What is Black Money and why you should avoid it!
What is black money when you are buying a house in Spain? If you are looking at buying Orgiva properties or Lanjaron Property or Lecrin Valley Property this is very important information.
The thorny issue of black money in Spain is one you should be aware of when buying Spanish property. Black money is when you buy a house for a certain price, say 200,000 euros, and state less in the deed, say 180,000 euros. The reason for this is quite simple: tax avoidance or to put it another way, Tax Fraud.
The buyer would save around 1400 euros in taxes in the above example, 7% of 20,000, and the seller could save a lot in capital gains, say 19% of a capital gains tax. Let us say the original purchase was for 150 000 euros and the sale was declared for 200 000 euros, then theoretically there would be a capital gain of 50 000 euros minus the costs of purchase and sale, so around 15 000 euros. The saving would therefore be around 3,800 euros.
Black money in Spain
After this long introduction about what is black money when you buy your property, you must also know that the “Black Economy” is huge in Spain. When the plumber comes to do a job on your house, he will almost invariably ask you if you want a receipt. In fact, he’ll ask if you want to pay VAT (IVA). According to conservative estimates, at the height of the boom, the Spanish underground economy accounted for about 12% of the total economy. The actual share is now probably around 15-20%.
Back to our case and the black money when you buy a house. We always say you should not do this, but you need to be aware that sometimes a seller will not sell if they do not receive B money. It is not worth getting involved and you are better to miss out on this property than to become involved in a fraudulent transaction, that could really cause problems in the future for you.
Why you should not do this.
Apart from the fact that it is illegal? Well, if you under-declare when you buy, if you have to pay 7% tax, (soon to rise back to 8%) then you will pay for it later when you sell at 19 or 24%%. Do the math and you will see why this is such a bad idea!
It does, however, still go on and you may be asked by a seller or an agent to get involved in this. Please don’t! more and more people are being caught out by this and in fact, the tax office, if they believe that you have paid part in cash, will not only fine you for this and then charge the tax on whatever figure they believe you paid in cash, but you could also end up with a criminal record, not a great start to your new life in Spain.
What if I am asked to pay in Black Money?
If any agent at all, suggests that this happens all the time and is really not a problem, please stop dealing with this agent immediately, they are clearly crooks and will probably be lying about other things as well. Just do not place any trust in them at all. They will probably also be charging you a “buyers fee” another practice that has largely died out across the country now, but they may ask for this in cash as well and in turn, put you in another very difficult legal position.
I can only give you the best advice which is not to do it in the first place and run a mile from any agent that suggests you do!
If you would like any further advice on “Black Money in Spain” please do not hesitate to contact us or to get your free guide to buying in Spain just click here: Free Guide
You can also see more in this video: Black Money Video