If buying repossessed property in Spain, be very careful about hidden charges, including a much higher stamp duty demand than expected.
Minimum Fiscal Value
Since way back in the economic crisis of 2007, Spain’s banks have been forced to take back a huge number of properties on to their books. Of course the banks typically have no desire to take over management of the often under-performing assets that they had made loans against and so these same banks are undergoing an unprecedented stock clearance, with the market consequently seeing a glut of repossessed property in Spain.
The release of these properties on to a market already suffering an excess of supply served to pin prices at a low level and as a result, such repossessed properties can appear extremely attractive to those of us seeking a bargain ‘home in the sun’.
However, caution should be exercised when buying such properties in Spain as many can have hidden costs due to the fact that they are repossessed; costs that are not always disclosed by the banks at the time when the deeds are being signed.
Firstly, every property in Spain has an assigned fiscal value which is considered to be the minimum value that may be declared when any fiscal operation is undertaken – for example, a property conveyance. (This value is determined as a result of the ‘catastral’ value – a notional value used for the calculation of taxes – and the region in which the property is located).
Often, the market value of the property, which is ultimately declared on the property deeds, is below the minimum fiscal value, as determined by the competent fiscal authority, above all in the case properties embargoed by banks that wish to reduce their stock as quickly as possible.
In such cases, it is possible for the buyer to find themselves in the strange position that, having paid the government stamp duty on the basis of the price paid and declared on the property deeds, they receive an additional bill from the tax authority, for the additional tax payable on any difference between the price declared on the deeds and the minimum fiscal value.
Alternative Methods to Calculate Stamp Duty on Undervalued Property
The banks do not tend to volunteer this information to the purchaser, with the consequence that the buyer must fund the payment of the additional tax demand, thus increasing the overall cost of the property – in some cases, significantly. To avoid this outcome, it is simply necessary to check the minimum fiscal value before going ahead with the purchase, so that if this value is above the offered price of the property, there are two options:
- Calculate the payment of stamp duty on the minimum fiscal value, regardless of the actual purchase price of the property.
- Calculate the payment of stamp duty based on the actual price paid and try to appeal the additional tax demand that the tax authority will send. In this scenario, it is important, if there has been any deterioration in the property, to take photos of the state of the property and keep hold of the receipts connected with any repairs (as opposed to improvements) carried-out so that you can include them with the appeal and thereby try to justify the lower price paid for the property.
Other Potential Hidden Charges from repossessed property in Spain
Additionally, many banks do not take responsibility for costs incurred while they are temporary owners. Accordingly, it is particularly important when considering the purchase of a repossessed property to know the current amount of outstanding charges that relate to the property (property management fees, rates etc) and to be sure that the seller has paid any municipal capital gains tax (plusvalía) since any amounts that are outstanding will become the responsibility of the purchaser of the property. In particular this latter tax can be significant.
Therefore, in summary, to paraphrase a metaphor, Beware of Spanish banks bearing gifts, as there may well be some unexpected and unwelcome bills that you have to face.
Bidding for Repossessed Properties By Internet
For those who continue to be interested in looking for a repossessed property bargain in Spain, the Spanish Government has launched a new initiative to help clear the backlog of excess properties built during the property bubble over the last number of years. The plan involves enabling internet access to auctions of Spanish properties that have been repossessed by the banks here.
The website will allow potential purchasers to follow and participate in public auctions of embargoed homes by the banks. The hope is that by providing much greater access and therefore participation in the auctions that better prices may be achieved as well as more properties being successfully sold.
While participation in an auction will require registration, that won’t be necessary in order to follow the proceedings via internet. Registration can be carried out either by electronic certificate or by visiting one of the offices that have been set-up for this purpose.
Once registered, in order to take part in an auction it is only necessary to find a suitable auction that is of interest in the list of auctions on the right-hand side of the page and then register as a bidder on that particular auction. The auctions proceed by each bidder in turn having a chance to bid with a maximum time given to each bidder to make their bid.
An FAQ section is available to answer most questions that users will have.
In conclusion, while repossessed properties will often represent better value for money – for the enterprising purchaser – always consider the total costs when buying property in Spain which may include property transfer taxes than you were expecting.