Expats in Mediterranean retirement and holiday home hotspots are falling foul of new tax laws as at-risk countries attempt to revamp their economies.
Spain is the latest to hit out at property owners, with its review of taxes and property values likely to result in unexpected bills either at point of purchase or years afterwards. Over one million holiday home owners, retirees and expat business owners live permanently in the country and may well be affected by the new moves.
Spain’s real estate market has been in the doldrums for several years, with property prices still falling and few buyers, thus reducing the sales transfer tax revenue due to the government. Tax officials are dealing with the financial shortfall by proactively reviewing their official valuation of sold properties and increasing the transfer tax amounts.
The legality of the moves is enshrined in Spanish property law, but is rarely mentioned to prospective expat buyers. Designed initially to prevent tax avoidance by the artificial lowering of the actual sale price, the law was intended to be used on an ad hoc basis but is now de rigeur on most property transactions. Buyers may believe the matter is ended after they have paid the quoted percentage of the sale price to the tax authorities at the time of purchase. The exact amount depends on the locality of the property, but is usually between eight and 10 per cent of the agreed price. However, tax offices don’t work on the agreed price, but on the property’s real value according to their calculations, which is invariably more than the price paid by the buyer and involves property records and local land values. The consequences of such a revaluation can follow the buyer for several years after their purchase as tax office reviews can take place up to four years after a sale goes through.