Could taking a mortgage avoid unexpected extra taxation

Spanish tax authorities and purchase tax

Due to past activity where black money was a normal part of the Spanish buying process and accepted as the norm by everyone in Spain, the regional tax authorities have clamped down in Spain to a point where what is happening is neither right or fair.

Since the boom years property prices have dropped significantly in Spain but the fiscal values recorded at the Town Halls have not been adjusted to take this into account.

If a buyer whether cash or with a mortgage genuinely pays a price for a property and this is recorded fully at Notary, but this price is below the minimum fiscal value there is a high probabilty that the regional tax office will insinuate that a cash amount was paid to avoid tax. The tax offcie will then apply tax for the purchase at no less than the minimum fiscal value.

There is no arguing with the tax office who will insist this level of tax is paid and will fine onwers if it is not paid on time.

How can the issue be avoided

The first check a buyer should make is to the fiscal value of the property to check the purchase prcie is not below this. If it is then the buyer can either consider paying extra taxes at completion or building up evidence to show they did recrd the true purcahse price accuratley.

A bank valuation or a formal valuation from an accredited valuation company can help. Valuation companies are regulated by the Bank of Spain so if they say the property is worth less than the minimum fiscal value then the buyer has a very strong defence.

If the property is really worth more than you have paid for it then in Spain you will have to expect to pay taxes on a higher amount. This may not be right but is the reality of how things are.

Read the full article: Can a bank valuation help you save tax in Spain