If you buy a house in Spain, you will almost
certainly be asked to break the law as a routine part of the
process.
(Filed: 09/04/2005)
Spain’s irregular ways with property are
under scrutiny. Chris Wilson from the Daily Telegraph reports
If you buy a house in Spain, you will almost
certainly be asked to break the law as a routine part of the
process. Refuse and you run a real risk of losing the house of
your dreams; but if you go ahead and commit the crime, as so
many estate agents advise - be warned. The recently installed
socialist government has decided to get tough on tax cheats and
money launderers and the booming property market is a number one
target.
The problem is that in order to reduce his
capital gains tax, the seller will ask you to declare that you
are buying the house at a reduced price - and then pay him the
difference in cash. It's called black money and it is endemic in
Spain, where cash buys "under the table" for all kinds of
services are common. A recent estimate suggests that 30 per cent
of all €500 notes in Europe are in circulation in Spain and
there's only one possible explanation for that.
While negotiating to buy an apartment in
Marbella, Matt Henderson, an IT consultant, was surprised by the
attitude of the vendor, who asked for black money and then
turned out to be a lawyer. "He assured me that it was a
completely normal thing to do, and that, in fact, making a
purchase declaration for the 'real' purchase price would
actually be an exception in Spain," says Mr Henderson.
The practice of under-declaring is so common
that vendors frequently refuse to sell to those British buyers
who won't go along with it. One woman, who prefers to remain
anonymous, revealed that her lawyer advised her to pay about 15
per cent of the sale price under the table. When she refused,
she was told the house in the sun she had set her heart on was
no longer for sale. She quickly changed her mind.
Mr Henderson was made of sterner stuff. "My
wife and I decided that we wouldn't do anything unethical or
illegal. We wouldn't involve ourselves in black money, and we
informed the seller of our decision. He then stated that he was
cancelling the sale and that he was keeping our original deposit."
"I advise my clients not to pay black money,"
says Enrique Blasco, a property lawyer. "But sometimes they
won't listen since they have fallen in love with a house and
will do anything to get it."
One theory used to justify the tax evasion is
that the whole system relies on cash. Builders pay their illegal
immigrant workers in cash, which keeps the prices down, so
everyone benefits in the end. Some buyers even talk about the
thrill of turning up at the notaire's office with a bag full of
money. "It was very exciting and made it feel foreign," says one
recent buyer "When in Spain, do as the Spanish do," says another.
Unfortunately for the romantics, this time-honoured
Spanish practice is under threat. The department responsible for
tax collection in Spain, the Agence Tributaria, has recently
published its anti-fraud plan to combat black money in house
purchases. Since there are about 60,000 homes built in Spain
every year, it is obvious that there is a great deal of
untraceable cash sloshing around the system.
'The problem for the buyer," points out Mr
Blasco, "is that you leave a trail when you pay by cash."
British buyers who don't already have large amounts of cash
under the bed are most at risk of being caught because they are
the ones who are injecting the money into the system. It is a
relatively simple matter for the tax authorities to check bank
accounts and match them with the date of purchase of a house.
"If you have withdrawn €50,000 [£34,000] in
cash on the day you signed the deeds, this will be sufficient
evidence to investigate," says Mr Blasco.
Although it is rare for people to be caught,
there are increasing numbers of fines being handed out and with
the change of official policy, this trend is likely to continue.
Yet, despite the intentions of the Spanish tax
authorities, perhaps the biggest risk is the capital gains tax
the buyer will face in the future.
Unless you are able to convince the person who
buys your house from you to under-declare, you will be liable
for the full amount of capital gains tax. That means you will
pay, not only for the gains you have made but also for the gains
of the previous vendor.
For example, if you buy a house for €150,000
and only declare €100,000, and the real value of the house
increases to say €200,000 when you sell it, you will be liable
for capital gains tax on the difference between the two declared
figures (€100,000 instead of €50,000). In this case, you will be
paying double the amount of tax you would have done if you had
not under-declared. In Spain, for non-residents that capital
gains tax is set at 35 per cent.
"In the short term you can save money by under-declaring
because of the transfer tax," suggests Mr Blasco. "But you run a
very real risk of losing in the long term. That is why I cannot
advise my clients to do that."
It seems the system is set up to encourage
buyers to pay in black money. John Rawlins, a British estate
agent in Valencia, blames much of the problem on unlicensed
estate agents, others blame it on the property developers.
Whatever the reason, it's going to be a very slow process to
eradicate something so deeply engrained in practice.
If you wish to avoid any illegal activity,
choose a reputable estate agent and always ask for their company
and tax registration number (known as a CIF number). You can
find reputable lawyers from the Collegio di Abogado, but, as
ever in house purchases, unless you get what you want, you must
be prepared to walk away from the deal, however gorgeous the
house.
Enrique Blasco: 00 34 96 344 2990; Rawlins
& Holden, overseas members of the National Association of Estate
Agents (NAEA), based in Lliria near Valencia: 00 34 96 202 8218
The original
article is at:
http://www.telegraph.co.uk/property/main.jhtml?xml=/property/2005/04/09/pbla09.xml&sSheet=/property/2005/04/09/ixpmain12.html
--------------------------------------------------------------------------
For more information on Valencia and our range of property
go to:
--------------------------------------------------------------------------
For more news and views on Valencia property visit:
