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Declared Property Value - Implications for Capital Gains Tax

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  • Declared Property Value - Implications for Capital Gains Tax

    My house is due for completion soon. It is part of a new development and only a small number have been built so far. I have been told that the builder is taking advantage of the newness of the development to set the declared property value of the property at 120,000 euros less than the sale price. Apparently this issue of the "declared property value" is a Spanish tradition and it is used to avoid the seller paying capital gains tax. The buyer benefits by paying reduced VAT (7%)on the sale.

    I feel uncomfortable about this because I think that this amount of under-declared value is going over the top with a local tradition. This tradition only works provided future buyers and sellers agree to maintain this differential. I could be in the position of having to declare the full price when I sell and would be liable for non-resident's capital gains tax at 35% of the supposed profit at the resale price.

    I have also been told that the authorities are tightening up on this tax evasion and are levying huge fines where the value have been under-declared by 12,500 euros or 20%. Does anyone know who is fined in these cases? The tax is based on the value in the title deeds and I am not sure of the legalities of who (seller or buyer) has responsibility for drawing up the deeds.

    I am going to tell the builder that I cannot agree to him undeclaring by this amount. How do I stand - I have signed a contract with the builder and paid half the price in staged payments - I presume this means that neither of us can pull out. I don't want to pull out but I want to ensure that he is not able to pull any strokes.

    I also do not relish the prospect of handing over 120,000 in a brown paper bag.

    Has anyone experienced an undeclared value of this extent? I must admit to feeling a little worried at the moment. Does anyone on this site have any experience of the Spanish legal system?

    PaddyW

  • #2
    If you look back at some recent posts,this has been discussed.It depends how long you keep the property before you sell from a tax angle,also I dont think the money is handed over as a bag of cash.

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    • #3
      When we handed over our brown bag of money we queried with it various people, solicitor, agent etc and were told that up to 10% was "ignored" by the tax people, and that when we sold the same would happen!!!. Just keeping our fingers crossed and but your amount sound excessive

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      • #4
        I have heard from a couple of people recently who have not paid any cash over as their agents do not do things this way. They feel that it is not in their clients best interest and also to risky to carry so much money round. On the other hand some agents insist on this cash payment. We are in the same boat ourselves and if you have a look at a previous post I posted last week you will see a number of useful replies. I will post on this subject after we have completed in early feb. I dont want to go into too much detail at the moment.

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        • #5
          this sounds far too much, i would not do this, this will come back and bite you on the ass one day.

          kev

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          • #6
            Dear Paddy,
            I am Spanish, I am not a lawyer but I have been working with some solicitors.
            I recommend you never pay less of the 70% of the real price but this is a normal practice in Spain, by the less in Torrevieja. The Tax authorities have four years to reclaim the fine. And they do.
            When you buy a new property you pay, if it is a new building house, near the 1% of the value that you declare (AJD Tax). The file would be to pay the 5% of the difference between the money you paid and the money that they think you should pay, plus a file for the delay.
            Regarding the capital gains tax, when you buy the property the buyer retend you the 5% of the declared price and he pay for this to the tax office. When you will sell the house you would have to pay the 35% of the profit less that 5%. Sometimes the tax office will give you money back.
            Anyway if you want to declare more money I do not think you would have any problem.

            I hope to be usefull.

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