Wave of complimentary tax hits home buyers

What is complimentary tax?

During the property boom in Spain purchasers and sellers sometimes came to an agreement to pay some of the purchase price ‘unofficially.’ This meant that the amount declared was below what had actually been paid. The idea was that by doing this purchaser and seller could avoid higher capital gains tax and Spanish transfer tax payments.

The Tax Authority wised up to this and as a result began to check the amount the property had been sold at against their own valuation. Complimentary tax represents the difference between what tax they considered should have been paid and what actually was. Unfortunately the drop in the market value of most property sold today has meant that many people are, genuinely, selling their property below what it might be valued at.

One example

A family who live in the north of Spain had a third-floor apartment in the Costa Blanca. With two disabled children they were finding that the apartment was no longer meeting their needs and with houses so cheap came by a ground floor property that was priced, very reasonably at €54,000. They purchased this property in 2010 and remained unaware of what was likely to hit them in 2011.

It turned out that the house they had bought for €54,000 was judged to be worth €126,167 and as a consequence they were presented with a complimentary tax bill of €5,051 (7%). A hefty additional cost given the very modest price of the property.

Our advice
At the moment, there is little you can do to prevent being liable to pay complimentary tax. If you do buy a cheap property be aware that a bill might follow and set some money aside just in case.

We also advise that you make sure that if you are a non-resident that someone picks up your post in Spain. We find that there are two periods during the year when demands for this tax are usually sent out. A large batch has just been issued. Make sure you are able to receive your letter as you can appeal.

We have had a very high percentage of successful appeals in complimentary tax cases but you only have a 30-day window in which to do so. The success of an appeal usually relies on your representative being able to find an omission in procedure by the Tax Authority.

Depressing as this might sound, the complimentary tax shouldn’t prevent you from taking advantage of bargains in Spain. If you’ve found your discount property and are saving plenty of money just be sure to put some of that aside for a rainy day.