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Developers ‘scamming buyers’ over property tax

Scam IconTHE CYPRUS Property Action Group (CPAG) has obtained a legal opinion which concludes that developers are effectively scamming buyers by overcharging them for Immovable Property Tax (IPT) and pocketing the difference.

This is a massive fraud,” said the CPAG’s Denis O’Hare. “We want this money back and we want prosecutions“.

The CPAG said property developers were charging owners hundreds of euros per year for IPT, when they themselves were paying as little as €25 per owner to the Inland Revenue.

In this way, the Developers realise a substantial profit from the purchasers, i.e. they receive from them money they did not pay or much more than what they paid,” said the legal opinion.

IPT is a tax imposed by the government on property owners annually.

The calculation is based on the 1980 total value of a property, so the average home owner does not generally need to pay, as most homes were unlikely to have been worth as much as the threshold €171,000 at that time. Property under that value has a zero IPT rate.

The IPT on property worth more than €171,000 goes up in varying degrees to a maximum of 4.0 per cent, if the property was worth €850,000 or more in 1980.

Large property developers, however, would have had land worth between €171,000 and €850,000 at 1980 prices, which have now been built on and sold to foreigners.

The developers are still liable for the IPT because they still hold the Title Deeds if the total property remains mortgaged.

They then calculate how much they need to pay to Inland Revenue based on the total value of the land, and divide the charge, based on the number of home owners on the property development.

Owners are then charged individually by the developer, who deposits the much-lower IPT charges with Inland Revenue. Effectively, the buyers are being asked to fork out for the IPT, even if their individual homes would have been worth less than €171,000 in 1980.

Imposition of IPT can go on for years, depending on how long it takes for the developer finally to hand over individual Title Deeds.

Owners are allowed to claim six years’ worth of IPT back from the Inland Revenue once they have obtained their Title Deeds, but according to O’Hare the owners could end up paying 10 or 15 years’ worth by the time the developers hand over the Deeds.

What’s more, they are only entitled to get back the amounts paid to Inland Revenue by the developer, and not what the developer charges them. The difference is huge in most instances, according to O’Hare.

O’Hare cited one instance where a developer asked buyers for €1,700 for IPT, when he himself was paying only €25 per owner to Inland Revenue. In another case, a developer was charging each buyer €600 and paying €17 per buyer to the tax department.

This fraud is being carried out in the name of the government,” said O’Hare, adding that the whole issue was confusing for foreign buyers.

There have been suggestions on other property forums that some developers are charging buyers based on the value of the house as stipulated in the buyer’s contract. On top of that, some charge 9.0 per cent interest if payment is late, and yet others wait until they issue the Title Deeds and then ask buyers for a lump sum, which could run into thousands if the issuance of the deed takes ten years or more.

Cyprus property consultant Nigel Howarth said on his website Cyprus Property Buyers: In one case in which I was recently involved, these ‘unpaid’ taxes amounted to 50 per cent of the property’s purchase price. Imagine buying a property for €350,000 and then, some years later, receiving a demand from the developer for a further €175,000 for ‘Immovable Property Tax’!

O’Hare said that according to the feedback from CPAG clients, most developers were charging 4 per cent per £1,000 on the value of the property. He also said that in the case where the developer waits until the Title-Deed handover, they often threaten to withhold until the buyer pays the lump sum for IPT.

Based on the legal opinion they obtained, the CPAG has now sent out updates to buyers telling them not to pay anyone until they are given proof of how much is being given to the Inland Revenue, or proof of how the charge was calculated.

He said one buyer had already challenged a requested IPT charge of €2,500 from a developer, who then “offered to reduce it” to €850. The buyer still refused without seeing proof that this was how much he had to pay.

The legal opinion obtained by the CPAG states that the purchaser “may ask the developer to provide him with evidence on the IPT he paid for the property“, and “may refuse to pay more than what he will be entitled to recover from the Inland Revenue, without committing breach of his agreement“.

O’Hare said the full legal opinion would be published in due course. “We at the CPAG are unaware of anyone being supplied with proof of payment to the Inland Revenue by developers of any amounts, even though we have asked buyers in specific instances to request this. They were all refused this information,” said O’Hare. “However, lately, some developers are dropping their demands for IPT after the client quotes from our emails to them explaining the true situation.

Copyright © Cyprus Mail 2008

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