Tax penalties for selling property in Spain


The Spanish administration is penalizing both buyers and sellers for having bought/sold property under what they estimate to be the market value.
The reason for this penalty is because the Spanish administration estimates the property to be of a higher value than its current selling price and in many cases does not take into consideration economic recessions, pandemics, or the urgent situation a seller might be in.

In many cases, hacienda, the Spanish tax office, will send a tax penalty called “liquidación complementaria por comprobación de valores” commonly known as “complementaria”.

Normally the amount of these penalties range from 1.000 to 15.000 euros, which is an amount that most buyers and sellers pay, since hiring a solicitor to solve this often costs more or the same.

For each Spanish region, the Spanish tax administration has different methods to value a property, but that is beyond the scope of this article.

The best way to illustrate this penalty tax is by means of an example:

“Mr. A” sells “Mr. B ” a property in 2016 for 100.000 euros, which in turn he bought a few years back for 80.000 euros.

Implications for the buyer:

“Mr. B” pays the usual 8% property transfer tax on the 100.000 euros: 100.000 x 0,08 = 8.000 euros.

After a few months, “Mr. B” receives a “complementaria” tax, since the tax office has valued the property at 150.000 euros.
“Mr. B” is claimed to pay an extra 8% on the valuation difference: 150.000 euros – 100.000 euros x 0,08 = 4.000 euros, plus interests.

On top of that, if “Mr. B “does not appeal or loses the appeal, the Spanish tax office will base all tax payments on their 150.000 euros valuation.

That said, imagine that “Mr. B” sells the property for 125.000 euros that he bought for 100.000 euros and which the administration valued at 150.000 euros. “Mr. B” will have to pay extra property gains taxes over 50.000 euros (150.000 euros – 100,000 euros = 50.000 euros). Resulting in the following calculation:
19% over the first 6.000 euros, 21% over 24.000 and 24% over the last 20.000 euros (6.000 x 0,19) + (24.000 x 0,21) + (20.000 x 0,24) = 1.140 + 5.040 + 4.800 = 10.980 euros on capital gains taxes.

Without the “complementaria” fine “Mr. B” would just have to paid capital gains over 25.000 euros (125.000 euros – 100.000 euros = 25.000 euros). Resulting in (6.000 x 0,19) + (19.000 x 0,21) = 1.140 + 3.990 = 5.130 euros.

Implications for the seller:

Remember “Mr. A” sold to” Mr. B” for 100.000 euros, which “Mr. A” bought before for 80.000 euros.

Before the fine, “Mr. A” paid gains taxes over 20.000 euros (100.000-80.000). Resulting in the following calculation (6.000 x 0,19) + (14.000 x 0,21) = 1.140 + 2.940 = 4.080 euros property gains tax.

But then comes the surprise. The administration office valued the property at 150.000 euros. Just like “Mr. B”, “Mr. A” will have to pay extra property gains tax. “Mr. A” must declare the difference of the equity gain:
(150.000 – 80.000 = 70.000), resulting in the following calculation: (6.000 x 0,19) + (24.000 x 0,21) + (40.000 x 0,24) = 1.140 + 5.040 + 9.600 = 15.780 euros.

Since “Mr. A” already paid 4.080 gains tax, he has to pay an extra : 15.780 euros – 4.080 euros = 11.700 euros.

The nightmare does not end there. According to the General Tax Law in Spain, “Mr. A” has committed a tax offense, which may qualify as “mild” or “serious” depending on whether or not there has been concealment of data. This penalty is between 50% to a 100% depending on how severe the offense is evaluated.

Let’s assume its only a “mild” offense. In that case “Mr. A” will be fined an extra 11.700 x 0,50 = 5.850 euros.

So “Mr. A” ends up losing money for a property that he bought for 80.000 euros and sold for 100.000 euros.
(real selling price – purchase price – property gains – claimed equity gain – fine)

100,000 – 80.000 – 4.080 – 11.700 – 5.850 = – 1.630 euros

Tip: If you receive a “complementaria”, appeal as soon as possible since it is worth it for both seller and buyer.

We have an expert that can help you with it.

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