Fraud and Capital Gains Tax in Spain

The recent property boom has revealed a dark underbelly in the sale of property in Spain. A lot of lawyers, constructors and various middlemen have been exposed as negligent and even fraudulent and have thus caused misery for those seeking a dream home in the sun. One of the many ways in which a person may be deceived in the purchase of a home in Spain is with regard to the taxes that are due. The fraud in this case is usually carried-out by making a person liable to pay the tax where they are not legally obliged to pay at all.

The bottom line is that a sale of property in Spain can function differently from other states therefore it is important to be cognizant of the assumptions that the law makes with regard to responsibilities and the burdens for the settlement of contributions and charges that affect property ownership.

The important duties and charges that affect property ownership include the following:

Plusvalía (Capital Gains Tax),

IVA or ITP (VAT on new or second-hand homes)

Comunidad Charge (If in a shared building or urbanisation),

IBI (Council Tax),

Any mortgage on the property.

Utility bills.

In this particular article we shall analyse briefly Plusvalía or Capital Gains Tax.

Tax on Sale of Property in Spain

This tax is generally the liability of the vendor as they have prospered from the growth in the price of the home since it had previously been purchased. This is not obligatory nevertheless and if the two parties agree it can become the obligation of the buyer to discharge this duty. In fact, when the seller is a non-resident this liability actually moves to the buyer. It is on this basis crucial to investigate the legal documents to establish that there is no condition that states that the capital gains tax liability deviates from that which has in fact been agreed between the two parties

Of course where the vendor is resident in Spain and reinvests the capital gain in another primary residence then there is no liability for plusvalía or capital gains tax. That said, the assignment should still be reported in the annual tax return to avoid any difficulties further down the road.

When however the vendor is a non-resident then the purchaser is compelled to hold on to 3% of the purchase price and pass on this to the Spanish tax department. Evidence of payment of the levy is illustrated with a stamped copy of form 211 and the vendor can then reduce the same amount from the purchase price.