Tax on Apartment Purchase

[mrsbee]

We purchased an apartment in February 2014 and have just received a tax demand for €4000+. Apparently the tax authorities have looked into our apartment purchase and have decreed that the purchase price was too low and we must therefore pay the difference in what they think it was worth and the purchase price we paid. Has anyone been in this position or alternatively can offer advice?

 

[bobley]

That's ridiculous. I've hear of back dated IBI due to a revised cadastral value?

 

[Papillon]

mrsbee, It was common practice before 2010 to have the agreed purchase price of a property and a different lower price that was declared to the tax authority. Basically it was a way for the seller to minimise capital gain and the purchaser to minimise tax payment. Commonly known as black and white payments and would be agreed by both seller and buyer normally 70% white (declared for tax) and 30% black (undeclared). All a bit of a farce as it all took place in the Notary office and was basically systematic tax evasion that was regarded as fair game at the time.

Unfortunately all this was knocked on the head with a clampdown that meant the full purchase price had to be declared on completion. This left many who purchased in good faith being stuck with part of the original sellers capital gain.

eg, Apartment bought for €300,000 under the 70/30 agreement would see the sale price to the tax authority as €210,000 and if the new owner subsequently sold for the same price he purchased it for after the clampdown then he would be liable for a capital gain of €90,000.

It was a corrupt system that was condoned by estate agents, solicitors and even the Notary and many have suffered as a result.

I would think you have been caught in the aftermath and have been assessed as not complying with the new rules by not declaring the true value of your property. (I’m not suggesting you did anything wrong).

Normally owners don’t find out till they sell so your case seems a little unusual. Sadly they can’t chase the person who sold the property to you so they have opted for the next best thing.

Hope you get it sorted.

ps. There are are certain allowable costs that can minimise your capital gains so above is just a simple illustration.

 

[Mark]

That is a nightmare,

The first thing I would do is check the tax demand is genuine, just because you received something official looking by email or post doest mean it is the real thing.

Then maybe seek advice from a solicitor that may have dealt with this situation before.

The problem is that if the corruption went all the way to the top then who can you trust

It is only 4000 euro so not really worth large legal bills and years of life wasted and hassle.
If it was big money it would be a different story of course.

So I think check everything out, seek advice and then weigh up the pro and cons of fighting it or or just paying up.

 

[Millipet]

MrsBee. A similar thing happened to us a few years ago, and this was over 10 years after we had bought the property. The worst thing for us was that we never received the correspondence advising of the shortfall in valuation (seemingly, this got lost via our administrators/solicitors). The first we knew about it was when our Spanish bank account was drained of all funds!! Then it was panic stations, ringing the bank to find out what was going on. Once we found out, it was quickly dealt with by our Solicitor and of course we had to pay what was due (not as much as your debt), and they waived any additional fine that had been threatened, due to the circumstances. I can tell you that it was a very stressful experience!

 

[Dreamerjan]

We’re contemplating buying an apartment and I’m slightly terrified of this happening to us. Can a solicitor check before purchase to make sure this situation doesn’t happen?
E4000 might be a small amount to some.....

 

[PP76]

We’re contemplating buying an apartment and I’m slightly terrified of this happening to us. Can a solicitor check before purchase to make sure this situation doesn’t happen?
E4000 might be a small amount to some.....

We bought an apartment in 2003 when this was the normal practice and also bought a villa in 2016 by which time the system had changed and no mention of this old practice was made at all, you should be fine.

 

[mrsbee]

Thank you to everyone who has taken the time to reply. Firstly could I just say that when we purchased our property everything was above board (not that anyone was intermatting that it wasn't) and the tax notification was sent via our solicitor. Apparently the tax office has 4 years to demand the tax and in our case it was stamped in Palma 11 days before the 4 years were up! In the grand scheme of things €4000 is not an enormous amount of money but if you haven't got it........
For those who are interested I have just found an article on the internet (I don't think I'm allowed to post it ) relating to retroactive additional tax payments. I am hoping that our solicitor can find out how the figure was calculated.

 

[cumberland8]

Papillion I can assure you that system is still the norm all over Spain having recently witnessed several sales.
I would challenge the figure Mrs Bee .

 

[lollipop]

I have not been charged but I do know several people who bought in our complex at seemingly low prices subsequently received tax bills. The Tax authorities use a calculation to value a property if it sells below you pay.

 

[mrsbee]

Yes they use a figure of 8% but what do they base the 'sale' figure on and why do I have to go to the Agència Tributària de les Illes Balears in Palma to find out this information? Why can't they email or post this? Why didn't the estate agent or solicitor advise us of this possibility? Or are these stupid questions?! Feeling frustrated