The property prices slump in Spain may have almost killed off that country’s notorious “Black Money” tax dodge, in which the seller connived with the buyer to under declare the price and save on capital gains tax.
“Black Money” was almost the norm in pre-recession Spanish real estate, but now with peak to present prices down by an average of 44% across the country there’s not much scope to understate the purchase amount with this kind of sharp practice.
The dodge was illegal, but the black cash was handed over at the Notary office registering the purchase, often when the notary answered an opportune call of nature or urgent telephone call. Spain’s tax authorities have been clamping down since the recession started, slapping on demands for extra 20% tax and forcing sellers to produce all the paperwork to prove otherwise.
Proving you were not involved in a Black Money deal could cost €1,500 in fees, surveys and costs – and the past or present owner pays the bill in every case. The buyer selling on the property at some future date may finish up paying taxes what the seller didn’t pay and had added to his Mattress Bank account – money they never declared as earnings to the tax office. Giving Black cash to the seller effectively launders it.
But now the Capital Gains problem is being reversed. International buyers, snapping-up properties at discounts of up to 84% – the highest recorded on the Spanish banks’ broker website – on key ready apartments and villas are registering their purchases at prices considerably lower than the property registry records show.
“Was €834,000 – now €200,000” is going to stretch the credulity of the Spanish tax office when some hawk-eyed official spots differentials like this in the registration details submitted by international buyers, delighted to have secured one of the current best in Spain.
Also beware, if the tax office consider the purchase price too different from the valuation of the property, they will tax you on the difference anyway assuming you have used ‘Black Money’ for the purchase. That means the buyer pays not the seller.
Just in case the tax man in Spain, or buyer’s home country, starts demanding a big chunk of capital gains at some future date, Ben Walker of Walker Property Spain is advising buyers to keep their own complete records of the purchase to quash any such claim from the outset.
Records should be scanned or photocopied and include:
- A screen shot of the website deal
- Email traffic with property and mortgage brokers
- The private contract, previous note simply and the new note simply
- Receipts for the deposit and for all monies paid
- A complete payments reconciliation.
Make two sets of the documents and give one to the Spanish lawyer you used for the purchase and request a receipt.
“That’s a strong audit trail that should avoid the need for additional professional fees to rebuff any CGT claim. If buyers keep the information safely and produce it if the tax man comes knocking, then it should be even easier to prove they did benefit from a great property deal and were not dodging any tax liabilities”, added Ben Walker.
Author: Kevin Barnet, Walker Property News