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Complementary Taxes

- Updated: 10/04/2012
Complementary Taxes

The number of 'bargain', or distressed properties on the market at the moment can cause many an eager buyer to commit themselves to a purchase without any prior thought to the costs involved in owning such a property.

Even when they have budgeted for all of the legal costs and taxes they expect to pay, many buyers are oblivious of a tax than can be applied when purchasing a property that has been deemed to have been sold at a 'below market value price'.

We asked Spanish Tax specialists, Abaco Connect , to tell us more about this forgotten tax and how and when it is applied ...

If you have bought a property in the last four years at a 'discount price' you could find yourself receiving a tax demand.

Complimentary tax is levied where the declared purchase price is less than the tax office’s valuation.

The number of different taxes in Spain can be confusing, particularly where they are issued retrospectively. For example, there has been a lot of coverage in the expat press and online forums about a tax that is issued up to four years after you have purchased a property.

This tax, let’s call it the complimentary tax in Spain (the full title is thirteen words long in Spanish!) originated because many years ago in the hay day of property build and purchase in Spain it became common practice to declare a lower sale price than was actually agreed. This meant that both vendor and buyer had less capital gains and Spanish transfer tax to pay at a time when house prices were increasing rapidly. A mutually agreeable arrangement for them to the detriment of the tax man.

The Spanish tax man fought back with the Spanish complimentary tax. A demand for this additional transfer tax in Spain can be issued anything up to four years after the property has been purchased. It is the difference between the amount of transfer tax paid on the purchase of the property according to the value declared by the purchaser and what the tax man believes the true value to be. The official value is calculated by the floor size and a formula is applied that varies according to where the property is located and when the formula has been revised.

So, for example:

Declared value of property at time of sale = 150,000 Euros

Transfer tax already paid = 10,500 Euros.

Actual value of the property according to tax office = 200,000 Euros

Transfer tax on full value = 14,000 Euros

Amount owed (Complimentary Tax) = 3,500 Euros

Our advice is that If you are buying a property at a substantially reduced cost then you ask your solicitor to find out what the complimentary tax will be and set this amount aside for payment later. Just as you would any other tax.

However, you do have another option if you find yourself faced with a large complimentary bill. You can actually appeal and many have been successful in contesting cases where complimentary tax has been levied. You only have a month in which you can do this, so need to take action fast if a letter arrives.

This tax can be prepared for and needn’t come as a surprise. If you are considering buying a property at a vastly reduced price then don’t be dissuaded. You might have to put a little more money aside but you will still have bought a bargain.

If you would like to find out more about Abaco’s Complementary Tax Appeal Service please click the link here.

Comment on this Article

Odd that in 2014 I bought a new Atico retaining ABACO who were recommended to me & they said absolutely NOTHING whatsoever about the remotest possibility of any "complementary tax" nor taking steps to ensure it was NOT leveyed. Yet I have since seen an article by one Martin Pickering in their publicity magazine which cautions readers to "be prepared"
Drew Edgar - Sun 10th Jun 2018
My partner has had a demand for additional transfer tax of €8,000 but they didnt know which house it was relating to! All the properties he has owned were purchased more than 10 years ago!! He hasnt paid it yet & dont think he has any intention of doing so.
Elaine Brooks - Mon 19th Mar 2012
It makes no difference whether the property was bought collectively or individually. There will be a separate value for each.
Suzanne O'connell (abaco Asesores) - Thu 2th Feb 2012
Does this still apply if I bought a Spanish SL company who owned a number of residential properties as assets ? How could the Tax office determin what I had paid for each Induvidual property if I bought them as a 'job lot' ?
Tim Haigh - Wed 1st Feb 2012