Dodging the Tax Man: catastral values and tax in Spain

Dodging the Tax Man: catastral values and tax in Spain

It used to be standard practice when buying and selling property in Spain to under-declare the value in the escritura or deed, in order to avoid tax. Everybody was complicit, vendor and purchaser obviously, but also estate agents, lawyers and even notaries turned a blind eye. In recent years the authorities have tried to tighten up, however. Paul Whitelock, who has transacted a few houses in Spain in his time, has had a look at the current situation.

The practice of under-declaring a property’s value to avoid taxes has to some extent disappeared. Once upon a time everybody was at it and it seemed to be condoned. All part of the long-accepted tradition of low-level corruption in Spain.

In the last few years things have tightened up, however. Most estate agents and lawyers are no longer prepared to get involved, as fines can be heavy.

Every property has a valor catastral, a value for tax purposes. This may have nothing whatsoever to do with the real value, as valuations in many areas are well out of date, and certainly does not relate to market value, although, as house prices have dropped markedly since la crisis (the 2008 recession, not the Covid-19 one!) they can be uncannily accurate.

To counteract the fact that valuations are out of date each town/village has a coefficient by which the valor catastral is multiplied to arrive at a more accurate valuation for tax purposes. Hacienda use this to try and prevent loss of revenue through under-declaring the price when properties change hands.

So, for example, I used to have an apartment in Ronda (Málaga) with a valor catastral of just over 17,300€. The coefficient for Ronda is a massive 4.2 because property values have not been re-assessed since 1998. That makes the valuation of my apartment for tax purposes 72,660€. In the mid-80s, ie before the worldwide recession in 2008, the market value was much higher, at around 120,000€. So the system is by no means perfect, because if we had sold the flat then, we could have under-declared massively and presumably got away with it! I eventually sold it for about 10,000€ more than the valor catastral two years ago. Got my timing wrong there, didn’t I?

In nearby Montejaque, also Málaga, the situation is very different. Here the coefficient is just 1.8 because properties were re-valued as recently as 2007. A friend of ours owns a house there with a valor catastral of nearly 92,800€ which makes its value for tax purposes 167,040€. Its market value is probably around 150,000€ in the current economic climate, so, if she were to sell the house at that price, she’d pay more tax than she should!

If the authorities think you’ve under-declared to avoid paying tax, you could be in for a shock. You could be hit by a big tax bill for the shortfall and a fine to boot. So, you have been warned!

Paul Whitelock

About Paul Whitelock

Paul Whitelock is a retired former languages teacher, school inspector and translator, who emigrated to the Serranía de Ronda in 2008, where he lives with his second wife, Rita. He spends his time between Montejaque and Ronda doing DIY, gardening and writing.