Bought A Bargain Gran Canaria Property: Got A Big Tax Bill. Why?

Laura Las Palmas PropertyIf you buy a bargain Las Palmas property, or pay a significant proportion of the asking price in under-the-table cash, you may get a large extra tax bill.

This applies to property all over Gran Canaria and the Canary Islands: The Canarian tax authorities check the purchase price of all sold property and compare it to their official valuation. If you pay less than the government’s valuation, you have to pay the tax due on the difference.

The tax office multiplies the Valor Catastral (the one used to calculate the annual IBI tax) by two to come up with the official taxable value of your property.

So, if you pay less than double the valor catastral, you could well have to pay extra tax plus interest and/or a fine. The rate due is 6.5% of the difference in Impuesto de Transmisiones Patrimoniales (ITP) tax.

The rule is designed to stop people from buying and selling a property without paying tax. It’s fairly effective but can catch out foreign buyers who don’t know how it works.

Paying in black in Gran Canaria

The maximum legal cash transaction in Spain has just dropped from 2500 euros to 1000 euros.

So, if you pay for a part of your property in under-the-table cash (known as ‘en negro; black money’ in Spain), you are technically breaking the law.

Fortunately, black cash transactions are much rarer than they were before the crisis. However, some sellers still expect a percentage of their money in black. Get good advice before you go ahead.

Under-the-table money in Spain is known as ‘dinero negro; black money’. Sometimes, it’s also referred to as ‘dinero b’ (as opposed to legal ‘dinero a’).

So I can’t pay for a Gran Canaria property in cash?

It’s only illegal to pay for a property in cash if it’s undeclared (as in, it’s in a briefcase or envelope).

It’s fine to use savings, or the proceeds of a house sale, to buy a Las Palmas or Gran Canaria property. All you do is transfer the money to your Spanish bank account so that it is traceable.

How to avoid an extra Gran Canaria tax bill

The simple rule is to make sure that the registered amount you pay for a property is at least double the cadastral value of the property.

That said, if you do find a genuine bargain Las Palmas property, it’s still worth buying even if you do pay a bit more in tax.

Can I appeal my tax bill?

You can appeal by going to a local lawyer but you need a good reason. Unless the tax office made a mistake, you’re unlikely to get far.

This is mainly because it’s rare to find a property that is on sale for less than twice its cadastral value.

You can also appeal if the tax authorities sent you their bill more than four years after you bought the property. Unpaid back taxes in Spain lapse if the authorities don’t inform you about them for four years. This only works if the tax authorities were late in asking for the money. It doesn’t apply if you didn’t find out about the bill for four years.

If you paid in black without knowing the consequences, there is little you can do as you have broken the law.

Your estate agent or adviser really should have told you about the risks before you went ahead.

For more on Gran Canaria property tax, read my complete guide to purchasing costs.

I’m Laura Leyshon and I’m Las Palmas’ resident British estate agent.  I offer useful, independent advice about buying Las Palmas property. Please feel free to contact me at any time.

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