Under declaring property values

One of the most widely accepted tax dodges has had its day.  If you’re considering buying a property on Tenerife now, or in the future, this article may save you thousands of Euros and a great deal of stress. 

Up until just a short while ago, the practice of under-declaring the value of a property when it was sold was so common that notaries, lawyers, agents and even the taxman didn’t even raise an eyebrow.  The situation has changed, and the problem is that many estate agents and lawyers are now in a state of denial, not admitting to themselves, let alone their clients, that the golden years of black money property deals are now a thing of the past.  And who will pay the price of their failure to adjust to the new fiscal climate?  You will.  And you will pay through the nose.

To explain the change, let us briefly look back at how it was in the heady days of under the table cash transactions.  If you bought a property for 100,000 Euros (including tax and costs), and you sold it for 200,000 Euros (net of costs) then you were liable for capital gains tax, or ‘incremento patrimonial’ on the difference.  So if you under declared the price you could save a lot of tax, which was a big incentive for a vendor to do so, especially as the risks were negligible.  Everyone was doing it.

What’s changed?  The taxman, known as the Hacienda here, is no longer closing a blind eye to this dodge.  But still there are vendors who refuse to sell unless a buyer accepts an under-declared value.  With unscrupulous agents complying with them, buyers are being innocently led to the slaughter, finding themselves liable to huge tax bills at a later date.  So if an estate agent advises you to accept a lower valuation, you will need to do some careful sums to ensure you are not buying a fiscal bomb on a slow burning fuse. 

But agents who may at first sight appear to be acting on behalf of the vendor by advising under-declaration may be digging them a very deep pit.  These vendors may not be rubbing their hands gleefully for very long, because the next logical place for the taxman to start looking for his lost revenue is in their pockets.  Not only will he add interest, but he may well have something to say about the tax evasion, too.  By the time he collects all the penalties and fines, the taxman is going to find that he’s hit the jackpot.  The long arm of the Euro-co-operative taxman may be hard to evade and it can backdate!

The situation is further complicated, because the Hacienda does not have access to any private contract between you and a vendor.  So they have to make an estimate of the sale price, and on the basis of that estimate, they will decide if you have under declared the purchase price of the property you have bought. This estimate is based on their own formula which does not take into account that a beachfront property might be worth more than one further back, or that a luxury development might attract higher prices than a twenty year old complex, despite the difference in quality.

This is a big problem for many agents who don’t have the infrastructure and administrative capacity to deal with these changes.  Every day new property buyers are happily signing contracts, only to have their dreams turned into nightmares shortly afterwards.  And the sad thing is that the predicament they will find themselves in could so easily have been avoided.  TENERIFE PROPERTY SHOP is a substantial and reputable estate agency, with the professional resources to constantly monitor and liaise with the Hacienda on your behalf, prior to buying, so that there will be no nasty surprises for you after your purchase.