Declared Value
 

Having been house hunting for over two weeks now I am astonished to learn that builders are declaring in most cases only 60% of the price of a house thus forcing would be buyers into breaking the law and commiting tax fraud. I had understood that the Spanish government was cracking down on this but it would seem not. :rolleyes:

Re: Declared Value
 

Bit of a mystery. Surely if you wanted to buy that property and were really keen on it, and you did not want to have any 'under declaring' issue, you could say to the builder: I will bear all the additional costs. Wouldn't the builder have to agree? He is presumably only suggesting a lower valuation because of Spanish 'custom' and practices and because of a kind of tradition built into the system. Sort of systemic. But any buyer can insist on the true value being paid and taxes paid on this value. What does the builder lose by you the buyer offering to pay for the additional taxes. After all, the purchase tax is being (normally) paid by the buyer and so you the buyer would fork out an extra amount of purchase tax. One wonders exactly how this will affect the builder's own situation?? Especially if you the buyer agreed to pay the additional costs.
On the question of 'value' of any property. If it is brand new then one assumes that the builder is not selling it at 'cost' price. In the sales price is his profit. As a rule of thumb, a builder may want to see one third as his profit. In many cases much more than 1/3 rd ! His expenses for building the property will be easily estimated and include labour costs as well as value of the land and materials. Value of any property would take into account 'supply and demand' as well as price of building materials and labour costs. A property today worth 200k could be worth 250k in one year's time just because of market sentiment or some TV programme. Or fall to 150k because of a new road being built through the back garden. So fixing a 'value' is always difficult for properties.
This reminds me of Insurance Valuations.
Many people will insure their bricks and mortar for close to or at the market price of the property. Insurance Companies rely upon this and fix their 'rating' accordingly. But the costs of rebuilding a property is very rarely the market value of the property following a serious fire. Depending on the value of the land on which the property sits. When property prices rocket and outstrip building costs, the difference can be very large.
Just another example of paying the right costs on the value of your property ?

Re: Declared Value
 

Nige is quite right but another point to remember is if you "pay" the lower price and then sell the property for it's "true" price you will pay capitol gains on the difference to that which was declared when you bought it.
Also if you are non resident, ie do not have a residencia card, and sell the house, the capitol gains is much higher than if holding a residencia card.
pwwm

Re: Declared Value
 

Thank you Nige for your valued opinion. To answer your question. Yes if you pay the additional tax for him then he would probably declare the full value. However my question is why should you.? Surely it is against the law for a builder for example to sell a house for 250.000 euros and to tell the taxman he has sold it for 150.000 leaving the buyer in a position that he has now commited fraud by buying the house. I was under the impression that this insidious practice was being stamped out once and for all by this new radical thinking government. I also thought I had read somewhere that the EEC had demanded the Spanish government get its act in order with regard to this issue and the amount of black money floating about in Spain in general. :rolleyes:

Re: Declared Value
 

Hi, first post on here but we've all got to start somewhere :-)

I found the same, and to be honest I didn't even think of telling them I wanted to declare the full value and maybe I should. Of course the other point is that if the Govt crack down on this now, all people who declared the lower "black" price may be liable to increased taxes on the sale, dependent on the circumstances.

Re: Declared Value
 

I have to add that it is not just builders doing this, but the Spanish that are selling up are also doing the same thing.
We bought our place nearly three years ago and live here permanently, so we are aware of it going on.
pwwm

Re: Declared Value
 

Reverting to Mitzi's comment about the "insidious practice" being stamped out. I have no particular view about property taxes as (a) I am not Spanish and (b) have no experience of living in Spain and paying taxes to the Spanish Government. So I am no judge about whether the property tax is viewed as right or wrong etc. as seen by the population. (Taxes are sometimes imposed by government and are actually resisted by the populace because there is a feeling of unfairness).
On the general subject of property taxes, in England there is a Stamp Duty payable on completion of a residential sale and the rates have increased quite a lot over the recent years. For properties valued over £250,000 the rate of Duty or Tax payable goes from 1% (for residential properties under 250k to 3% for above. So if you are on the borderline, and are selling your home for a figure of 255,00, the government want 3% from the buyer, but if you sell it for 245k the government want 1%. I think the amounts payable as property taxes in Spain are higher, if I am not mistaken. It would be interesting to find out whether there are many sales at just above £250k in England. But this is a slight red herring, although I wonder if Mitzy would say that 'under declaring' the value in the case of a £255k home in UK is in the same league ?

Re: Declared Value
 

If you want to sell a house for £255k here I believe the practice is to value the house at £250k and then sell fixtures and fittings for £5k. Totally illegal of course, but I have heard of it being done.

Re: Declared Value
 

If you sell your house and are resident you pay 15% cgt if non resident it is 35% cgt. But if you buy a house to do up and keep the bills etc these can be ofset against the cgt. We have bought a second small house here for quite little money, purley as an investment for when the motorway finally reaches us. It pays to keep a property for three years.
I do not think like the UK that it goes on the price banding (I think even the Spanish would baulk at that) but on buying the second house it had never been land registered and the people selling had no idea what to do, so we came to an agreement, they dropped the price and we paid the tax accordingly. This all took nearly a year, oh joy. But now everything is legal and correct.
Good learning curve.
pwwm

Re: Declared Value
 

We did that with each house we sold and bought same way, Most people I know have done it when moving on, quite legal as long as you have it written what you are leaving behind etc.
pwwm

Re: Declared Value
 

Oh OK, I thought I saw an article on it a while back saying that the tax man would almost certainly drop on you from a great height, because basically its tax evasion (not that I'm criticising .... I hate paying taxes :)

Re: Declared Value
 

Dont want to worry you but have found this on another forum. The bit I would most be concerned about is that they can buy it at the declared value and then sell it to the highest bidder.

______________________________________________

It has been illegal to underdeclare for some time now but no one has taken much notice and, until recently, the taxman has not taken much notice.

What has happened recently is that the tax authorities have declared war on people who abuse the (existing) rules. That means that there will be more investigations, after the event, resulting in very severe fines and possibly confiscation. The government has the right to purchase your property for the declared amount, if it is clearly under declared, and sell it to the highest bidder.

It is still very easy to under declare, even in front of the notary, but you have to live with the possibility of being caught many years after the event.

As they say, you have been warned!

Re: Declared Value
 

It should be pointed out that:

1. The value of an item and what someone pays for it are two different things.
2. It is still accepted Spanish practice.
3. There is a degree of amortisation of this practice as greater integration with the EU continues.
4. Originally the practice evolved partly from excessively high wealth taxes (relative to incomes) and a regime and time not compatible with today's economies.
5. You will pay annual taxes in accordance with the rateable property value (valor catastral) and area.
6. One is not bound to these practices, but where does one draw the line in the sand? What one values the property at today may be notional in a market rapidly spiralling up and likely to fall in the future. Just because one pays a certain sum, does not mean that the property is worth that over the long term (as someone else mentioned).

Ultimately one must analyse the situation and do what one feels is best in compliance with the law and your best interests (and perhaps leave the "inciduous practices" indignation at home).

Re: Declared Value
 

I think this is a rational message and can't find fault with it. I think that for any 'foreigner' coming to live in another country and not aware of the language and customs and years of gradual change, it is sometimes difficult to accept things as they are. Frankly the differential taxes paid by Residents and Non-Residents for CGT is odd and should be changed. However, this is all a question of balances and where the Government's Income should be obtained and how easy it is.
The Spanish Government benefits greatly from the increasing values of properties. In many areas, they have risen by much more than 10% per annum. By leaving the tax payable on the sale of a home as the same percentage, and assuming the level of sales/purchases remains static, then the Government will derive at least 10% MORE income purely by house price inflation year on year. A nice extra 'earner' don't you think?
Taking this to a more extreme case. If every Spaniard or foreigner selling/buying his/her home during 2006 entered in the Escritura the precise exact amount paid for the home. I would imagine that the Spanish Government would face a BONANZA (rich pocket) of funds that would embarrass them. :scared:

I sometimes wonder how many foreigners with Non Resident properties in Spain actually declare their exact and true level of rental incomes to the authorities. Even if they do not let out their places, they are still required to complete the annual tax declaration and pay an annual tax. I wonder if Mitzipurr could get on her soapbox about all those illegal tax avoiding foreigners enjoying Spain and its' infrastructure including roads and airports and lighting and cleaned beaches and police service and emergency services and hospitals etc etc ?? And think that it is their right to enjoy the country without contributing a sausage ?

Re: Declared Value
 

*nod* As it so happens the EU commission are upholding a complaint against the Spanish givernment against these unfair and discriminatory differentials, since they restrict/limit the ability of EU individuals to move freely across member states. I would not be surprised to see this change for EU nationals,, but remain as is for others. So we may just see a European Court Ruling on this, at some stage.

Re: Declared Value
 

Sorry, I may have caused confusion when I said with each house we sold we agreed to fixtures and fitting I was referring to UK, not here, Sorry for confusion. I have heard of it happening here though.

Very wet, cold, what had happened to my sunshine!!!!!
:cool:

Re: Declared Value
 

Hi *nod*,

I understand that after repeated representation by the European Commission and no action by the Spanish government it was referred to the European Court of Justice on the 19th January. If the Spanish drag it out it could go on for a year or two yet but they will probably fall in line if the ruling is against them.

Regards, :rolleyes:

John.

Re: Declared Value
 

Nige as usual your post is spot on. However the reason "I am on my soapbox" as you put it is this. For over ten years I worked in a senior position for the Inland Revenue. I am well aware of the pitfalls and penalties that fiddling the tax man can lead to. You only get away with it for so long and believe you me it can and has ruined many peoples lives. Speaking for myself if I cannot buy a house with a clear conscience in Spain then I will move on. Times are changing in Spain and the old ways will disappear forever and then what? :)

Oh and by the way I am resident and always have been whilst living here, pay my taxes and are registered at the townhall. I also think you will find that most of the major roads constructed recently in Spain and a lot of other major projects have been funded by the EEC.

Re: Declared Value
 

Indeed they have, but that does not diminish the infrastructure and society that was in place prior to this. In any case, one would hope that at some stage in the future there will be a return for the investment that our taxes have paid for in the EEC. The member states that currently fund the EEC are not doing it out of charity.

Returning to the question of under-declaration, prior to entry in the Euro, Spain had 3 billion pesetas (£12,000,000,000) of Black Money (dinero negro), of which one third was estimated to be crime/narcotics related, leaving 2 billion pts in the hands of the general population. The 3 billion pts represented around 40% of the cash in circulation, according to some estimates.

Around 1998, a European commision study estimated that cash-in-hand work was between 10% and 23% of GDP.

The problem for the government, with the introduction of the Euro looming, was how to integrate the economy in such a way as to minimise the impact. An outright amnesty (although previously tried with some success) could have undesired fall-out in terms of inflation and would run the risk of opening the money-laundering gates to crime related money.

The alternative, was to continue with the current legislative regime and practices, whilst gradually tightening-up on the rules, over an extended period of time. This would then permit black money to partly fund the purchase of investment property, bringing those assets into the system and after sufficient years had elapsed to minimise taxation issues on disposal, the value of the asset could then be realised.

One assumes that this would then allow time for markets to balance and legislation to evolve as necessary to bring things into line with the EEC.

So what I posted earlier still stands. It is up to each individual to assess their liabilities and declare accordingly, bearing in mind that the end-game is the complete elimination of the black economy at some stage in the near future, as far as is possible.

In the interim, although the government will not acknowledge it, nor condone it, they have undoubtedly (in my opinion) turned a blind eye to certain practices to achieve the aforementioned objectives.

What would be interesting, would be to see what the estimates of the "submerged" economy are now, a few years down the line.