Spanish regional authorities ignore slump in property sales and continue to increase capital gains tax

With the slump in property sales and the inevitable fall in prices property sellers in Spain are now facing a new problem: the fact that Spanish regional authorities continue to value property at a higher price means that the seller is faced with the problem of having to pay higher capital gains tax on the sale of the property than they should.

In Spain property sellers are bound by law to pay 7% of the price of the sale of their property to the regional government where they live. However, with the significant fall in property sales buyers are able to negotiate better prices and property sellers are more likely to drop their prices in order to obtain a sale. Nevertheless, regional authorities throughout Spain often place the value of property at a higher level. In effect this means that a seller might be forced to pay taxes on a higher amount than they have actually received for the sale of a property.

Each regional authority has their own mechanisms to make sure that fraud does not occur and that people do not declare the sale of their properties at a lower amount than they have actually sold at and during the property boom this system seemed to work well. However, with current slump in the property market regional authorities do not appear to be keen on adjusting their calculations especially since they have seen their own budgets shrinking substantially.

Furthermore the problem of being overcharged for the sale of a property is more serious for those sellers who are willing to drop their prices even further in order to sell their property. This in reality means that those sellers who have adapted to the current economic climate face the sanction of being overcharged for capital gains tax.

According to some notaries this situation is ‘profoundly unjust and even unconstitutional because it violates the principle of proportion in charging taxes’.

Furthermore the situation is likely to get worse as property prices fall even further with regional authorities unwilling to adjust their valuations.

Each regional authority has its own way of calculating the value of a property and that while property sellers can ask for an independent valuation in order to pay the correct amount of tax on the sale of their property this also incurs risks because it could result in them being charged for the valuation.

Related: Property taxes in Spain