REQUEST A FREE INITIAL CONSULTATION

Blog Post

Avoid surprises when buying a “bargain”: the trap of the ITP Tax

 

First and foremost, despite the tax system in Spain not favoring investors and buyers, the tendency of prices does, and to this extent, there are always legal paths for reducing the charges in a “generous” way.

 

Let us go to the point:

When a person buys a second hand home in Spain ( no a newly built which will be applied the Spanish VAT instead of the ITP), he or she has to pay up to 10% of the purchase tax that figures into the corresponding deeds to the patrimonial transference tax (ITP).  The percentage varies according to the Autonomous Community: 7% in Madrid and Andalusia, 10% in Valencia and Catalonia.

 

Normally, there isn’t any anomaly, but recently the number of cases in which the Treasury requires the buyer to pay more than they did initially has been growing. 

 

This is due to the fact that, even when the actual price paid for the purchase of the home is put on record in the public deeds, the value that the administration of said home has is much higher, because it has not been revised with the same speed of the fluctuations of the price that the current housing marking has produced.  That is, there a clear lack of adaptation between the actual property prices trend variable and the statistical valuation done by the administration during the best years of housing prosperity.

 

We are seeing this case especially with buyers who have found flats for low prices, or bargains.  The reason is that the autonomous communities have some minimum price tables and on top of them they calculate the minimum ITP that a person has to pay when they buy a house.  In the case of the buyer paying a higher tax nothing happens, but if the regional Government thinks that the sale price has been too low, the authorities demand an additional payment on top of the ITP charge that was already satisfied by the buyer.

 

Before deeding a flat, you should inform yourself about the administration of taxes from the Comunidad Autonoma (Regional administration) where the property is, and about the valuation that the property has with the administration.  Then you will know what expenses the payment of taxes will mean for you, you will be able to plan on the tax, and, most importantly, you will avoid the fear of getting a subsequent claim from the Tax Office.

 

The Undesirable Tax Office Notification

Whoever buys a second-hand home and is not well informed can find themselves in a situation where, after paying a tax of 10% of what they have paid for the house, the Treasury demands the payment of an additional tax from the ITP.  Said tax will be 10% of the difference between the value that the house was deeded for and the minimum value that the home has in the eyes of the Treasury, plus interest corresponding to the delay of payment.

 

For example, if we buy a home for 200,000 euros, we would pay 20,000 euros for ITP.  If in the Treasury records, they figure that this home has a minimum price tag of 300,000 euros, and that this number corresponds to a minimum ITP of 30,000 euros, they will make us pay the difference: 10,000 euros plus interest.

 

When we are interested in buying a home that, perhaps due to the crisis, has been substantially reduced in price, it’s worth knowing that the minimum value is as per the Treasury, in order to pay the corresponding fees and to not have surprises or claims later on.  Minimum prices are generally lower than the sale price, but with the crisis in mind and in places where the home has fallen a lot, there are more and more cases in which things don’t happen this way.

 

Can a claim be filed with the Treasury to not have to pay “more”?

 

When you deed the home for under the minimum stipulated by the Treasury and you pay an ITP lower than you should, the Tax Office will notify you of the tax that you owe for the difference.  From the time that you receive the notification, you will have an argument period in which you can dispute why the price paid for the home is lower than that calculated by them as the minimum price.

 

Typical disputes that you can argue are: poor maintenance, homes bought with tenants (which reduces their value), or providing a ratings report from an independent expert who shows that the actual market value of the property is less than what the administration says.

 

But, in any case, having the appeal admitted and being saved from paying the “extra” for the tax is highly unlikely and will only be obtained in very justified cases, so you shouldn’t count on it ahead of time, because although the Treasury “respects” the fact that you find a deal, they want to collect the taxes as if the transfer was done for at least a minimum value.

 

 

6 thoughts on “Avoid surprises when buying a “bargain”: the trap of the ITP Tax

  1. Campbell D Ferguson

    There is a process by which you can appeal the higher value, but you only have a 10 day period to notify an appeal from the date of receiving the increased tax notice. It is easy to find the tax authorities opinion of value on the Internet in advance as long as you have the Catastral value of the property, which is shown on the IBI receipt. If it’s known that there is a significant difference, some good solicitors are obtaining an official valuation of the property and attaching that to the deeds that are to be registered. That shows the tax authorities that there will be an appeal. An appeal will cost for solicitor and at least one official valuation, but that can be substantially less than the tax that’s being demanded.

    Reply
  2. Anne

    Comes a bit hard on a new owner who might have stretched themselves to buy the property and has done everything correctly and payed they think all their costs.
    Rather unfair too as what one is going to have to pay in taxes should be notified up front so the buyer knows exactly where they are,
    Not going to encourage overseas buyers. Also with all the property for sale I would have thought much better to get as much as possible sold but will make people a little unsure of going through with many properties.
    What a shame when Spain seems to be moving their property market again. It could put quite a brake on it if people become unsure of their costs. Not a good move especially as it is after the sale has gone through, could do a lot of harm to the property market.
    Sometime governments do not look at the whole picture, a bit short sighted in the long run I think.
    Has put me off a bit as I am looking for a property in Spain at the moment, but has made me a bit unsure.

    Reply
  3. Daniel Talavera

    Hello Anne,

    thanks a lot for reading and for your comments. As Campbell said, the catch is the appeal time frame. It is easy to get the catastral value via internet. Depending on the “Comunidad Autonoma” and the city, this value is updated yearly or, in the worst scenario, has not been update for at least 2-3 years.

    So, if you want to buy a property in 2013 and you know the 2013 catastral value then you have all the info that you know. When you appeal, you car argue a few different reasons.

    All comes to the due diligence that you, or your representative, do before buying. If you are dealing with a bad agent with good properties.. you have a good property but you do not know the facts which is a risk, that is why it is crucial to work with the right people. To work with the right people will save you money and lots of time and headache.

    I am really sorry to hear that you find this discouraging for first time buyers. We all know that the situation in Spain is not good and, like in this ITP case, even authorities are setting catches for buyer. But there are ways to reduce taxes for buyers and improve income for investors.

    I have been working with investors for a while and I can guarantee that when you know everything about your property and the Spanish system, you are in the right position: either to walk away or complete a winning investment.

    Do not be scared because when you have all the information you are in a strong position.

    Thanks Campbell for your comments.

    Cheers,
    Daniel

    Reply
  4. Skip

    Can someone explain EXACTLY how to avoid getting slapped with an additional ITP charge? Where you go, what to ask for, how to analyze the information given? “Inform yourself about the administration of taxes” is way too broad for me to understand. I am looking to purchase soon

    Reply
    1. admin

      Hello,

      This comes with the regional authority (Comunidad Autónoma). Depending of the location you will need to appeal in one or another place.

      In order to find out how much is the “official” ITP you need the Catastral Value and the year of that value: with the latest IBI receipt from the current owner should be enough.

      If you are looking for purchasing a property soon I would recommend you to get proper advice and someone diligent in order to deal with this in your behalf. You will pay the service but it is worth: you will end up saving money and time (money). Otherwise, you will be wasting time and probably the 10 days period.

      Regards

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

4 + 4 =