There is a general misconception regarding the calculation of the Transfer Tax in the acquisition of a Spanish property.
The Spanish law says that the payment of the transfer tax in a property purchase transaction will be the higher of the following values:
– VALUE 1: The declared value/commercial price: Which is the price mentioned or declared in the purchase deeds. Usually making coincidence with the commercial price agreed with the vendor.
– VALUE 2: The “tax value of the property”: This is the result of the multiplication of determinate coefficients to the council Tax value” or “Cadastral value” of a property
– VALUE 3: The tax value of the property calculated for other taxes
When a buyer buys a property in Spain, the transfer tax to pay is a determinate percentage (8% or 10 % depending on the different regions) multiplied to the price of the property declared in the deeds. For example, a property declared in 100.000 EUR will pay 10.000 EUR for transfer tax (10 %).
But, what people do not know is that the Spanish Tax administration has 5 YEARS to check this tax, and the way it was calculated. The consequence of this is that, if the Tax office detects that the price declared in the deeds is lower than the other 2 values (VALUE 2 or VALUE 3), then, they will recalculate the tax depending on these values, and will ask to the buyer to pay the difference.
Let us explaining this with an example:
A buyer buys a property in 2011 for a price of 100.000 EUR. This price was the one agreed to pay to the vendor, and declared in the deeds. For this price, the buyer paid 10.000 EUR (the 10 % tax ).
Two years later, the Tax office detects that for the calculations using the Value 2, or the Value 3, the proper value of the property is 120.000 EUR. So, the tax to paid should be 12.000 EUR (10 % ), instead of the 10.000 EUR already paid.
Result: The Tax office will request the buyer to pay the difference of 2.000 EUR, together with eventual delay interests.
BEFORE THE SPANISH CRISIS this problem was not common at all, because the prices of properties (Value 1) in Spain were so high that they were, in the majority of the cases, higher than the Values 2 and 3.
BUT, AFTER THE CRISIS, commercial property prices of properties have fall down drastically, arriving to reductions of 30-60 % of the prices paid for them by the current owners. So, is very common to find properties with extremely low prices.
The consequence of this is that, NOW, is very common to find properties sold, for prices LOWER than Values 2 and 3. For this reason, there is a high number of cases in which buyers receive “Recalculation letters” from the administration, in which they recalculate the tax asking the buyers to pay the difference.
When buying a Spanish property, buyers must know that the current commercial prices are even LOWER THAN THE TAX VALUE. This is a good point for purchasers because they can see that the prices they pay for their properties are so low than they are even lower than the official tax prices.
In instance, the Spanish Tax office may request to them to pay the tax difference between the price they paid to the vendor, and the real tax value of the property.