Calculating complimentary tax on Spanish property

Of course, more research might have unearthed the possibility of this tax. But many purchasers expect the information to be given to them. Unfortunately, those keen to sell property are not always as keen to inform you of the taxes you can expect to pay. Ironically, this lack of transparency is one of the reasons so many possible purchasers are anxious about buying in the first place.

However, complimentary tax need not be a skeleton in the closet, provided you prepare for it. This tax, levied on purchases up to five years after the purchase date, consists of 7% of the difference between what you declared you paid and what the Tax Authority claim it is worth. Plus interest, of course. It originated because the full cost of the house purchase was not always declared in a bid to reduce Capital Gains and Transfer tax.

So how much should you put aside if you’re thinking of buying a bargain? The problem is working out what the Tax Authority will estimate the property to be worth. We have found it very difficult to come by the exact calculations to enable us to predict this. On the plus side, the rather fluid and complex formula they use is one of the reasons we’ve been able to win so many appeals.

All we can advise is that if you are considering buying a discount property you check what any previous purchase prices have been. This can be a useful guide especially if the price was paid at the height of the property boom (around 2004). Calculating 7% of the difference between this and what you pay should give you a rough idea of how much the tax might be.

Once you’ve bought your property, set the money aside and don’t be tempted to dip into it. Not for five years anyway. By then, if no tax demand has appeared you’ve got a nice little bonus for being prepared.