Buying low-priced property in spain? Beware of your tax bill...

Photo credit: Phillip C

Buyers of second home property in Spain are subject to a tax of up to 10 per cent of the sales price from the Treasury (ITP). That tax varies from place to place; in Madrid it is as low 7 per cent, but in Catalonia and Valencia it is 10 per cent. However, some bargain hunters may find themselves paying a much higher amount than first anticipated due to out of date records listing higher property values.

Indeed, the Spanish housing market has seen reductions in prices across the country recently, attracting those looking for cheap holiday homes or smart buy to let investors. With many price drops occurring suddenly, though, the administration is struggling to keep up:  regardless of the price paid by a buyer, they will be still be charged a levy based on the administration’s value of the home.

According to Spanish property firm, The Spanish Brick, the problem is becoming increasingly common: “The number of cases in which the Treasury requires the buyer to pay more than they did initially has been growing.”

“There is a clear lack of adaptation between the actual property price trend variable and the statistical valuation done by the administration during the best years of housing prosperity,” explains the site.

If a buyer pays a higher tax nothing happens, but if the regional authorities think the sales price has been too low compared to their records, buyers may find themselves faced with an additional charge to make up the difference.

The Spanish Brick warns that this has mostly occurred when buyers have found flats for low prices. “Before deeding a flat, you should inform yourself about the administration of taxes from the Comunidad Automnoma (regional administrator) where the property is and bout the valuation that the property has with the administration. Then you will know what expenses the payment of taxes will mean for you.”