Buying property abroad is not an undertaking one should embark upon lightly! It is not wise to assume that entire purchase process will follow rules we’re used to ‘back home’ and generally speaking there are usually a whole new set of rules and regulations, traditions and traps to learn, understand and watch out for.
Spain is absolutely no exception and has a tangled web of laws and legislation seemingly designed to trip up an unwary real estate buyer. This article examines three key areas that a potential property purchaser should be at least aware of before signing on dotted line for that dream Spanish home.
Firstly there’s a ‘tradition’ in Spain for purchasers to actively but illegally assist vendor in reducing his overall capital gains (or profit) tax liability. Often vendor will ask for a far reduced purchase price to be written into purchase contract and for buyer to actually make up difference between contract price and actual price in cash.
This has been a tradition in Spain for many years; in theory it doesn’t affect buyer, it certainly doesn’t affect vendor and what tax authorities don’t know can’t hurt them, right?
This action is highly illegal and Spain’s new socialist government have begun cracking down on money laundering and tax evasion and these concerted efforts are targeting property market in Spain.
Of course many potential buyers reading this will simply assume that if asked to act illegally all they need do is point out that new crackdown could result in investigation, fines, even a lengthy prison term and vendor, estate agent and solicitor involved in transaction will step back and accept that exact figures are entered into contract and taxation be paid accordingly.
Unfortunately reality for those who refuse to act in accordance with vendor’s wishes can be far different to above proposed ideal scenario. Quite often vendor backs out of a sale if he cannot get his way and buyer loses their dream property in Spain and possibly their deposit as well.
So, what should someone hoping to buy property in Spain do if faced with such a situation? Should they accept vendor’s demands and hand over a brown paper bag stuffed with 500 Euro notes? If they do then price they apparently purchase property for will be price against which any future profits from resale of property will be compared for their capital gains tax purposes. Therefore if purchaser ever wants to resell property they too will need to insist that their buyer also agrees to having a reduced sum entered into contract otherwise they’ll be liable for all extra capital gains taxation! Someone somewhere along line is going to lose out just ensure that it’s not you! Even if you have your heart set on a particular home in Spain I would strongly recommend that you do not go ahead and act illegally even if that means you risk losing property.
Think very long and very hard about what you’re being asked to do and potential legal and long term financial consequences rather than your short term thrill at securing that dream home in Spain.
The next point that is worthy of due attention is fact that there are many unregistered and inexperienced estate agents operating in Spain. The fact that anyone can become an estate agent on Costa del Sol for example has led not only to mistakes in purchase process being made, but unscrupulous individuals setting out to exploit foreign buyers.