Declared Value

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mitzipurr
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Declared Value

Postby mitzipurr » Fri Jan 27, 2006 1:43 am

Having been house hunting for over two weeks now I am astonished to learn that builders are declaring in most cases only 60% of the price of a house thus forcing would be buyers into breaking the law and committing tax fraud. I had understood that the Spanish government was cracking down on this but it would seem not. :shock:


On reflection after posting the above the same applies in most cases when trying to purchase resale properties. I have no doubt due to buyers being duped by builders/estate agents into declaring to low when first purchasing the property and now finding that the capiall gains tax they have to pay when selling is crippling.
Last edited by mitzipurr on Sat Jan 28, 2006 1:12 am, edited 1 time in total.

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Re: Declared Value

Postby Midnight Rambler » Fri Jan 27, 2006 10:37 am

How can they force you to break the law,My boss, who is paying for my accommodation (don't ask why) has been warned about this practice.
I've been told that it can seriousy affect the amount of capital gains tax you pay if you have to sell it, I'm not an expert on anything in Spain but under-declaring the true price has to be an illegal practice and a recipe for future disaster, I guess Beachcomber or El Cid will give us the lowdown!!

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Postby oliveview01 » Fri Jan 27, 2006 10:45 am

We told the agents and solicitor we would NOT pay black market money.... it wasn´t until we got the ´deeds´ about 2 years later that we discovered we were aprox. 15,000€ down on the declared price. We have all the bills etc stating we paid the full amount so hopefully if we sell one day we can use this to help prove we paid the money. We thought the solicitor was honest too :shock:

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Postby Beachcomber » Fri Jan 27, 2006 11:21 am

It is still usual to 'underdelcare' but you have to bear in mind that you can legitimately deduct the agent's commission as well as furniture and fittings etc as the transfer taxes are for immovable property which is the building.

If you are purchasing from a legitimate developer there should be no leeway for underdclaring because the payment of VAT should be included in the purchase contract.

It is true that underdeclaring will affect your CGT when you sell as you can only use the figure in the purchase escritura when submitting your tax return regardless of what you actually paid.

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costakid
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Postby costakid » Fri Jan 27, 2006 3:30 pm

under declaring saves you 7% on the under declared amount but when you sell you will pay 35% on that money in CGT. better to pay more now. your cgt bill will be enough as it if prices continue to rise.

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Postby Beachcomber » Fri Jan 27, 2006 4:21 pm

This is why sellers always want to underdeclare especially if they also did so when when they purchased.

Gross underdeclaration can result in hefty fines for both parties and even forfeiture of the property for the purchaser.

If a declared figure works out at less than two and a half times the valor catastral then you will have a serious problem.

If your declared amount is challenged by AEAT you will end up paying 7% on the extra plus a fine unless you can successfully appeal and although you can set the amount of extra tax paid against your capital gain when you sell you cannot use the revised purchase figure when submitting your CGT declaration although this figure will be used when calculating your annual resident or non-resident tax declaration.

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Postby Lorraine - Mijas » Fri Jan 27, 2006 5:21 pm

I thought the practice of under declaring was being stamped out and that the authorities where planning to make it harder to do so?

Last week I sold a property , which I declared to the true value but whilst sitting around the table in the Notary's office in Marbella, with the very lovely old Spanish gentleman Notary and both lawyers. The Notary made a huge joke about handing over the black money!!! He couldn't have cared less if we'd gone the old route, I think he'd have even been happy if we'd sat in front of him and passed over a wad of cash :shock:

So maybe these stories of the Spanish authorities cleaning up there act, is a load of old nonsense!!

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Postby El Cid » Fri Jan 27, 2006 7:18 pm

Lorraine - Mijas wrote:So maybe these stories of the Spanish authorities cleaning up there act, is a load of old nonsense!! Lorraine
No it is not a load of nonsense.

It has been illegal to underdeclare for some time now but no one has taken much notice and, until recently, the taxman has not taken much notice.

What has happened recently is that the tax authorities have declared war on people who abuse the (existing) rules. That means that there will be more investigations, after the event, resulting in very severe fines and possibly confiscation. The government has the right to purchase your property for the declared amount, if it is clearly under declared, and sell it to the highest bidder.

It is still very easy to under declare, even in front of the notary, but you have to live with the possibility of being caught many years after the event.

As they say, you have been warned!

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Postby Nikvin » Fri Jan 27, 2006 10:42 pm

The traditional game of underdeclaration is also the reason many unscrupulous agents have been able to get away with extortionate.. commissions.
Many agents websites had (probably still do) "advice" saying that one declares appx 50%. No decent lawyer etc, would ever have let a purchaser declare less than 80%.

Property price 100k, declare 50k save 7% on 50k..................or do you_??

vendors price 60k, he wont declare more than 50 (over 80%).......
all dealing done in back room, both buyer and vendo happy, as think they've saved themselves a fortune!!

agent happier as walks away with 40k!!, which isnt liable for the tax anyway .

Neither vendor or buyer find out about this large commission til much later, to late then,money paid, deal done.

and the above hypothetical example is only that, however I KNOW of several properties where the agents mark up is a minimum of 50%examples of 150% or 200% mark up with their commissions. And these are not rare circumstances either.

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mitzipurr
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Postby mitzipurr » Sat Jan 28, 2006 12:21 am

Regarding agents. I have a email from one and I quote "It is generally quite difficult to negotiate a high declared value with builders; we do not think he will be prepared to declare more than 60%. So who is guilty of fraud the buider estate agent or buyer and why should the onus always fall on the buyers shoulders after all these parasites have had there pick?

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mitzipurr
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Postby mitzipurr » Sat Jan 28, 2006 12:28 am

[I want to declare the full price for my next purchase. In over 2 weeks viewings the most I could get anybody to declare was 70%!!

quote="costakid"]under declaring saves you 7% on the under declared amount but when you sell you will pay 35% on that money in CGT. better to pay more now. your cgt bill will be enough as it if prices continue to rise.[/quote]

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mitzipurr
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Postby mitzipurr » Sat Jan 28, 2006 12:43 am

Could not agree more with you El Cid. Its about time that this illegal practice was stamped out for good . It forces normally law abiding citizens to break the law if they wish to purchase property in Spain. Also what about the almighty Notary that sits there watching all this cash change hands in his office. Shurely he is guilty of conspiracy to defraud Hacienda?

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mitzipurr
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Re: Declared Value

Postby mitzipurr » Sat Jan 28, 2006 12:48 am

The short answer to your question is if you do not provide wads of black money you will not get the property.



Midnight Rambler wrote:How can they force you to break the law,My boss, who is paying for my accommodation (don't ask why) has been warned about this practice.
I've been told that it can seriousy affect the amount of capital gains tax you pay if you have to sell it, I'm not an expert on anything in Spain but under-declaring the true price has to be an illegal practice and a recipe for future disaster, I guess Beachcomber or El Cid will give us the lowdown!!

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Re: Declared Value

Postby jan400 » Sat Jan 28, 2006 8:57 am

mitzipurr wrote:The short answer to your question is if you do not provide wads of black money you will not get the property.
Then walk away, there will be other properties!

Expats United

Postby Expats United » Sat Jan 28, 2006 3:27 pm

I think that the reason that under-declaring is so prevalent is that the transfer tax is set at such a swingeingly high level! 7% is a huge amount on even modest purchases.Perhaps if the Government reduced the tax to a more reasonable level - say 2 to 3 % the incentive would disappear and more actual tax would be collected?

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mitzipurr
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Re: Declared Value

Postby mitzipurr » Sat Jan 28, 2006 3:38 pm

jan400 wrote:
mitzipurr wrote:The short answer to your question is if you do not provide wads of black money you will not get the property.
Then walk away, there will be other properties!

Fraid not nearly every seller wants to declare well under the actual price wanted!

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Postby Beachcomber » Sat Jan 28, 2006 6:18 pm

Expats United wrote:I think that the reason that under-declaring is so prevalent is that the transfer tax is set at such a swingeingly high level! 7% is a huge amount on even modest purchases.Perhaps if the Government reduced the tax to a more reasonable level - say 2 to 3 % the incentive would disappear and more actual tax would be collected?
I think this is unlikely as they only increased it from 6% to 7% a few years ago and it is a lot less than the 35% CGT you have to pay when selling as a non-resident.

Midnight Rambler

Re: Declared Value

Postby Midnight Rambler » Sat Jan 28, 2006 6:26 pm

mitzipurr wrote:
jan400 wrote:
mitzipurr wrote:The short answer to your question is if you do not provide wads of black money you will not get the property.
Then walk away, there will be other properties!

Fraid not nearly every seller wants to declare well under the actual price wanted!
I guess this is the reason why there are so many middle range properties for sale in Andalucia.
My company has recently bought a cortijo in Villanueva de Tapia, it was bought for 22% less than the asking price and underdeclaring the price was never even mentioned, the payment was done by bank transfer and as far as I'm aware all the legal obligations have been met, mind You I think the old guy who owned it was gald to get rid, it's a dump!!

jan400
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Postby jan400 » Sat Jan 28, 2006 6:53 pm

I have friends who have a large mortgage on a spanish properties, they couldn't underdeclare as the price would have been less than the mortgage. They had no problem whatsoever with their agent or the builder.

I still say if you are not totally happy with the way things are being handled - walk away. I am surprised mitzipurr, that you of all people, would think differently.

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underdeclaring

Postby julian » Sat Jan 28, 2006 7:13 pm

the english in general are dead against underdeclaring when they buy their first property in spain, it´s amazing how many are not so against it when they come to sell the property later and the buyer is prepared to underdeclare............


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