Declared Price
When you’re buying property in Spain this is the price which appears on all the official documents, and hence on which all the taxes are based.
The Spanish don’t seem to like paying tax much, so anything they can do to pay less is fair game.
They avoid tax on buying and selling property by simply declaring a lower price to the authorities than the actual transaction price! The difference is paid in cash.
Let’s say you are in the process of buying a property for €100,000. The seller would prefer not to declare the full price to the authorities because the more they declare the more Capital Gains Tax (CGT) they will pay.
You the buyer may want to declare the full price, because when you sell in the future you too want to minimise your CGT.
But on the other hand, the higher the declared price, the more you will pay now in transfer tax (at a massive flat rate of 7%).
Normally there is a compromise at about 20-25% of the full price. So what happens in the €100,000 case is that at the Notary you’ll hand over a banker’s draft for €75,000 and €25,000 in cash.
This usually happens in the Notary’s building, say in a side office, or even in Reception, but etiquette dictates never in front of the Notary in person.
Sometimes you might all go back to one of the lawyers’ offices to do it.
You have to leave your Northern European conscience out of this – it’s the way they do things here.
There can be problems though; I heard of a cortijo which sold for €150,000 with a declared price of €75,000! The problem the seller had then was €75,000 in cash; he had to open loads of extra bank accounts, because the maximum cash you can pay in without having to fill in a form to report the transaction to the Bank of Spain is normally €6,000!
The declared price is a fact of property transaction life here.
Like most other elements of buying property in Spain it’s negotiable, so if you’re at all worried about the illegality or immorality of it you can always try to persuade your buyer or seller that you’re only interested in declaring the full price. Just be aware that there’s a possibility you might lose the deal if you try to insist on it.