Hi everyone,

I’m wondering if anyone can help me with a slightly complex question about property and Capital Gains Tax etc?

Basically my parents bought a house in Spain two years ago, the price was 250,000 euros but only 150,000 euros was declared on the deeds and therefore 100,000 euros was “black money”. Obviously they are now seriously regretting this and more importantly are not enjoyingliving in Spain and wish to move to Cyprus instead. 

My question is thus, I know the Spanish Government are taking the black money issue very seriously these days so what is the best way to proceed?  Can they change the deeds to reflect the true value of the house?  What would the implications of this be?  Is there an acceptable black money value?

Any advice on this would be gratefully appreciated as they wish to move as soon as possible but they want to rectify this matter before putting the house on the market.

Thanks in advance,

No I do not think there is any way that you can retrospectively change the deal that was done. The declared values are reviewed (I dont know if it every one or a random check sample) by the authorities and if they think it has been under declared they would have been in touch with your parents.

I suggest you contact the local land registry and ask them for the current value of the property (this is not sales value but value for tax purposes) IF there is a large uplift on 150k then you do have an exposure to CGT - if not dont worry!

The next value placed in the escritura is to a certain extent in the hands of the buyer - if they have a mortgage then the bank will insist (as part of their legal obligations) the value is realistic. If its a cash buyer he may be happy to try and keep it low to minimise his buying tax costs.

It is always better to get a realistic value even if it seems to increase you IVA when you buy it will give you less problems when you sell.

They should do the same thing when they sell it, just make sure the amount of black money they request won’t raise any flags.  I’m sure if they sell the house using a real estate agent, they will have an opinion on the percentage to request in black money.

when moving money to from bank accounts in and out off spain are within spain off more then 5,000euros you are reported to Spanish Criminal Assets Bureau
wich is run buy the tax man off spain ......
jurdy

Its probably worth then checking with their own abogado (lawyer) and seeing what they think, as with selling a property the seller doesn’t need to have a lawyer there. our lawyer is a fiscal lawyer (tax advisor) as well, and we sought her advice when thinking of selling our house.

There are some checks they can do to see how much the house has gone up in value since the last exchange of owners, it is information which averages the amount of house price increases and is dependant on each house, location and square meterage (or something lke that…)  So they can give an amount which should be ‘safe’ to declare as the new escritura value. 

But do remember that the escritura value is also negotiated with the new owners as well, as the lower it is the less capital gain the seller will pay, and the less tax the buyer pays, and the higher the more….. but it may be of the buyer has a mortgage for example, then I think the escritura value cannot be lower certainly then the mortgage amount anyway.

Hi Tourist -

I cannot for the life of me understand why you say “obviously they are regretting it”. They absolutely should be cheering about it in my opinion!!!

Seems to me they have done exactly what most of us try to do, and that is to minimise the “escritura value” of the propert at the time of purchase - to save both the buyers and sellers paying any more tax than necessary.

If I recall Purchase tax is about 5% of declared escritura value, so they saved themselves a bucketfull of tax by paying a lot of the real price in black money. No doubt the seller also saved a load of capital gains tax (used to be 35% on the capital gain for non-residents, now equalised to 18% for everyone if I recall) by accepting a load of black money.

Now it’s time to sell, so just do exactly the same; as everyone else does.

Talk to a Spanish lawyer or Gestor. They’ll tell you by roughly how much you need to increase the “escritura” value of the property in the intervening years when you come to sell, in order to stay within the normal limits of annual increase which the Hacienda uses so you stay below their radar.
Advertise the property for the real value that you want (that won’t be what you get of course, as here in Spain everyone asks lunatic money for a while untile they finally realise that those days are over, and if they really want to actually sell the house they are going to have to drop the price a lot. I mean a lot.)
Then, when prospective buyers make an offer, tell them that you’ll accept so long as the escritura value to be declared at the Notary is no more then “X”. Rest of purchase price to be paid in black money at the Notary’s office…...as happens twenty times a day on every day of the week at every Notary’s office throughout Spain.

Result? You save a bucketload of capital gains tax, and buyer saves a bucketload of purchase tax. Everyone happy. Again.

Just keep the black money as cash, or feed it into various of your bank accounts in small injections over the following year or two to stay below the money laundering limit (used to be 6000 euros per deposit, or 5000 GBP’s I think).