If there is one thing that sticks in the throat more than taxes, it is retrospective taxes. In the seven years since the economic crisis gripped Europe by the purse strings, property prices have taken a downward trajectory. No country knows this better than Spain, where properties are being sold at prices sometimes less than 50 per cent of the value they achieved in 2008. In the past few years, there has been an alarming increase in the number of claims made by the tax agencies of the different Spanish autonomous communities for unpaid purchase tax against homeowners who have acquired property, whether by purchase, gift, or inheritance, on the basis that the acquisition value declared in the transaction was too low.
Why are the Spanish tax authorities making claims for retrospective purchase tax?
Homeowners have run into trouble with the tax authorities because they have calculated their overall purchase tax liability incorrectly. Where homeowners have used the actual purchase price of their property to calculate their purchase tax liability, they are now realising they should have paid tax in accordance with a fixed calculation: that usually being the rateable value of their property, set locally and known as the “valor catastral”, multiplied by an indexation figure, set by the autonomous government. In some autonomous regions one simply needs to apply to the tax agency for the lowest value for tax purposes.
Although this method of tax recovery may seem arbitrary or unfair now, given the current state of the property market, it was a policy initially conceived to stamp out the benefits of the unlawful practice of avoiding purchase tax by way of paying part of the property purchase in cash (so-called ‘black money’). As a significant part of the price was not visible it meant that purchase tax was not paid in relation to it.
For homeowners who have already received warning letters demanding more purchase tax, it will offer little comfort that these tax agencies are acting within the law (section 57.1.b of the General Tax Law). Sadly, the absurdity lies in the fact that people are being forced to pay tax based on a value higher than the price they genuinely paid for the property.
Find out more about Spanish inheritance tax.
I've received a letter from the Spanish tax authorities. What can I do?
If you have recently bought a property in Spain, and you took specialist independent legal advice, your adviser ought to have counselled you to pay tax at a level that would be accepted by the relevant tax agency. That is not to say that you will not be the subject of a retrospective claim, but if you do not pay tax to at least that level you almost certainly will. If the tax agency has made contact with you, the first letter you will receive will be what is called a “comprobación de valores”, or value check. It contains the value that the tax agency considers to be the real value of the property when you acquired it.
If any of the above has happened to you, then you should appeal within the strict time limit established. Your appeal should set out the reasons why the value of the property as stated in your completion documentation was the real value of the property. It will be essential for you to engage a professional specialising in Spanish tax matters to prepare your appeal. Although it is possible to lodge an appeal on your own, I have seen appeals prepared by property owners that inadvertently support the position of the tax agency.
You will almost certainly receive a reply from the tax agency rejecting your appeal and demanding what is called a “liquidación complementaria”, that is an additional tax payment, based on its original claim.
Your next response should then be to engage a regulated valuer to assess the property value. If the valuation is no more than either 10 per cent or €120,000 lower than the tax agency’s claim, then your valuer’s claim will be accepted. If not, then the tax agency’s valuation will stand unless you decide to engage a further valuation, the result of which will be binding on both you and the tax agency.
At any point in this process you have two choices. Either you can proceed down the valuation route, or you can judicially review the tax agency’s claim. You will need to pay for each valuation yourself, with each valuation typically costing approximately €500 depending upon the value of the property. A judicial review of a decision of the public administration is potentially very costly. If you are successful then you may save any tax payment that was being demanded of you. If you are unsuccessful then you will have incurred costs, which are not recoverable, although you will not have to pay the tax agency’s costs.
If you have received a “comprobación de valores” you must act fast within the time limits, as there are many considerations to take into account, not least the valuation and judicial review costs you will incur if you challenge the tax demand, weighed up against any back-dated tax demanded of you. In any case it will be essential for you to seek professional independent tax advice.
Find out more about non resident tax in Spain.
If you have recently received a comprobación de valores, or value check, letter and are not sure how to proceed, it is highly recommended that you engage an independent Spanish lawyer. We here at E&G Solicitors in Spain can take the necessary steps to find out how much purchase tax you should be paying to the relevant tax agency in respect of your property, so that you can be sure that you are paying the correct amount.
If you have been affected by any of the issues raised in this article and you would like to seek independent legal advice, please contact us by email at firstname.lastname@example.org, by telephone on 020 3478 1420, or by completing our contact form.
A version of this article appeared in the Summer 2015 issue of A Place in the Sun Magazine