Even though it might seem like a short-term saving, in the long run, you’ll end up paying more to the tax authorities if there is any appreciation in value.
Author: Chema Rubio

Source: tododisca.com

The turbulence in the real estate market does not prevent the continued practice of paying part of a property purchase in ‘black’ money.

Historical records will remember those times when the notary would leave the room or send the parties to an adjacent room to settle that untaxed money that eluded the tax authorities’ control.

Reasons

This method is used to pay fewer taxes or because the property being sold is under some form of protection and cannot be priced freely.

As long as the figures do not attract the attention of the tax authorities, some money can be saved. However, the most difficult part is for the buyer to have this amount in cash and not have to convert it into ‘black’ money.

Víctor Ortiz, a lawyer specializing in real estate and inheritance matters at the startup Heritae, is clear on this issue: “In my opinion, for the buyer, it’s a case of ‘bread for today and hunger for tomorrow.’ I do not recommend it.”

Consequences

A simple example can explain this: “If you buy a property in Madrid and pay 10,000 euros in ‘black’ money, you might save around 600 euros on the Transfer Tax (ITP).”

But there are long-term consequences that negate this saving: “For future sales, those 10,000 euros paid in ‘black’ money are actually considered a false capital gain because, although the buyer paid them in ‘black,’ they are not taken into account for calculating the taxable base since they do not appear in the purchase deed.”

Taxation

The result is that, at the time of a future sale, you will need to pay between 19% and 23% of that amount, which equates to between 1,900 euros and 2,300 euros.

Another clear drawback occurs when purchasing with a mortgage and paying in ‘black’ money because it means that “the bank will finance you less. If the bank finances 80% of the purchase price and you pay, for example, 10% in ‘black,’ they will end up financing only 72% of the total value.”

Conflicts

The tax problems associated with paying in ‘black’ not only include the obvious issue of evading taxes and the fact that this constitutes a crime, but it also proves to be a poor fiscal decision for the buyer in the long run.

The government has tried to mitigate this practice with the Minimum Reference Value, requiring parties in a transaction to pay taxes based on the higher amount between the purchase price and the minimum value. However, the criteria for establishing this minimum value by the Cadastre are generating many conflicts between buyers and sellers against the administration.