In April I wrote this article about Valencia’s Property Taxes. I thought you might like an update to the story as over the last few days I have been corresponding with three different potential Valencia Property buyers who are worried about their potential tax liability (they haven’t come through my company but they found the article and contacted for clarifications) We are now five months further down the line from the original post and the situation is a little clearer (Translation: It is still a mess).
So, firstly the law remains in place, if you buy a property your tax bill is the higher of the actual declared value on the deeds or the multiple on the Catastral Value. Secondly, of the cases that have been appealed so far not one has had the extra tax returned to them through a successful resolution as far as I am aware. Thirdly, not every property that is due to potentially receive the higher tax bill has received one even six months after purchase even though they should receive it within a month.
This means that there are several possibilities that come to light.
The first is that the system is broken and getting the extra bill is a matter of luck (Bad luck). This is a possibility but as the administration, as far as I understand it, has four years to levy the extra payment you stand to have a long and agonising wait to find out whether you get charged the extra payment and you need to have that money ready to pay because if it is not paid within a short time period of being demanded, approximately 30 working days, then the money can be embargoed from your account or assets can be embargoed (The house for example)
The second is that because of the backlog of cases at the tax office they are taking time sorting through them and it is only a matter of time before the demand arrives.
The third, although a remote possibility, is that the administration is not charging as a matter of course in every case but is cherry picking cases where they stand to gain the most, ie the houses where the difference between the amount paid and the theoretical amount that could be demanded is greatest, like in the case given in the original blog post. (Unsuccessfully appealed by the way and the extra tax paid)
Moving onto the appeals process there is a basic fact to consider too. Despite no appeal having been successful yet as far as I am aware, it doesn’t mean that there won’t be any successful appeals and once one, or some, appear you can guarantee that some lawyers will be advertising their services to get the money back without any guarantees of success (jurisprudence doesn’t exist in Spain in the same way as other countries as can be seen in the case of the illegal contract terms in mortgage contracts of collars on minimum interest rates).
So as far as I view it, as advised to the clients contacting me about it as a buyer, you have a few choices if you find out that you could be due a higher tax rate on purchase of a property.
- Don’t buy the property. Get another one.
- Buy the property and set aside any potential future tax liability in a high interest account with instant access (Good luck finding one by the way)
- Buy the property and sit with your fingers and legs crossed for four years
- Buy the property and whistle nonchalantly and innocently hoping nobody notices anything and then complain bitterly about Spain if the demand for payment comes through because you didn’t check it out 😉
- Renegotiate the offer for a lower price if you have not already placed a deposit (You shouldn’t have placed a deposit before doing the due diligence of conveyancing anyway) If the owner isn’t willing to do it then you might consider walking away or if you really love the place you might go ahead anyway. (This is what one of the people who contacted me is doing. We will see if they are successful)
As I said in the original post it is usually the case that the property is an absolute bargain to have this problem. However that doesn’t stop you feeling rather annoyed at having to pay a tax that could be over 20% of the purchase price. Remember if you are looking at living in it long term it may well suit you to do it but if you are looking to flip it with a profit then it will totally eat into any potential profit and make it probably impossible to make enough from the flip to make it worth your while.
There is another slightly tricky but elegant way of doing it but it carries more than an element of risk and requires you to have a lot of chutzpah. Nevertheless you may want to get in touch by private mail if you want to know more about that 😉