Assetz® News - Transparency returns to Spanish property market

Transparency returns to Spanish property market

3rd March 2006 |

While Spain has long been a favourite destination for UK residents looking to invest in property, there have always been reservations about some of the less reasonable land laws.

While capital appreciation on Spanish property has been essentially unrivalled across Europe for ten years or more, individual cases seem to emerge sporadically in which investors are found to have lost money on the basis of unclear legislation or underhand negotiation.

It is testament to the general appeal of popular investment regions such as Murcia and the Costa del Sol, however, that recent figures from the Office for National Statistics indicate that Spain continues to top the list of European favourites among UK investors.

Around £23 billion was spent on property investment abroad last year, with 27 per cent of this going on Spanish property. It is a situation that is set to continue as prospective property buyers find they have more confidence in the general market in Spain.

For one thing, the European Commission is applying strong pressure over a tax discrepancy by which Spanish residents pay 15 per cent tax on profits from property sales but foreign investors pay 35 per cent.

There are also rumbles of discontent in the UK over a forthcoming Planning Gain Supplement, after consultation on the issue came to an end this week. It is a tax that was proposed by the Treasury and the Office of the Deputy Prime Minister, but it is so far unclear how it would affect the average property investor.

The Royal Institution of Chartered Surveyors has suggested that property developers may have to pay as much as 20 per cent of the increase in a property's value, although it may be some time before this issue is resolved.

Returning to Spain, the Telegraph has reported this week that the Spanish government is trying to stamp out the "black money" property deals that have become increasingly common in the country.

Yet again, it is a move that will be crucial in assuring investors that everything is above board – a fundamental prerequisite for the vast majority.

Previously, sellers have been known to request that buyers declare a buying price that is in fact much lower than the price that was advertised, before demanding the difference in cash.

It is a dubious strategy that benefits sellers with capital gains tax liabilities and buyers in terms of stamp duty. The new laws will seemingly be in force at the end of the year, according to the report, and they will put an obligation on both the seller and buyer to reveal their tax identification numbers before completing a property transaction.

Investing abroad is always more daunting than putting money into property within the UK, purely because of language barriers and subtle differences in legal requirements. For this reason alone, any grey areas involving legal obligations merely add unnecessary strain to the transaction and so most investors will be pleased with the proposed amendment.

It seems almost certain that Spain will retain its position as the favourite investment spot for Brits and the clarification of the taxation issue will make the process much more comfortable for the vast majority.