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Tax law to offer more certainty

12th January 2006 | back to article listings BACK    print this article PRINT

Property investors in Spain could be hit with some large tax bills as the country readies its new laws to crack down on property tax dodgers.

The legislation, which has been created by the Spanish authorities following heavy pressure from the European Union, looks set to close the loophole that has dogged the country's property sector for years and had allowed people to buy property cheaply. However, while it may at first glance appear bad news for property investors, it could help to engender more growth in the Spanish property market in the long run.

According to the Times, the new laws will come into force and have some retrospective impact, meaning that the Spanish authorities will be able to demand tax from those who have bought properties in the past, meaning some people could incur hefty charges for back taxes.

The problem has been that, until now, property purchasers have been able to "pay in black", as it is known. This practice involves the difference between the full price paid for a property and the amount told to the taxman being paid in cash and has been legal in Spain – even King Juan Carlos is reported to have indulged in the practice. It is rumoured the monarch paid as much as $50,000 in cash for properties in the south of the country.

In an effort to defeat the practice, however, new tax identification numbers will be introduced on all property documents when the new legislation comes into effect.

While at first sight these changes might appear bad for the UK property investor, as the likely result is that the price people will have to pay for properties will increase, there is a positive side to the move.

It has been pointed out that the legislation will provide more certainty in the Spanish system and should reduce the risk of investors – particularly those new to the market – being ripped off by unscrupulous sellers. The move will reduce the uncertainty involved in buying a property in the Spanish market and as such could help to engender a revival of the country's waning property sector.

Spain's property market has been slowing in recent months as investors begin to look to other options such as Cyprus and Bulgaria, where property is cheaper and expected to rise at a faster rate. While the introduction of the new laws could have a negative effect in the short-term as some investors wait to pay off the back taxes, in the long run the legislation could have a positive impact.

Many Brits are still keen to purchase a property in Spain, but can be put off by the confusion over rules such as the tax dodging practice. By improving the regulation of the property industry, it is possible that the Spanish government could be securing the long-term future of one of its most profitable sectors.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/2440.html. Alternatively, please see our full press release archive.

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