Spanish property market tax fraud

The Socialist government is planning a series of reforms aimed at “cleaning-up” the property market in Spain and tightening legislation in an attempt to control private sales and reduce tax evasion.

According to a report in El Pais yesterday, the price which figures on the deeds of second-hand house sales is actually 30% – 40% lower than the real price – . This means that sellers have to pay less plusvalía (capital gains) tax, and buyers have to pay less VAT (6% of the second-hand property price), less stamp duty and less notary costs. The “contrato privado” (private sales contract) drawn up between buyer and seller contains the real price, but until now has been exactly what its name suggests – private.

The result of this, plus the fact that cash is usually used to pay the undeclared percentage, is that there is an awful lot of “black” money circulating around the property market in Spain, and Hacienda, the Spanish tax office, is losing alot of taxes.

On Tuesday of this week the government proposed no less than 300 new draft measures to reduce tax fraud, and many of them will be applied to the property market including:

  1. The means of payment (cheque, cash….) must be included in the property deeds at the time of the sale
  2. It will become compulsory to take the private contract (with the real price) to the property register
  3. The catastral number must be included in the deeds and also in all gas, water, electricity bills, to make it easier for tax inspectors to determine whether or not a house is occupied (many people rent out property but do not declare the rent paid to them)

The reforms are unlikely to be very popular with anyone, because what some would call “petty fraud” has become so common and widely accepted in the Spanish property market that builders, house-buyers and house-sellers will all feel as if a “right” is being taken away from them if they have to start declaring the real price of property and pay the corresponding taxes.

If the measures are put through, it will be interesting to see what sort of impact they make on Hacienda’s income deriving from private property sales next year. It could be huge.Related links:

Plus valía tax

Property taxes in Spain

Revaluation of property in Spain