paying the sellers tax on a re-sale purchase

Hi 

wondered if anyone can help, we are bout to complete on a re-sale property and we have got a mortgage. We understand all the purchase and mortgage costs but we are getting conflicting advice on the bank retaining 3% to pay the sellers tax.

The bank states that they will pay the 3% to the government and hence include it in our charges, they have advised that our solicitor then reduces the purchase amount by the 3% ie witholds 3% from the seller.

Our solicitor says however that we need to pay the 3% over above the cost of our purchase and costs and that eventually we will get it back. Me I'm not convinced!

Anyone come across this before?

All help gratefully appreciated

Jaqi

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Hi Jaqib

We recently bought a resale and although we had no mortgage the selller was a non resident so also had the 3% levy to pay.  From what I understand, and I hope I will be corrected if this is not the case, this is to pay any outstanding taxes that the seller may have, connected to the property.  This therefore,  concerns the seller not the buyer and as in our case the seller gets the price of the property, less legal fees, less any outstanding mortgage, less the 3%.  If there is no outstanding taxes then the SELLER can claim the 3% back.

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I've just had a look at "You & the Law in Spain" and it says " The Spanish Tax Agency requires that someone buying a property from a non-resident withhold 5% of the price and pay it directly to the tax agency.  This is from the 14th edition which I've had for some time now.

The rate has probably come down now as capital gains has been reduced this year to 18%?.  The rate is set at a price which will cover the individual's liability and they can claim back the amount which had been overpaid but most people don't bother.

No way should you pay 3% more than the price you agreed.  That sale price will include all the fees the seller has to pay, estate agent etc.

The only grey area is Plus Valia which is the difference in the price when they bought and sold.  Sometimes the buyer has to pay this but that should have been agreed at the point of sale.

When I bought I also didn't have a mortgage so I paid 10% of the purchase price to cover my buying fees and I later received a refund.  I bought in October after the suma had been paid and unlike UK I didn't have to pay for my 3 months in residence.  Instead I paid the water and electric bills which as the owner had emigrated to Australia months before were minimul.

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Thanks ever so much for your replies, buying abroad via the phone is a bite ot a minefiled! I knew it couldn't be right that we would need to pay the full purchase price and their taxes!

Jaqi

PS Denise we are buying near Villamartin to 

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The 3% retention is in lieu of any capital gains tax a non-resident seller may be liable for (yes, it used to be 5%, when CGT for non-res was 35%, since reduced to 18% and the 3% witholding).
There is absolutely no way the buyer should be asked for this above the sale price - it should be deducted from the amount you pay to the seller at the notary. If the bank says they will pay the 3% to the relevant govt. dept (hacienda, presumably) my tendency would be to entrust them to do so. Ultimately, however, it is up to the seller to pay their taxes (or make sure provision has been made for payment, for example via your bank) , including the plus valia, unless an agreement was made for the buyer to pay this (which would be pretty unusual) Plus valia, by the way, is based on the difference in the valor catastral (rateable value) between buying and selling, not the sale price.

With regards the IBI, or council rates (known as SUMA on Costa Blanca), strictly speaking, whoever owns the property Jan 1st is liable for that whole calendar year. However, in practice, bills are usually sent out halfway through the year, so if you buy in, say, March or April, you will probably end up paying for the whole year when the bill comes, unless you've arranged for the seller to give you the money for it (or deduct it from your purchase price). If, however, you buy towards the end of the year, chances are the seller has already paid this year's bill, and will either ask you for a pro-rata amount for the remaining months (which he has no right to do) or just leave it as is, and you will pay next year's.

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A year after I moved in my neighbours sold their house to an elderly couple also from the UK.  They told me that they had to leave 800e with their solicitor to pay their CGT (I may be speaking to them tomorrow so I'll ask if the solicitor also dealt with their tax for them)  The sale went through at a similar time scale as mine but the new owners were upset when they received the latest electricity bill.  I tried to explain how my sale worked out but they thought they shouldn't have to pay it.  The original owners wanted them to send the bill to the solicitors who held the 800, I don't think it was ever sorted out to everyones satisfaction.

To cap it all they later received a bill from the hacienda for underpayment of tax, at the time our council were updating all the valor catastral over a five/ten year period to bring the older properties in line with the new.  Our property purchases went through a year apart and at the same registered price.  Theirs was amended to 20k more by the hacienda? hence the tax bill, I waited with baited breath but so far no bill.

Don't think the original owners ever received a further bill for their underpayment but perhaps the hacienda don't follow up on non residents and settled for the 800e.

I've never been able to comprehend the plus Valia tax but after your explanation Robert I think I might have it sussed.  You read all the books but the information doesn't sink in straight away.  When there's talk of the buyer being asked to pay this tax it makes you think that it's a lot of money, why else would the seller not want to pay it!

Now we've sorted this out for you Jaqi, another thing to find out is how much is being declared for the sale.  Don't get caught out as you could get a bill like my neighbours did. 

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I think you may be getting the various taxes (there's so many, eh?) muddled up. It sounds like your neighbours got stung for under-declaring the sale price (i.e Hacienda suspect that they paid in part for their home with black money, thereby avoiding some transfer tax (7%). The bill they received was probably for 7% on the amount they reckon was "hidden", so in this case 7% of 20K = €1400.
The money the sellers left with their solicitor for their Capital Gains Tax would have been for that, and just that, i.e. 18% of the difference between what they bought the place for, and what they sold it for (declared, that is). The suspected under-declaration would not be their problem, since the buyer pays the transfer tax, so is liable if Hacienda suspect that too little tax was paid. 
Plus Valia is similar to CGT I suppose, in that it is effectively a tax on the increase in the value of the land on which the property stands, which probably explains the confusion. If a seller has owned the proerty for many years, and the valor catastral has increased substantially, it could be a large sum, which would be why they try to fob it off on the buyer!
Electric meters cannot usually be read on request, so there's often an outstanding bill when a property changes hands, but the next bill will show the date the mter was read, so you can work out how much of it (approximately) corresponds to the seller. Often, it's not worth quibbling over, but if the seller left money with their solicitor to cover any outstanding bills, they may be able to offer something towards it.

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Wow Roberto you've made sense of my post

What we couldn't understand if the Hacienda went after the buyer for under declaring the sale price why didn't they ask for more CGT from the seller.  At the time it was at the higher rate.  Perhaps as Non Residents they decided not to bother.

My main reason for posting was to let Jaqi know what could happen if the sale is under declared.  Better to find out now and not when they arrive at the Notary as I did.

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The reason for the 3% retention (previously 5%) for non-resident sellers, is to ensure that the seller can't skidaddle without paying their CGT. Obviously Hacienda hope that this retention will cover any liability, and that if it turns out to be too much, they'll refund the difference. I imagine there have been plenty of cases where it has been insufficient; I don't know if they ever "go after" non-resident sellers for any shortfall. I suppose if they have clobbered the buyer for extra transfer tax based on their re-valuation of the sale, then they could do likewise for the seller's CGT? In the case you mentioned, the €800 left with the solicitor certainly wouldn't cover 18% CGT on an additional 20K, let alone the previous 35% for non-residents, but maybe the 3% retention (of the declared sale price) will be enough to cover the extra due, even after re-valuing it?

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