Buying a property in Spain is very straightforward. It’s much easier than purchasing a home in the U.K., however there are still pitfalls that you need to avoid or risk a run in with the Spanish Tax man!
Once you’ve chosen your future home in the sun, your agent will discuss with you how payment is to be made. To be able to reserve your property of choice, you’ll have to pay a deposit.
If you’re purchasing a resale, then you’ll only be making two payments; A deposit, then the balance on completion. With a new build, you’ll be required to pay in stage payments, according to the building progress. I.e. Deposit on reservation, then payment will proceed in stages until the final balance on completion.
With any and all transactions you make in Spain, you need to have proof of payments through the bank. Cash is a NO, NO! Or you’ll risk having a hefty tax bill later on.
You could be told that paying a portion of the agreed purchase price in cash will be offset against any furniture, fixtures, and fittings, thus saving you money in legal costs. However, by saving a little up front could end up costing you thousands in Capital Gains Tax down the road!
For example on a property purchased for €100,000:
This full amount should be paid through the bank. No cash.
The deposit would be paid by credit card or bank transfer, with the outstanding balance paid by Bankers Draft. (Certified Bank Cheque). Your Property Transfer Tax (Stamp Duty) would then be 10% of the purchase price i.e. €10,000.
If you are being told that you could save money on your 10% Property Transfer Tax by making a part payment in cash….. say NO WAY JOSÉ!
Whatever the amount you’ve agreed to purchase the property for, that is the figure you want showing in your Title Deeds. If it states any less, DO NOT SIGN.
For example, this is what the figures would look like if you made a part payment in cash:
Although you agreed to purchase the property for €100,000, you were advised to pay a portion in cash. This would mean your official purchase price would show as €90,000 in your Title Deeds and not the €100,000 you are genuinely paying, as the €10,000 difference would be paid in cash.
Yes you’ll save a little on the 10% Property Transfer Tax, so what’s the problem? What’s the big deal? How about I tell you, a tax bill!
When the time comes for you to sell the property, you will be charged Capital Gains Tax. This is the difference between the official price you purchased the property for, and the price you sell at.
For example on a property being sold for €100,000:
If your official purchase price in your Title Deeds shows €90,000, and let’s say you sell for €100,000. You’ll be charged €1,900 in Capital Gains Tax on the difference. But you did pay €100,000 for the property when you purchased it, even though you paid €10,000 in cash, so why should you be charged anything at all if you’re selling for exactly the same amount as you paid for it? i.e. zero profit. The reason, because officially your Title Deeds only show you paid €90,000!
So it doesn’t matter if the property is being sold fully furnished, empty, or wrapped in gold ribbon. If you’re being advised to lower the amount in the Title Deeds by making a part payment in cash… say thanks but no thanks! The amount you have agreed to purchase the property for, should be the same figure in your Title Deeds.
Need expert guidance with your property search? Take action today and call my team on 966 718 392. It could save you thousands!