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What can I do if the Taxman considers that I have ´lied´ over the realprice of the property declared on the deeds?

Tax Law

Antonio Flores Vila

5th of December 1999

Q. When we bought our property, which was handled by a real estate agent, we were told that it was convenient for us to under declare the real value we were paying for since we would save on taxes. Now, 5 months later, the agent says that the Tax Authorities have considered that the tax was not enough, and that we have to pay an extra 3,600 €. Purchasing property in Spain is now sort of becoming a nightmare. Why pay more tax?


    A. There is a habit of underdeclaring property values on a Public Deed of convenyance in Spain, given that this document is the basis for the calculation of the taxes to be paid by both buyer and seller. The seller, when he purchased, was forced to declare a substantially lesser amount in the deeds. Now, when selling, needs to reduce the value of the property, or face paying an increased Capital Gains Tax bill. To put clearly: if the seller does not underdeclare, he ends up paying tax on his gain and tax on the gain the previous vendor made and did not declare. What are the remedies for this: unfortunately, for the buyer, none. Either he accepts an amount in cash, or his offer for the property is not taken on.

    On the other hand, buyers who do not intend to sell the property find they can save transfer taxes (roughly 300 GBP per every 4,000 GBP paid for the property). This practice, although rife, is against the law, and from we encourage buyers and sellers to declare full amount.

    If the Tax inspection establishes that the value of the property exceeds more than 20% of the value stated in the Escritura, and provided that the excess is more than 12,000 €, the excess will be taxed both for the buyer as if the excess was a donation or a gift (donations are taxed for the foreign recipient as gift tax which could be as high as 83%). If it does not fall within those limits, then normal transfer tax is payable on the excess. Going back to your question, I hope the abovementioned is self-explanatory. The Spanish Taxman has caught up with you and has raised a supplementary demand for tax. Whether it qualifies as a donation I do not know.

    I recommend you hire a skilled lawyer in administrative claims and challenge the decision. You might get away with something.

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