The Spanish Tax Office has recently been sending letters to many non-resident owners, referred to the tax years 2007, 2008 and 2009 and pointing out  the fact that having owned a  property during one of the said years implies an obligation to file an Income Tax return as well as a Wealth Tax return (the latter for 2007 only).

With such a letter, the Tax Office is simply warning that they are going to check if the above tax obligations have been fulfilled, and  they offer the possibility to “make it up” by presenting the missing tax returns and paying the corresponding taxes before the Tax Office opens an investigation, claims the unpaid tax amounts and imposes a fine.

As expressly pointed out in the letter, the same is not an express request or summons (therefore you do not need to answer it) and it does not signify either that an investigation has already been started. It further points out that not assistance will be given at the Tax Office for preparing tax returns in arrears.

Therefore if you have received such a letter you just need to check if you have filed the tax returns for the years in question. If not, it should be done as soon as possible, to avoid unpleasant consequences and fines.

If you need help, please be aware that at CARDENAS we have been taking care of such tax matters for many many years, and that we can assist you further in that respect.

We trust this measure will help to pusth the market of main residence, quite stagnant because of lack of bank finance.

Source: http://www.canarias7.es/articulo.cfm?id=227080

Compliments are always nice to receive especially when they come from people in the know. Leading on line travel experts Trip Advisor have just released their list of the top ten beaches in Spain and Gran Canaria has 3 entries. Playa del Ingles, Maspalomas, and Mogan have come up trumps due to their quality and amazing popularity with holiday makers who leave comments on the Trip Advisor website.

As a further show of what a holiday magnet Gran Canaria is Playa del Ingles has also made the top 25 beaches in Europe, quite an achievement. Regular visitors and settlers in Gran Canaria will not be surprised by these accolades, the southern tourism zone is packed with large clean beaches that are great for families to enjoy.

Maybe the beaches will entice you to make the move to Gran Canaria but once you have arrived you will discover all the other attractions such as stunning natural beauty and modern facilities plus of course the relaxed pace of life.

Further it is important, like for any other property, to examine the Land Registry and check the legal situation of the plot, the ownership, surface, possible encumbrances on the same, etc.

When buying a property under construction it is usual for the promoter to demand payments on account from 20% up to 40% of the total price, during the construction process. According to a law passed as far back as 1968, all the amounts paid on account of the price for a flat under construction must be secured by the promoter by means of a bank guarantee or an insurance policy, which guarantees the repayment of his money to the buyer if the building is not completed, with all the necessary documents, within the agreed period of time.  Further, all amounts paid by the buyer must be paid into a special bank account, from which payments can only be made upon presentation of the certificates that the architect issues as the construction progresses to certify the completion of the different phases.  In that way, it is possible to control that the monies paid by the buyers are indeed employed in the building and not used for any other different purpose. Quite frequently promoters do not offer those guarantees but it is essential to demand them. In fact, that is an inalienable right of the buyer, even though it is not expressly stipulated in the contract.

Finally and according to the “Ley de Ordenación de la Edificación”, which came into effect in 1999, the building agents must provide the following guarantees by means of an insurance policy:

a) Insurance covering during one year the material damages due to faults or deficiencies in workmanship that affect the appearance, the final aspect or finish of the building works.

b) Insurance covering during three years, the damages caused by faults or defects of the building parts or installations that bring about non-fulfilment of the habitability requirements (hygiene, isolation, etc.)

c) Insurance covering during ten years the material damages caused in the building by faults or defects that either have their origin in or affect the structure and stability of the building.

The purchase of a property under construction usually starts with a reservation contract and the payment of a small amount on account of the price. It is a very simple contract, but before we actually make the reservation, we should request to examine the conditions of the purchase contract to be signed later and make sure that all the above mentioned guarantees will be included in the same.  Moreover we should demand that all the information on the flat we are buying (plans, description of the building and decoration materials, etc) is attached as an annex to the contracts.

By Daniel García Chagrin & Carolina García Chagrin, Cárdenas Real Estate, Gran Canaria, Spain

As of January 1, 2011, if the Sustainable Economy Act bill does not change, tax deductions for primary residences will be amended. They will only be tax deductible for taxpayers with incomes below 24,107.2 Euros. The deductible tax base of 9,015 only applies to incomes below 17,700.2 Euros, and from this amount, a gradual linear reduction will apply until the 24,107.2 mentioned above is reached. Therefore you only have until December 31, 2010 to purchase your primary residence and thus ensure tax deductions regardless of your income.

Unless there are last-minute changes which are not expected, the proposed Law on State Budget of 2011 will abolish the tax deduction for the purchase of housing for incomes exceeding 24,107 Euros. This abolition has no retroactive effect, so it only affects those who purchase a primary residence from the 1st of January 2011 onwards.

Persons who exceed this income and are thinking in purchasing a property have just over two months to buy and benefit from the tax deduction.

Independent of the abolition of the tax reduction for incomes exceeding 24,107 Euros, there are also changes that affect people whose income is situated between 17,707 and 24,107 Euros, they will have a lower deduction to the one before the change and a gradual linear reduction will be applied. For those with an income of less than 17,707.20 Euros the current status remains in force.

Beware if you have a bank housing account

In relation to housing accounts, people who have an account of this type, and whose income exceeds the limit of 24,107 Euros should liquidate and purchase before the year’s end. If you do not do so not only will you lose future deductions, but must also repay tax credits taken in previous years.

This last point is a delicate and controversial subject as there are positions that support the possibility that these taxpayers may be in an uncertain legal situation, as they opened their housing account under conditions which the Government has now voted to change.

Buy now or wait?

The main question for those interested in purchasing a primary residence could be looked at from the point of view that the potential loss from the tax deduction could be recuperated through the reduction of selling prices. There may be doubt among taxpayers wether to buy more expensive now and benefit from the tax relief or to wait and possibly buy for a lower price meaning the loss of the tax credit deduction.

Although time is running out, numbers are needed before making the right decision. It is estimated that the loss of tax credit deduction could on average have an economic impact of about 30,000 Euros for each affected taxpayer (for mortgages of 25 years).

Taking this figure as a reference, we must evaluate if the fall in prices can achieve these margins to decide to wait to buy as the best option, always and when you fall into that tax relief group.

Tax savings

If you purchase after 2011, forget about tax strategies. There will be no strategy for tax savings on primary residences. The only way is to amortize mortgage repayments to save on interests provided you have money saved. From 2011 it will be purely a financial decision, not fiscal. In short once you have removed the deduction for certain income levels the only benefits to be made when purchasing a primary residence is to manage the property market to benefit from good deals and negotiate good conditions on mortgage loans.

For us as real estate experts, it is clear that those who need to buy a house will look for a good deal and will not be put off by the reduction as it is only a small aid: 1,350 Euros for those who are at the limit of the annual loan of 9,015 Euros. That is, more or less, 112.5 Euros per month. With low interest rates, this reduction may not be noticed much or the buyers could be compensated by the cheaper prices of properties.

Await further price reductions?

You may well be waiting for the prices to lower. If so, you should calculate how much you save in price compared to the money saved each year in tax deductions. If you have already decided on the property you wish to buy and have available the funds, the best decision looking from the tax point of view is to buy before December 31st so that you can begin to pay less for your mortgage and have more liquidity.

With the publication at the beginning of the year of the so-called “Tax Calendar” of the Agencia Tributaria (Spanish Tax Office), the situation as regards the taxes due this year for the previous tax year 2008 is very clear: the disappearance of the Wealth Tax has indeed lead to the suppression of the tax forms 714 (Wealth Tax) and 214 (simplified Wealth & Income Tax return), but the tax return 210 is maintained, in order to declare the locative value of the property not rented out (2% or in some cases 1,1% of the catastral value), and pay the Income Tax on the said locative value, the tax rate being 24% for non residents.  The said tax form must be presented before the 30th of June 2009.

Though the Income Tax amount is in most cases rather low, there is clearly an obligation to declare and we can only advise to fulfil that obligation.

Needless to say that if a non-resident is renting the property, his tax obligations have remained unchanged, i.e. to present quarterly tax returns (Form 215) and pay 24% of the rents.

Cárdenas Real Estate is happy to continue with the tax assistance service to non-resident property owners and to answer any questions related to such matters.

By Daniel García Chagrin & Rolande Chagrin Chevènement

You might be told that making a real estate transaction in Gran Canaria is simple, just a matter of visiting the Notary’s office. This is very far from reality, there are legal and tax implications that need to be considered carefully, or otherwise may cost a lot of money and/ or trouble. In any case you should contact a reputed lawyer or real estate professional. At Cardenas we have two in one. We are your trustworthy partner and ensure you a smooth purchase of your property in Gran Canaria, even if you have found it somewhere else!

* Daniel García Chagrin studied Law in Las Palmas and Granada and graduated at the University of Las Palmas de Gran Canaria. He later followed a postgraduate course in Tax Law. He joined his parents’ company in 2004 and is nowadays responsible for the legal & tax department providing clients legal and tax support and advice and verifying each sales & rentals transaction. He speaks fluent Spanish, German, English and French. Email: daniel@cardenas-grancanaria.com

By Daniel García Chagrin

The competent Tax authority is the Special Branch of the Tax Authority in Madrid, i.e. depending on the State Tax Agency (AEAT), whereas for residents in Spain, the competent tax authority is the regional tax authority.

It is important to know that the filing deadline for acquisitions resulting from death is SIX MONTHS from the date of death.  For the case that the delay in obtaining the necessary documents from abroad (i.e. Certificate of Inheritance) might make it difficult to comply with the deadline, it is advisable to apply for an extension of the six months delay, but that must be done within FIVE MONTHS from the date of death.

How to pay the tax:

It is possible and advisable to pay the tax using the self-assessment Form 652 “Inheritance Tax Simplified Return”.  A Tax Identification Number (NIF) and tax identification labels provided by the Tax Agency are necessary. Before requesting them, Non-resident foreign national taxpayers must apply for a Foreign National’s Identity Number (N.I.E.).

Main documents to be presented

• Deed of Acceptance of the Inheritance (certified and simple copy), or, failing this, an Inventory of Assets and Heirs, in duplicate.
• Death Certificate.
• Certificate from the General Registry of Wills and Testaments.
• Copy of the Will or the Declaration of Heirs.
• Copy of the IBI (Property Tax) bill

besides any other relevant document about the inheritance assets (insurance, bank statement, car documentation etc.)

How high can be the Inheritance Tax? It is not as high as most people imagine. It depends mainly on the value of the estate and the degree of relationship with the deceased, and accessorily on the previous fortune of the inheritors too. The rate is progressive and varies from 7,65 % up to a maximum of 34% applicable to an estate over 800.000 Euros approximately, though in the case of remote relatives (cousins or similar) or non-relatives at all, the final amount could be multiplied by 2 or more (up to 2,4).

The tax is calculated on each inheritance share, which means that if one person only inherits the whole of the estate, he/she will pay a higher rate than if several persons share the inheritance.  Regretfully the tax free amount for next of kin  (spouse, children) is quite low (not quite 16.000 Euros) and has not been updated for a number of years.  Hopefully it will be increased in the near future.

A practical example:

A father leaves to his 3 children a house worth 200.000 Euros and 3.000 Euros in the bank.  Each child will pay approx. 5.426 Euros inheritance tax. The total tax amount (3 shares) will be approx. 16.280 Euros, which means an average rate of 8,02% on the total value of the estate.

If the same person leaves only one child to inherit, the inheritance tax to be paid will be approx. 30.180 Euros, which means a rate of 14,87%.

There are Agreements to avoid double taxation between Spain and many countries, and according to those, Inheritance tax to be paid in Spain for assets situated on Spanish territory is liable to be deductible in the country of residence.

Non-resident Inheritance taxpayers must appoint a tax representative.  It is most important to choose a serious and experienced person or legal person. Cardenas Real Estate has a large experience in dealing with inheritance matters and will provide you with a professional assistance and help, from the very first moment, providing exact information as to the documentation (including from foreign authorities) required, helping to obtain the NIE and NIF, assisting you with the signature of the Deed of Acceptance of Inheritance at a Spanish Notary public, preparing the tax returns and generally taking care of all necessary steps until the inherited assets including real estate are effectively transferred to the inheritors.

By Daniel García Chagrin (Lawyer & Tax Advisor) at Cardenas Real Estate.

That is a decision that should be duly weighed and considered. First of all the inheritance tax is not as high as many think, especially if there are more than one children to inherit the property. And the inheritance tax may well be reduced or even supressed in the future in all parts of Spain.

Secondly it is never advisable to buy the property in the name of the children if they are under age. Unless those have money of their own (i.e. from inheritance) and proof can be produced that the money used for the purchase indeed belongs to the children themselves, the tax authorities might well consider that the parents are making a gift to their children, and the gift tax is higher still than inheritance tax (same tax rate for both taxes, but no tax free amount for Gift Tax).

One should consider as well that if one wishes to sell the property again after some time, the children’s consent is required. Further problems may arise if the circumstances change, for example if one of the married children gets divorced, and the son-in-law or daughter-in-law wants his share.

Though it is unusual, it could happen that one child predecease his parents – by accident or illness – and if he dies without issue, it would be the parents who would have to pay inheritance tax on their own property. I have known such a case!

Only if the parents have already reached a certain age and intend to have the property for they own use – as a permanent or a holiday home – until their death, one could recommend safely that the children purchase the property (bare title) and the parents the life benefit.

By Rolande Chagrin Chevènement (Owner of Cardenas Real Estate)