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confirming that the price value is in accordance to the market value and therefore proving that the tax value is outdated.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.
In a clear homage to my youngest daughter’s favourite cartoon: yes you can!
I am talking about NIEs and not laying bricks but contrariliy to what happens in the Bob the Builder’s cartoons, the lack of NIE will not necessarily lead to a happy ending. A NIE number (tax number for non-residents who either live, work or own property in Spain) is very important and has to be obtained sooner or later.
The common perception is that it is not possible to complete the purchase of a property in Spain without a NIE. This is not true as it is in deed possible to sign and complete the purchase without the said number. The Notary who drafts the deeds will warn the purchaser of his/her obligation to obtain the said number but completion will not be stopped. However, once the purchase has been completed, the purchaser will have 30 days to obtain the NIE and pay the transfer tax as no tax can be paid without a NIE in place. This 30 days window seems wide enough but the purchaser needs to bear in mind that obtaining a NIE is not as straightofroward as it looks and the procedure could take several days and sometimes weeks. In the meantime, the property will continue to be registered in the name of the previous owner. Furthermore, if the tax is not paid withing 30 days from completion, penalties will be applied to the tax due, increasing unneceasrily the tax liability.
This is why although a NIE is not compulsory for completion, it is strongly advisable and we always prefer to wait until the client has a NIE number in place. If the client is in a hurry to complete (imagine a purchase with a large discount being offered on the basis that the purchase is completed in one week) then the lack of NIE will not be an impediment to complete the purchase. It will be sufficient to inform the purchaser of the need to obtain the said NIE as soon as possible or, if instructed by the client to obtain it ourselves on his behalf, take the necessary steps to obtain the said number.
Once again, not all urbans legends surrounding Spain are true. This is just another example of an urban legend that has been manipulated and misunderstood although, as usual with urban legends, there is some wisdom behind the advice.
This week a client who lives in the UK asked me if he can pay in sterling the purchase price of a house he is buying in Spain. The truth is that this is not an impediment. On the day of the signature of the purchase deed, the Notary will request evidence that the payment has been made i.e. a copy of the cheque. The purchase deed will also reflect the fact that the price has been paid in sterling and will show its equivalent amount in euros, which at the end of the day will be the one used for tax purposes and for the calculation of the transfer tax.
This is a scenario that is more and more often these days. Many Brits have bought properties in Spain and they are now willing to sell them. At the same time, other Brits who are currently cash privileged are still interested in buying in Spain and very often the transaction involves UK nationals on both sides. In this type of transactions, the parties might be interested in securing the deal in sterling in order to avoid currency fluctuations so this is something that I am seeing with enough frequency.
Food for thought if you are planning to buy in Spain and do not need a mortgage.
Photograph by Yusputra/dreamstime.com