Unwillingness to pay taxes (obvious).
2. Untraceability of the transaction as most of the deals are done in cash or are paid into non-resident bank accounts, of little interest to the Spanish Inland Revenue. Also, the sums are small and periodical so banks are not obliged to report back to the Central Bank of Spain.
3. Tenants are not obliged to withhold the tax and lodge with the Spanish Inland Revenue if the tenancy agreement is not of a commercial nature (Conversely, where a real estate agency is involved in the payments they will have to deduct the 24%).
4. Ignorance as to how to about paying the tax in the case of a non-resident.
5. In the event of willingness to pay, many non-resident owners are put off by the tax (24%), with no possibility to deduct costs (maintenance, etc.)
6. Lack of fear of the Spanish Inland Revenue.

But this blissful scenario is likely to change because the Spanish Inland Revenue is on a mission to trap tax dues with a clever and original proposal. They will force utility companies (water, electricity, gas) to supply details of consumption to identify the properties which are apparently empty but house a tenant in them.

This seems once again a futile attempt to convince owners that they need to pay taxes and judging by how it is released it looks more of a newsletter or circular carrying a declaration of intention, no more.

Antonio Flores Property, Taxes rental income in Spain, Spanish Inland Revenue, spanish property taxes, Spanish Tax Office, Spanish Taxman

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.

Antonio Flores Property, Taxes capital gains tax spain, complementaria, property taxes in spain, spain property tax, spanish capital gains tax, spanish property capital gains tax, spanish property tax, spanish property taxes, tax on spanish property