Spain Explained

Myth busting – Spanish complementary tax

We’ve recently been reading letters in some well-known free papers from people who really have got their facts wrong. Nothing new there may be, but we feel that some of the myths around complementary tax, if you believe them, could cost you a lot of money. We want to put you straight.

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When you buy a resale property in Spain you must pay transfer tax (ITP). This has usually been around 8% of the purchase price but does vary according to the region. However, once you have bought your Spanish property and settled this tax, you may find that it is not the end of the matter.

The Spanish Tax Authority may decide that the purchase price you declared is not in line with their own calculation of the property’s value. They can then charge you the difference between the Spanish transfer tax you have paid and what they calculate you should have paid. This can happen up to four years after you purchased your property and is called complementary tax.

The spectre of Spanish complementary tax has become more evident at the moment due to the large number of properties being offered at discount prices. For most people it comes as a surprise when they receive the bill.

So, we felt it was time to bust the myths and explain what exactly you should know about complementary tax. However, we would like to remind you that taxes in Spain can be complicated and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should seek fiscal advice from an expert to avoid possible complications.

Myth one  – complementary tax is a ‘new’ tax

False. Complementary tax has its origins during the time of the property ‘boom’ in Spain. In order to reduce the taxes they must pay, some purchasers were declaring a lower purchase price for their property than they really paid for it. The seller was usually happy to go along with this as they could also benefit from lower capital gains tax.

As the Spanish Tax Authority became aware of this practice they decided to implement their own check. If they calculated that the property had been sold for under the real value of the property then they applied complementary (or additional) tax on the difference.

Myth two – it only applies to property in Valencia

False. This is not a regional tax and you can have complementary tax applied wherever your property might be located in Spain.

Myth three – it’s targeted at expats

False. It doesn’t matter who is buying, the same rules apply. It really is no respecter of nationality.

Myth four – this tax is illegal

False. Unfortunately it is not and is, in fact, a well-established tax. It might feel unfair but it is simply a tax that you should be aware of if you are buying a property in Spain, particularly if the property you are buying is significantly reduced in price.

Remember, you have already saved money on this property and should build the possibility of paying the tax into your calculations. If it isn’t levied you will have money to spare and if it is, it won’t come as a surprise or find you indisposed to pay it.

Myth five – the amount that is set by the Tax Authority is arbitrary and random

False. The amount that the Tax Authority will charge is not a random amount. Complementary tax is charged at the same percentage as Spanish transfer tax and is applied to the difference between the declared purchase value and what the tax office calculate that the value should have been.

For example for a property in Murcia:

Purchased property price 74,500€(7% tax paid: 5,215€)
Tax Authority valuation116,403€(7% tax calculated: 8,148€)
-41,903€(7% tax outstanding : 2,933€)

In this example, you receive a demand for 2,933€ of complementary tax and interest is added to this at a rate of around 5% per year.

The Tax Authority valuation is based upon what is considered to be the ‘minimum market value’ of the property. The Tax Authority uses a number of standard formulas, information from records and published regulations to calculate this. The calculation does not take individual circumstances into account. There are some adjustments made but these don’t usually reflect the actual state of the property. Occasionally a property might be visited and some allowances made for degeneration, but this does not happen in most cases.

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Myth six – you can’t do anything about it

True and False. It’s true in that, if you are going to receive it you will and there’s not much you can do about it. However, you can appeal against it as long as you are off the mark quickly. When you receive the letter informing you about it, you have chance to identify any major factual errors within 10 days and an exemplar form is sent so you can do this.

Shortly after, you will be sent information about how to pay. At this point, you are informed that you have one month in which to appeal. After this period is over, you no longer have grounds to appeal and you are expected to pay in full. In the past, appeals have had a high success rate.

So there it is. Tax is never popular and this one is particularly disliked. However, it does exist, cannot currently be avoided and at least now you are forewarned with the facts.

To help navigate the bureaucracy of the Spanish tax system, our dedicated advisers are on hand to help at every step of the way. Fill out this short form and we will offer you a free consultation without obligation.

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6 comments

mrs mary ellen Bailey

11 March, 2019 1:01 pm

I have a query , if I sell my
I have a query , if I sell my house in Spain which I bought from the builder 11 years ago and I wish to sell . what tax would I be expected to pay when selling at less than the price I paid for it . also what would be the best solution to a prospective purchaser if sold . I am not very sure about this can you possibly explain how I should proceed with the selling of the house . I believe that the Agents are selling at a lot less than the original purchase price.

Suzanne O'Connell

12 March, 2019 12:30 pm

Hi

Hi

I hope this information helps:

Capital Gains Tax is due on the profit made on all property sales in Spain. In the case of all Non-Residents, 3% of the current sales price is retained by the lawyer acting on behalf of the buyer and paid to the Hacienda Pública (Tax Office) in the name of the seller on Tax Form 211. This is a legal requirement when Non-Residents sell property. The Non-Resident seller therefore receives 97% of the agreed price until any tax liabilities (including Capital Gains Tax) are settled, after which the seller will either get a refund or have to pay any outstanding tax balance.

For Non-Residents, the Capital Gains Tax rate is 19% as of 2016 of the profit made on the sale.

The 3% retained by the Tax Office will either be more than or less than the sum of tax to be paid. In either case, Form 210 H is submitted to the Tax Office, either claiming the outstanding balance or enclosing payment for the sum owed.

Micky D

20 March, 2019 9:54 am

Where can the Tax Office
Where can the Tax Office Valuation of a property in the Murcia region be found.
Thanks
Mick

Suzanne O'Connell

22 March, 2019 8:46 pm

Hi Micky

Hi Micky

You might find it on the council tax for the rateable value 

Maureen

28 March, 2019 6:17 pm

Hi
Hi

We have recently received a demand for 1600 Euros additional purchase tax for a property in the Balearics that we purchased in September 2012 (and sold in 2014). We believe this to be what is referred to as complementary tax. However, we have been informed by a solicitor that complementary tax cannot be applied unless it is done within 54 months of the purchase of the property. Is that correct?

Suzanne O'Connell

31 March, 2019 4:05 pm

Hi Maureen

Hi Maureen

We would advise that you approach a representative and show them the paper work. It is hard to tell without this. It could possibly be for capital gains tax on the sale.