In the real estate market, particularly in areas like San Javier, it’s relatively common to come across cases where the buyer and seller decide to underdeclare the value of a property during a sale. This practice, while seemingly tempting due to the potential short-term tax savings, comes with significant legal and financial consequences for both the buyer and the seller. As a real estate agency with over 20 years of experience, we want to warn you about the risks associated with this practice and explain why it’s crucial to stay within the bounds of the law.

What Does It Mean to Underdeclare a Property's Value?

Underdeclaring a property’s value means that the official price recorded in the sales deed is lower than the actual amount paid for the property. For example, if a home is sold for €200,000 but the declared price in the deed is only €170,000, the remaining €30,000 is paid “under the table” to avoid paying taxes on that amount.

While this may seem attractive in the short term—both the buyer and the seller think they’ll save on taxes like the Transfer Tax (ITP) or the Stamp Duty (AJD)—this is actually a form of tax evasion that exposes both parties to serious financial and legal risks.

Legal and Financial Consequences for the Buyer

1. Higher Tax Burden in the Future:
   If, in the future, you decide to sell the property, you’ll have to declare the capital gain based on the value recorded in the deed. If you underdeclared the value, the difference between the purchase and sale price will be much higher on paper, leading to a hefty tax bill on capital gains through the Personal Income Tax (IRPF). What may seem like a tax saving now could cost you much more in the future.

2. Difficulty Obtaining Financing:
   If the official recorded value of the property is lower than its actual value, it may not match the cadastral value or market price. If you later want to apply for a mortgage for renovations or refinancing, the bank will base their loan offer on the official value, not the real market value. This can limit your financing options.

3. Risk of Contract Nullification:
   In extreme cases, the authorities may deem the transaction fraudulent, leading to the nullification of the sales contract. This means that you would be forced to return the property to the seller and potentially lose the money you’ve already invested.

Legal and Financial Consequences for the Seller

1. Tax Fraud:
   Declaring a lower sale price than the actual amount paid can be considered a form of tax fraud. The penalties for such actions include financial fines, which vary depending on the amount evaded, and in serious cases, could result in criminal charges.

2. Distrust from Future Buyers:
   If it becomes known that you underdeclared the sale price in a previous transaction, future buyers may be wary of dealing with you. This can harm your reputation in future real estate transactions.

3. Problems with the Tax Authorities:
   Spain’s Tax Office (Hacienda) has sophisticated tools to detect discrepancies between declared values and market prices. If they uncover such a difference, you could face an investigation, which will likely lead to not only paying the owed taxes but also interest on late payments and additional penalties.

Consequences for Both Buyer and Seller

1. Tax Inspections:
   The Spanish tax authorities (Hacienda) have advanced systems for conducting value checks. If they determine that the declared value is significantly below the market value, they will initiate an investigation. This will not only result in paying taxes based on the real value but also additional late payment interest and penalties.

2. Legal Uncertainty:
   Underdeclaring a property’s value puts the legal security of the transaction at risk. Both parties expose themselves to potential legal issues in the future, including contract nullification, financing difficulties, and a variety of penalties.

Why Is It Not Worth the Risk?

While underdeclaring a property’s value may seem like a way to save on taxes, the long-term consequences can be much more expensive than the taxes you aimed to avoid. As a real estate agency in San Javier, we always advise our clients to act within the law and declare the true value of the transaction. This ensures not only compliance but also the legal security of the transaction.

Conclusion

Underdeclaring the value of a property is a risky practice with serious legal and financial consequences. Both buyers and sellers should be aware that what may appear as a short-term tax saving can turn into substantial long-term losses, both financially and legally. If you’re considering buying a home in San Javier or elsewhere, we recommend consulting with professional real estate agents who can guide you through the entire process.

At Boreal, we’ve been helping clients safely and efficiently navigate real estate transactions for over 20 years. If you have any questions or need advice on this issue, feel free to contact us.