The crack down on "Black money"

The Government in Spain is stepping up on new laws to help stamp out the use of "black money" in property purchases across Spain.

To help reduce tax liabilities for a seller, they will often ask a purchaser of the property to declare that they are buying at a price which is much less than the original price advertised, then pay them the difference in cash "black money".

The under declaring of purchase price benefits the seller if he has a Capital Gains Tax (CGT) liability & the buyer from a stamp duty perspective.

CGT is payable even on gains on main residences in Spain. Spanish residents pay 15 per cent & non-residents pay 35 per cent at the moment.

Better solicitors will always suggest that their clients don't agree to under declare. They will also work with the client to come up with a suitable compromise with the vendor which might involve paying a bit more but knowing there will be no problems in the future.

New laws, expected to come into force later in the year, property sellers & buyers will also have to disclose their tax identification numbers when buying a property in Spain.

This will help the Spanish authorities to see if homeowners do not register their properties & who do not pay tax on rental income on their property or when they sell their property in Spain.

The Government in Spain introduced measures last year to help prevent black money being used in property deals. Now, everyone involved in the property purchase has to state in the deeds of the property what the method of payment is.

It is also becoming harder to withdraw large cash lump sums from banks in Spain without raising suspicion. If you have suddenly withdrawn €20,000 in cash on the day you signed the deeds, then you risk being investigated.

However, the tightening of the regulation is unlikely to result in sudden attempts to claw tax back from those who have previously bought property using black money. It would be relatively easy for the Spanish authorities to track down those who had used black money. Quite often in the contract, both the declared price & the actual price are written there, so it wouldn't be difficult to trace people who had under declared.

There are also steps being taken to ensure landlords disclose rental income. Many landlords try to escape revealing this income, again to avoid paying tax on it. But tenants now have to include the property registry number on utility bills and other contracts, so it will be clear when a property is being lived in and when it is vacant.

You normally find it is when people are paying cash from their own purse or raising the money from their own UK properties that they can be drawn into this.

As well as risking fines by not declaring money during a purchase of a property, remember that there are other ways in which you can lose out.