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Capital gains tax evasion is nothing new in the Spanish property market. Even the King of Spain, Juan Carlos is rumoured to have dodged the taxman by declaring only half of the market value of his property while paying the other half in black money or so called carrier-bag cash. This illegal practice is widespread but the Spanish government is beginning to take note, dishing out penalty fines to those caught in the act. And if a fine isn’t enough of a deterrent for those who are told that this under the table system is simply “the Spanish way” then buyers should consider the future sale of their property.
If the next buyer refuses to agree with the under-value declaration, the property owner will become liable for the capital gains tax of the previous owner. So, if for example, they buy a house for EUR 150,000 but only declare EUR 100,000, and the real value increases to EUR 200,000, the buyer will be liable for capital gains tax on the difference between the two declared figures (EUR 100,000 not EUR 50,000). In this case, they will pay double what they should be paying.
Non-residents in Spain are liable for a capital gains tax of 35 percent. Mark Wright from the Rights Group warns; “there are grave risks associated with such practice. You expose yourself to a claim of defrauding or conspiring to defraud the Spanish Revenue for which there are stiff penalties. Do not think that they will not pursue offenders”.
