Buying a house is a big decision because it’s a big investment. You need to be aware of the consequences and clear about the risks.
Today we’re going to talk about a common scenario: inheriting the primary residence of a deceased parent, spouse or relative. People finding themselves in this scenario need to sign notarial documents to transfer the property by inheritance. They can also reduce the inheritance tax they owe if they state in these documents that they don’t have any intention to sell the property in the next five years. They may not have to pay any tax at all. This is something they are always relieved to hear when they visit the notary’s office. And they can still register the notarial document for accepting the inheritance in the Land Registry (a requirement in Spain) without any problem.
Time passes. These inheritors forget the statement they made so they could pay less or no tax when they accepted the inheritance. Then someone offers them a good price on the property. They decide to sell, and the buyer acquires the property, theoretically free of encumbrances. But this is not the case. Because of the inheritance, the property was subject to a charge recorded at the Land Registry. But everyone overlooked it. However, the Spanish tax authority, which can review tax declarations made when properties are transferred, won’t overlook it. If the tax authority decides that the wrong amount of tax was paid at the time of transfer, it can impose a new payment of the tax, with the property as security to cover any tax liabilities, regardless of who owns the property today. In the case that we spoke about above, the buyer could get a nasty surprise if the tax authority discovers that the conditions for the tax reduction or exemption taken advantage of when the property was transferred by inheritance were not subsequently met. Thus, tax becomes due on this property, and the new owner must pay it, even though they benefited in no way from the original tax break. This is why we always recommend seeking legal advice before signing any conveyancing agreement or preliminary agreement. You need a lawyer to check for any hidden problems that may come back to bite you. The case we talked about today is just one of the many traps that buyers can find they have fallen into when they sign agreements without seeking advice. There are many other scenarios that also entail great risk.
Carlos Prieto Cid – Lawyer