Curlygirly

Hi all, so in my last post, ''Average length of time to buy a house and costs?''I'd asked for advice and costs on buying a property etc. One very worrying reply is a warning of much more than 10% ITP (tax) on a property. Although the OP/costaaz talks of one area Comunidad Valencia, I found someone saying it applies to all of Spain, here Warning! much more than 10% ITP (tax) on a property in the Comunidad Valencia!.
So is this a REAL CONCERN? How common is it? How can we find out before we to the offer stage? Is it possible to avoid it?
If we were to find a house we wanted to buy, would it be possible to avoid these extra taxes by placing a condition in the offer. Stating offer subject to all taxes being paid up-to-date and no future tax liabilities from the local authority within the next four years etc? Thanks

quiltman

Here in Philippines that's a fairly standard clause in the deed of sale. So many people are delinquent in paying property tax etc that you dare not buy a property without. I believe if any taxes are owing then they are paid out of the sale proceeds. The biggest problem here is getting what is known as "clear title" to the land/property - is it properly registered, does the building have the correct permissions etc.If it's "old" land that can be a nightmare as often many people say they have a claim to some or all of the land!Usually it's a bit of paper saying "I give you this land in exchange for X pesos" , still has to be checked though! At least in the UK land is registered with the Land Registry on all sales now. Did not used to be and when we sold my Father's house many years ago we had to take insurance against someone popping out of the woodwork and claiming the land.

snikpoh

I really don't understand your concern - there is no 'extra tax' of 'back door tax'!!

The problem is that you have to pay tax on what they deem is the correct value and not what you have paid for it. This is the law.

Once you understand this, it's simple.

What we did was to ask what this value was once we were at the notary. We then paid lower than that but paid the required tax there and then - problem solved.


I have to agree though that the cadastral values should be updated to better reflect today's prices but that is unlikely to happen any time soon.

Fred James

These "tax adjustments" apply across all of Spain.

Put very simply, Hacienda can insist on you paying the IPT based on what they think the house is worth, not what you paid for it. This was introduced many years ago to fight the "black money" problem where a large part of the purchase price was paid under the table and the escritura showed a lower figure than the actual price paid. Apparently this happened in the majority of transactions.

However, things have changed somewhat and due to the crash in the housing market, there are now many properties being sold, perfectly legitimately, at a price that is lower that the Hacienda valuation.

The problem is caused by the archaic way Hacienda calculates their valuation. They take the catastral value and multiply it by a factor, typically between 1 and 5, and that becomes their official valuation.

In some areas it can work the other way and their valuation is lower than the asking price. There is really no excuse for being "caught out" by this extra charge as these factors, and of course, the catastral value, are freely available. Any decent lawyer should advise a prospective purchaser that there is an exposure to this tax on the sale well before completion. Armed with this information, it should be possible to negotiate the price to take this into account or just walk away from the purchase.

It is perfectly possible to challenge the valuation, but only after the tax has been paid. That process is, however, long and expensive with no certainty of success.

Note: I have also posted this on the other thread.

Horlics

Isn't the problem being referred to that this tax is unpredictable at the time of purchase and may or may not be requested at some point up to several years after the purchase transaction has been completed.

Based on what was said in the other thread, it appears that either of the following two scenarios is possible:

1. I buy a house for 100k but after the drops of recent years, it turns out that the catastral value according to the council is 150k. I have to pay tax on the larger amount.

2. I buy a house for 100k but because the council hasn't updated its values for years, the catastral value is 50k. I pay tax on the 100k but with the understanding that at some point in the future when the catastal values are updated, they could decide the value was actually 150k on the purchase date, in which case they come looking for 10% of 50k 3 years from now.

I can't see why anybody would complain about scenario 1 but can see huge issues with the second. What do you think, is scenario 2 a possibility?

amideislas

Good explanation Fred.

We were taxed at a *slightly* higher rate than what we paid, based on hacienda's valuation, but it wasn't a deal-killer.

Nonetheless, it isn't all that comforting to know that hacienda reserves an exclusive right to dream up any figure and make you pay it (or decide years down the road to force you to pay even more). If this were a country that historically exhibited judicial fairness and reasonable means to challenge decisions, then I think many would be far less concerned. Unfortunately, I can say from experience, the bureaucracy and the courts here have a long history of rendering very surprising decisions, often completely ignoring factual evidence presented ("just because we say so"). So, if the tax assessor is in a bad mood that day, you could end up the victim of their frustration, with little recourse. Again, not entirely comforting...

Fred James

Not likely, I would say - even Hacienda wouldn't try that (I hope!)

Curlygirly

With reference to our concern over the extra tax etc, one estate agent sent us more property details over the weekend, with this warning after the usual sales cost info; '' Byers please be aware of the purchase price and the registered price, as the Spanish Government are now charging extra tax on property purchases. If your purchase price is lower than the registered price, the government are charging you 8% on the registered price.'' This is additional to paying the usual 12 - 15% property tax he informs.... Whilst we have no problem with paying the usual FAIR tax ie 12-15% but 23% seems totally unfair and rather than helping the property market it will likely damage it? Very short sighted don't you think? Any enquiries we make will now be to ask what the registered prices are and see how that compares to the asking price...!

snikpoh

I think what he's trying to say is that you will pay an additional 8% on the difference between the price paid and the registered value - not on the whole amount again.

I don't know where you get 12-15% because ITP is 8% (generally) and 10% in Valencia. The other percentages are for costs.

It is NOT "an extra tax" but simply "extra tax".

Palmerston

Hello Curlygirly,
The option for the Spanish tax office (Hacienda) to bill you a larger purchase tax based on their own perceived value of the property (valor fiscal) is nothing new. It’s actually been set in law since the 90s, and has been used in previous downturns in the market.
Yes, it’s important that you know the valor fiscal of a property that you’re interested in before you spend time and money booking flights, accommodation etc, to view it. You don’t want to go to all that expense and time wasting only to find out when you get there that the valor fiscal makes a purchase unjustifiable. Although in my experience, emailing several agents to give me that information before considering a viewing has been futile. I never hear back from them, despite repeated requests. Some agents I’ve spoken to, face to face, clearly didn’t even know what I was talking about when referring to this tax.
Since the crisis took hold, I’ve read of a couple of cases where the extra tax payable has been obscene. One was the legitimate purchase (no dinero negro) of a finca where the purchase tax ended up being around 50% of the purchase price, owing to a ridiculous valuation set by the tax office. Another was the legitimate purchase of a villa for around 500,000 Euros, but the purchaser later got stung for an extra 40,000 Euros in purchase tax because it had a tax office value of around 1million Euros (the extra tax due being 8% of the difference in perceived value and actual purchase price). Again, this was a figure that could never have been even remotely achieved at the height of the boom.
They may be extreme cases, but they highlight the need to have the information to hand before instructing solicitors and incurring their costs for a purchase that could possibly be a non-starter. Any dream house can soon lose its appeal if you feel it’s cost you far more than it’s worth to you.
Someone on here will correct me if I’m wrong, but I think the valor fiscal is also important because it can determine how much capital gains tax a seller will have to pay, if they are liable for the tax. This can affect a potental purchaser because it’s my understanding that the CGT due would be based on either the valor fiscal or the selling price (whichever is the greater). So that could dictate the minimum figure a seller is prepared to sell their property for. After all, the seller wouldn’t want to have to pay CGT where, in reality, a loss has actually been made. That is why a stalemate can occur – the valor fiscal needs to be achieved by the seller for CGT purposes but is set too high for the purchaser for their purchase tax liability.
It's supposed to be a legal requirement that a selling agent has the valor fiscal figure to hand prior to marketing a property, so there *should* be no excuse getting that figure from the agent before you set the ball rolling and incur unnecessary expense. But in reality....

Moses2013

The Catastral value of our land was roughly 50% more than what we paid and lawyer did make me aware that they could come back after a year. Luckily it's not huge amount, but I did challenge them, as I have official valuation. I spoke to a nice lady on the phone and also made her aware that they sent paperwork to wrong address (Lawyer). She said it is no problem and they will resend paperwork to my personal address. After several emails, I have never heard anything back.

Fred James

It does work the other way sometimes.

Our house is currently valued at about 25% of what it is actually worth (and that figure takes into account the drop in prices). The biggest advantage of that is that, because of that, we have absolutely no IHT or CGT liability!