Cyprus Property News magazine for overseas buyers & real estate investors

Sunday, May 31, 2020
Home Articles Has Spain caught the Cyprus tax disease?

Has Spain caught the Cyprus tax disease?

Has Spain caught the Cyprus tax diseasePEOPLE who bought homes in Spain at bargain prices are being hit with shock tax bills because the authorities believe they got too good a deal according to a report in the Daily Mail Online.

In Cyprus, Britain and Spain, those buying property are required to pay a tax on the property based on its market value at its date of purchase.

  • In Cyprus this tax is known as Property Transfer Fees.
  • In Britain it’s known as Stamp Duty Land Tax (SDLT).
  • In Spain it is called Impuesto de Transmisiones Patrimoniales (ITP).

In all cases the tax is calculated on a percentage of the assessed market value of the property at its date of purchase.

If you search through our archive you will find reports of the Land Registry assessing market values at 58 per cent, 37 per cent, 36 per cent, etc. more than the purchasers actually paid for the property, resulting in them having to pay significantly higher Property Transfer Fees than they anticipated.

Although it is possible to appeal the Land Registry’s valuation by applying to the Supreme Court supporting your claim with a report from a private valuer, the secretive nature of the Land Registry in Cyprus means that it will not provide the appellant with a written report supporting its own valuation.

It seems that the Spanish authorities have caught the Cyprus tax disease as the cash-strapped Spanish government is combing through tens of thousands of house sales that have taken place since property prices plummeted following the country’s deep recession over the past four years.

The authorities are comparing the declared sales price to what they believe the real value is. If the house’s sale price does not match with the official valuation of the property, the owner is asked to pay the difference in duty.

4 COMMENTS

  1. Hi Nigel

    SDLT is payable on the sale price of a property in England and Wales, rather than a valuation.

    If HMRC believes that the transaction price differs from a fair market value, then they can assess it. This used to be quite common in the days when tax avoidance schemes were happening a lot on higher value properties (often these involved 3rd parties who did not attract SDLT). These were almost always on properties over £800,000.

    For over 99% of transactions, the sale price was used even then.

  2. @Campbell Ferguson on 2015/01/08 at 1:38 pm – Thanks for your comment. One of the problems we have in Cyprus is that the Land Registry valuations are ‘secret’ – and furthermore those who buy property off-plan have to wait around 10 years for its deed to be issued. Once the deed has been issued (and assuming it’s free of any encumbrances) ownership can be transferred to the buyer on paying the Property Transfer Fees, which is based on the Land Registry’s valuation of the property at its date of purchase.

    The Land Registry here publishes basic monthly statistics on property ‘transactions’ (transfers) which show the total declared price (as entered on the contract of sale) and the total accepted price (the value on which Property Transfer Fees are based). Generally the accepted price is around 7% higher than the declared price.

    The procedure for objecting to the Land Registry’s valuation requires appealing to the Supreme Court and the legal fees and court costs involved in doing this would outweigh any tax savings (assuming the appeal was successful).

    I’m pleased to hear Spanish property valuations are available on the Internet. In Cyprus they’re treated like a state secret which, in my opinion, leads to suspicion and mistrust – and possibly corruption.

  3. This is not recent. Also, the authorities have no need to trawl through past deals as they act immediately the registration of the deal is brought to their attention. There should be no shock as the tax authorities valuations for each property are available on the internet. The buyer and seller’s solicitors should tell them at the time of the transaction. Most of the tax values have been revised to account for the market change. There is a clearly recognised appeal procedure and its best to attach an independent current market valuation to the title when its be registered so that the tax authorities know immediately that there is an objection to their value. The tax values are required because so many sellers and buyers allegedly recorded false low values.

  4. Another death knell sounded for property buying in Spain. Nearly as bad in Cyprus and just going to get a lot worse when they stop kicking the can down the road.

    In Spain this has been going on for years. But when prices were rising then it was a case of part of the purchase price was paid cash under the table to keep the tax due low.

Comments are closed.

Most Popular

Property sales collapse hits all markets

The historic collapse of 80 per cent in property sales in April hit the local and overseas market segments according to statistics from the Department of Lands & Surveys.

Historic collapse of property sales

Property sales in Cyprus have collapsed as a result of the coronavirus pandemic to a level only seen once before when the events of March 2013 made Cyprus a household name around the world.

Building permits maintaining strong growth

The number of building permits authorised in Cyprus during February 2020 provided for the construction of 680 new homes; an increase of 18 per cent compared to February 2019 according to official figures.

Cyprus passport programme under fire again

The Cyprus citizenship by investment programme, which enables well-heeled foreigners to obtain an EU passport for investments of at least €2 million, has come under fire again from the European Union.