January 8th, 2014
legal advice is always necessary when purchasing properties in Spain, both to
avoid legal problems; and also to avoid unwelcome tax surprises.
A detailed fiscal
analysis is essential in order to evaluate costs and taxes at the time of the
transaction. But furthermore, to assess the risk of exposure to future tax
Anyone who has bought
or sold property in Spain will be aware that Spanish properties have two
values- the market value; and the official fiscal value.
Prior to the collapse
in Spanish property prices over the last 5 years, in the majority of cases, the
market value exceeded the fiscal value. But now in many cases with reduced
market values, the fiscal value exceeds the market value.
Buyers of Spanish
properties pay a transfer tax of 8-10% of the declared purchase price.
But if the fiscal value
of the property is greater than the declared purchase price, during the 4 year
period following the transaction, the Spanish Tax Authority can demand an
additional amount of transfer tax, by substituting the (higher) fiscal value
for the declared purchase price.
For example, take a
Spanish house previously fiscally valued at 500,000 Euros. Quite commonly, this
may now be sold for 250,000 Euros. The buyer now pays the transfer tax of
25,000 Euros. However, the buyer must budget for a further 25,000 Euro tax
liability, which may be demanded (along with interest/ penalties) any time
within the 4 years following the purchase.
This is nothing new-
but it is convenient for many advisers involved in Spanish property
transactions to ‘play down’ the risks. Also, many advisers are inexperienced;
or lack legal and fiscal expertise; and are therefore simply unaware of the
At Legal 4 Spain, our
mission is to be clear with our clients as to the risks and liabilities in
Spanish property dealings. This ensures that all relevant legal and financial
details are ‘factored in’ to the negotiation of a price and budgeting.
Armed with the correct
advice and knowledge, property investment in Spain needn’t be viewed as the
risky proposition many commentators would have you believe.