It is no secret that the Spanish property market is very quiet. Nowadays, any person wanting to sell reasonably quick has to make a noticeably discount on the sale price. This could mean reducing the price in 20% or 30%. This could prove very atractive to the purchaser as it would allow him to buy a bargain but the said purchaser needs to be careful with a potential comeback from the Spanish Tax office in respect of the unpaid transfer tax. This is due to the fact that all properties in Spain have a minimum tax value. This is the minimum value assigned by the Tax office to each property. Nothing stops someone from selling under that value but this could bring some consequences to the buyer.
The first one is in respect of transfer tax. As any person who has bought property in Spain will know, the purchase of a property in Spain is subject to transfer tax, which ranges from 7% to 10% depending on the area and price. This tax is paid by the purchaser. Now, imagine that Mr Joe Bloggs buys a property in Mallorca for 100,000 €. The minimum tax value of that property is 150,000 €. Mr Bloggs is supposed to pay 7% of the purchase price of 100,000 €, that is 7,000 €. However, the minimum tax value for that property is 150,000 €. This means that it is very likely that the Tax office will revert to the purchaser ande demand the outstanding transfer tax over the tax value, in this case a further 3,500 €. Why? Well, the Tax Office believes that the property is worth more money and although it accepts the sale for less than its tax value, the Tax Office is not prepared to give up on the potential revenue that would be genereated if the property had been sold for its minimum tax value and hence the requests for another 3,500 €.
Market value 100,000 €
Transfer tax 7% 7,000 €
Tax value 150,000 €
Transfer tax 7% 10,500 €
7000 € + 3,500 €= 10,500 €
If Joe Bloggs has paid 7000 € in respect of transfer tax then the Tax Office will request a further 3,500 € because it believes that the total tax that should have been paid was 10,500 €.
This is clearly unfair but unfortunately this seems to be the situation in many areas in Spain, where the tax values have not been adapted to the reality of the market.
The aggravated buyer can pay the tax and forget the matter or he can appeal the decision. Any appeal in this respect will require support with an independent valuation confirming that the price value is in accordance to the market value and therefore proving that the tax value is outdated. The Tax office will then consider the appeal and make a decision, which in some cases could imply withdrawing the request for extra payment. The main problem is that the appeal will involve lawyers and valuers and in some cases it may not be worth the effort. As always, each case needs to be studied separately as one solution cannot be applied to all the cases. However, if you are going to buy property in Spain for a very attractive price, you better check the tax value first to ensure that you will not be asked to make a further payment a few months after completion.