Getting a Spanish villa at a knock-down price would seem reasonable to most; the country is after all, on its knees, with thousands of vacant properties, increasing unemployment, and the likelihood of another Eurozone bailout just around the corner.
Thousands of British expats saw this time as being an ideal moment to delve into the property market and get that elusive Spanish villa at a bargain, but the government very quickly got onto this, and are now hitting expat villa-owners with shock tax bills if they are of the opinion that the property was purchased too cheaply.
In a desperate attempt to get some kind of cash flow, the government have ordered tens of thousands of property deals to be investigated from the last four years.
Some areas of Spain have seen a 50% drop in real estate value since the 2008 financial crisis, and mortgage rates have also dropped significantly across the country. These factors attracted savvy investors, and most were able to secure property at prices which would have been unthinkable six or seven years ago.
If the property was snapped up at too good a price however, a tax bill will most likely be in the post. The government are in the process of placing their own valuation on all property purchased since 2008, and regardless what you paid for it, if they think it’s worth more, you will be asked to pay extra to them.
Retirement Concerns
This is particularly concerning for the thousands of low, fixed-income UK retirees who spent their savings on their retirement home and have very little else to spare. The bills some are receiving run into the thousands, and although you can appeal, while it is ongoing, interest is added to the bill.
It’s a concept not lost on property law experts within Spain, but there is a suspicious correlation between the increase in the number of stamp duty letters being sent out to Brits and the financial downturn. At this stage, there have been no reports of a rebate in any cases of the government’s valuation being less than what was initially paid, but we shall see.
If you have received a government request for a bit more money, we’d love to hear from you. Contact us here.
I regret that this information is out of date. The Spanish tax authorities have had their own valuations of properties for a number of years. They had to do this due to the prevalence of substantial amounts of purchases being in unrecorded cash ‘under the table’ and thus they could not trust the registered values for tax purposes.
It is possible to appeal these values if they are higher than the actual purchase price, with the best method being to send a current market valuation report attached to the title deeds when they are sent to the registrar. As the market fell, the tax values lagged behind and so became higher than the actual market price, thus causing the additional tax problem. Now that the market is stabilising and the government is aware of the problem, the values are being revised and there are many fewer occurrences.
It is possible to check the tax value of any property on the Internet if you have its Catastral value and the municipality in which it is registered. Therefore, the buyer’s solicitor should forewarn them if there is going to be a possibility of additional tax.
Total purchase and selling expenses for property in Spain are relatively high at 12 to 10% respectively and they have to be taken into account. Compared with the total cost of the property plus these expenses, the small amount of marginal tax that may have to be paid should not dissuade the prudent purchaser.
As this situation has been the case for a number of years and applies to all property transfers, there will be hundreds if not thousands of successful appeals and rebates.
I think it has just become slightly more prevalent as an issue so far this year because of the large number of Brits receiving currently these notices, many of whom are friends who had no idea this kind of legislation was in place….
My husband and I have received one of those letters. The letter was dated in November. We are not residents of Spain, it is our holiday home and they had apparently tried to deliver the letter on numerous occasions. They know we are not residents and we only received it when we went to Spain in March this year (2015) This means we also have a fine to pay due to the delay. We are totally disgusted with what has happened. Our plan was to eventually sell our holiday home and buy a bigger Spanish property to retire to in a few years time. We are now having second thoughts.