Be informed, property tax is calculated on the book value of property, not mid crisis prices

The taxman does not understand the concept of bargain homes

This is a very interesting aspect of the economic crisis and the decline in house price values, which is leaving bargain buyers with a nasty shock.
The sale price of a home is one thing, and what the tax authorities think the home is worth is another, and it is the second value that is used to calculate transfer tax on real estate transactions.

Spanish regions have tables of minimum prices which they use to calculate the minimum transfer tax to be paid by the person who bought a property, based on the square meterage of the property and the area in which it is located.

By this means they hope to prevent the fraudulent practice of registering a sale price that is lower than the real sale price, a practise which was rife in Spain up until the last few years when property transactions were frequently conducted “half on the black and half white.”

One of the consequences of the crisis is that there are now many bargains on offer, and advertisements of homes for sale where the sale price is the outstanding mortgage, considerably lower than the value of the properties according to the local authority valuation tables, but the tax authorities do not understand the concept of bargain homes, and do not take into account the fact that many homeowners are desperate to sell.

Although the majority of properties are selling for well below their peak levels at the end of 2007, the public administrations have failed to update their valuation tables, which means that buyers can find themselves unexpectedly receiving an additional tax demand for a large amount as tax demands are still being calculated based on the “actual “ value of the property, based on the out of date valuation tables.

For this reason, purchasers may find that after buying a property, especially if it is one of these bargain homes, and having paid the 7%-8% tax on the sale price (depending on which region the sale has taken place), the tax authorities may be in contact demanding further payment.

How to find out the minimum value assigned to a home by the tax authorities
Each regional administration uses different criteria to establish these values. In some cases it takes the assessed value of the property as a reference, and then multiplies it by a correction coefficient, which is set depending on the property’s location.
It is therefore advisable to find out what the minimum price of the property is, according to the tax authorities, before executing the deed of sale, or even making a down payment on the home you want to buy. By doing this you will know the total cost of the purchase, and how much money you will need in order to avoid getting a “shock” later when you have to pay the taxes.

Eds Note.

The Ed has actually been caught out by this situation in the past. An uninhabitable, unreformed property in a hilltop town old quarter setting was sold for 37,000 euros, all paid by bank transfer, with no cash involved at all. ( signed for in front of a notary, who didn´t leave the room and didn´t witness any cash exchange because there wasn´t one). The tax office calculated the value they believed the property was worth, based on the supposition that this was a habitable, modern apartment in the town centre, which more than doubled the value and sent a bill for the difference. The bill (allegedly) went to an empty house which was not inhabited and was not forwarded to ourselves, who had moved away from the area, neither were the subsequent demands and interest bills. The first thing we knew about the situation was four years later when our van was embargoed.

After a lot of arguing, we had no choice other than to pay, as business cash was embargoed as it came into the bank account. In fact, the final payment was taken twice and a year after lifting the embargoe on the van, which took several months and wasted a great deal of time, the excess money taken from the bank, over 1500 euros,  has still not been returned. The entire episode cost us nearly 5,000 euros, money which we did not owe, could not afford,  and would still dispute today, leaving a real edge of resentment at the unfairness of this system.

So this isn´t a scare story, it’s a genuine warning to those buying bargain properties to ensure that a provision is made for the additional property taxes, in case the taxman comes knocking.
This same situation has also affected other expats personally spoken to.