Unfortunately, negotiating the purchase price of your intended property in Spain is not always simple. This is because the seller may have two sale ‘prices’:
· The declared price. This is the sale price that will be placed upon the Escritura (deeds) and that will be the price upon which you will pay purchase tax (7%) and upon which the seller will pay any Capital Gains Tax (18%).
· The real price. This may be different from the declared price and include a proportion of ‘black’ money. So, for example, you may agree to buy a property for 300,000 Euros but only declare the sale price as 275,000 E. In this case, the Escritura will state 275,000 Euros and you will pay 7% purchase tax (and the seller any CGT on profit made) on the 275,000 Euro value - rather than the ‘real’ value of 300,000 Euros. The 25,000 Euros difference will be paid by you to the seller in undeclared cash. Clearly, both you and he will have saved money by not being taxed at the correct amount.
Two ‘sale’ prices can certainly make life complicated. So, for example, both you and the seller may agree a sale price of 300,000 Euros for your desired Spanish property. However, you and your seller may not be able to come to an agreement as to the ‘black’ money element - and therefore the price to be ‘declared’ on the new Escritura. Your seller may, for example, want a ‘dangerous’ amount (say 100,000 Euros) of ‘black’ money. Wisely, you may refuse to pay this amount as its proportion with regard to a Spanish property with a fair market value of 300,000 Euros is very considerable. Without doubt, a discrepancy of a third could alert the tax authorities and result in a heavy subsequent fine – which you (not the seller) would have to pay!
Alternatively, you may refuse (rightly) to pay any ‘black’ money at all or simply be unable to do so because you have a high mortgage requirement. In the latter case, paying any ‘black’ money may be academic. Your mortgage provider, for example, will, obviously, only bring a cheque or banker’s draft for the seller at the signing of the Escritura. So, if your mortgage is very high then you may never have any cash with which to pay a seller in any event.
Of course, your seller is well within his rights to refuse to sell you his property - albeit that the only reason is his desire for a certain amount of ‘black’ money which you refuse to pay. Indeed, to your chagrin, you may find ‘your’ seller agrees with another buyer to reduce his ‘real’ sale price if that buyer offers him a really substantial amount of ‘black’ money!
In reality, the Spanish authorities and the ever tighter European regulations concerning money laundering are making ‘black’ money deals ever more difficult. Indeed, I would strongly advise you to avoid any ‘black’ money deal and make sure that the declared value on any Escritura is the ‘proper’ sale price.
Certainly, you should bear in mind that if ever you re-sell then your buyer may be someone who needs a large mortgage. If this is the case then he may be unable to pay you any ‘black’ money at all. In this case, you may have to agree to a declared value that represents the proper sale price of the property despite your Escritura value being artificially low. Obviously, you will then have to bear a potentially far greater Capital Gains Tax burden than ever you intended!
Finally, if a ‘black’ element to your purchase price is unavoidable then be extremely wary of paying too much. Crudely, within the Spanish property ‘industry’, 10% -15% of the ‘real’ purchase price is now considered (informally!) around the viable maximum to pay. However always, always try to avoid any ‘black’ deal regardless of the amount. It is dishonest, illegal, invariably troublesome, can lead to a very unwelcome fine and significant complications when you come to resell your Spanish property.1
· The declared price. This is the sale price that will be placed upon the Escritura (deeds) and that will be the price upon which you will pay purchase tax (7%) and upon which the seller will pay any Capital Gains Tax (18%).
· The real price. This may be different from the declared price and include a proportion of ‘black’ money. So, for example, you may agree to buy a property for 300,000 Euros but only declare the sale price as 275,000 E. In this case, the Escritura will state 275,000 Euros and you will pay 7% purchase tax (and the seller any CGT on profit made) on the 275,000 Euro value - rather than the ‘real’ value of 300,000 Euros. The 25,000 Euros difference will be paid by you to the seller in undeclared cash. Clearly, both you and he will have saved money by not being taxed at the correct amount.
Two ‘sale’ prices can certainly make life complicated. So, for example, both you and the seller may agree a sale price of 300,000 Euros for your desired Spanish property. However, you and your seller may not be able to come to an agreement as to the ‘black’ money element - and therefore the price to be ‘declared’ on the new Escritura. Your seller may, for example, want a ‘dangerous’ amount (say 100,000 Euros) of ‘black’ money. Wisely, you may refuse to pay this amount as its proportion with regard to a Spanish property with a fair market value of 300,000 Euros is very considerable. Without doubt, a discrepancy of a third could alert the tax authorities and result in a heavy subsequent fine – which you (not the seller) would have to pay!
Alternatively, you may refuse (rightly) to pay any ‘black’ money at all or simply be unable to do so because you have a high mortgage requirement. In the latter case, paying any ‘black’ money may be academic. Your mortgage provider, for example, will, obviously, only bring a cheque or banker’s draft for the seller at the signing of the Escritura. So, if your mortgage is very high then you may never have any cash with which to pay a seller in any event.
Of course, your seller is well within his rights to refuse to sell you his property - albeit that the only reason is his desire for a certain amount of ‘black’ money which you refuse to pay. Indeed, to your chagrin, you may find ‘your’ seller agrees with another buyer to reduce his ‘real’ sale price if that buyer offers him a really substantial amount of ‘black’ money!
In reality, the Spanish authorities and the ever tighter European regulations concerning money laundering are making ‘black’ money deals ever more difficult. Indeed, I would strongly advise you to avoid any ‘black’ money deal and make sure that the declared value on any Escritura is the ‘proper’ sale price.
Certainly, you should bear in mind that if ever you re-sell then your buyer may be someone who needs a large mortgage. If this is the case then he may be unable to pay you any ‘black’ money at all. In this case, you may have to agree to a declared value that represents the proper sale price of the property despite your Escritura value being artificially low. Obviously, you will then have to bear a potentially far greater Capital Gains Tax burden than ever you intended!
Finally, if a ‘black’ element to your purchase price is unavoidable then be extremely wary of paying too much. Crudely, within the Spanish property ‘industry’, 10% -15% of the ‘real’ purchase price is now considered (informally!) around the viable maximum to pay. However always, always try to avoid any ‘black’ deal regardless of the amount. It is dishonest, illegal, invariably troublesome, can lead to a very unwelcome fine and significant complications when you come to resell your Spanish property.1
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