Q&A

I have found a Spanish property that I am interested in and have put down a deposit. I am now being asked to put down a further 40 per cent payment with the balance due later. Is this normal procedure?

Property abroad

Also, I hear that Irish people buying in Spain are liable to tax. If this is right, how much?

Mr D.E., Dublin

Property agents familiar with the Spanish market assure me that the stage process on payments for new-build houses is normal practice. However, you would be well advised to get a bank guarantee on the payments to ensure that you are covered if the building should be unfinished.

Getting involved in Spanish property is a sure way to become familiar with the extensive Spanish tax system. It is worth remembering that while evasion is still a problem, the Spanish tax authorities are much more vigilant these days than in the not-too-distant past.

There are three tax authorities: the central government in Madrid, regional legislatures andmunicipal authorities.

Firstly, there are the taxes on purchase. There is a 10 per cent property charge akin to our stamp duty. People are often told to present the property as costing less than it did but this will cost you dearly later on when, as a non-resident, you pay 35 per cent capital gains on the sale of the property.

With a new property, you will also face a 7 per cent VAT charge, with a further half percentage point fee to the local administration. If the property is not new, there is a transfer tax of 6 per cent.

Once you own the property, you are liable for several annual charges. First is the property income tax. Essentially, the state assumes you are getting a rental income from the property, so it charges 0.5 per cent on the valor catastral (25 per cent tax rate on 2 per cent of the value). The valor catastral is the assessed value of the property by the local authority.

You also face an annual real estate tax, known as the IBI, levied by the local authorities on the basis of the valor catastral. This tax varies from area to area.

There is also a property wealth tax charged on a sliding scale of up to 2.5 per cent on the market value of the property.

There are also community charges within the complex where the property is based to cover pool maintenance and upkeep.

Finally, there is a rubbish charge levied twice annually.

Also, don't forget inheritance taxes should you die. These are strict in Spain and the names appearing on the property deed can affect the eventual tax bill.

This is not an exhaustive list and, in the circumstances, all the advice I received was that people looking to buy in Spain should certainly get a local accountant working for them to wade through the Spanish tax law.

Canada Life

I opted for common shares in the takeover of Canada Life by Great-West LifeCo. I have ended up with the following shares in Great-West LifeCo:

130 common shares with a current value of €3,670;

20 Preferred E Series shares with a current value of approximately 323;and

Five Preferred F Series shares with a current value of approximately 97.

I did not receive a form to avail of the assisted sales plan and, when I contacted the helpline, I was advised that as I was issued with share certificates I would only be able to sell these through a stockbroker and not through the assisted sales plan.

As you can see from the figures, if it costs me a minimum of 70 to sell each class of share, the cost of selling the F shares is prohibitive and the cost of selling the E shares unattractive. I would be willing to sell all the shares I hold in Great-West LifeCo. Any advice would be appreciated.

Mr J.C., Dublin

As the company views it, you are unlucky on two counts - opting for common shares, which was the only category to be oversubscribed in the offer, and holding your shares by way of share certificate. I would say you were unlucky on the first count and unreasonably discriminated against on the second.

Had you opted for cash, you would have got exactly what you wanted; the irony is that by showing faith in the new owners and opting for their common stock, you have, in effect, been punished.

I have made representations to Great-West LifeCo's Irish operations, but it has given no indication that it is prepared to move on the issue.

Their position is that when Canada Life first demutualised, all shares were held electronically. Only shareholders who subsequently sought share certificates received them and they were told that such a move would place them outside the boundaries of the assisted sales programme that Canada Life tells me it ran all along for shareholders, which was news to me.

Anyhow, Great-West LifeCo says people taking certificates in Canada Life knew they were outside the Pale and that situation continues following the purchase by another company.

This is clearly comparing apples and oranges. People seeking certificates for the Canada Life shares were doing so in relation only to common shares. They knew what they held and what the market was like in them. These people now find themselves holding up to three classes of shares, at least two of which are unfamiliar to most of them, which they never sought and which have less of a market.

Also, the idea that such investor lockouts are preserved across changes of ownership is ridiculous. This is a new owner and a new situation for investors. The least they should have been allowed - if only electronic holdings were eligible for the assisted sales plan - was the ability to switch their stock back into that form. This was specifically not permitted.

So Great-West Life changed the conditions under which it was operating vis-à-vis its shareholders (giving them different types of shares) but insisted the investors abide by their side of the deal.

The company will say it made it clear that pro-rata distribution would occur where there was oversubscription for any category under the purchase of Canada Life - and that's true - but they said nothing about locking share certificate holders out of the assisted sales programme. Had that been the case, you and up to 5,000 other Irish shareholders might well have opted to cash in their holdings.

My advice is to hold on to the shares for the moment. The premium paid by the company means you are currently winning on the deal and I am still hopeful Great-West Life might change its mind. If you do have to sell, shop around. Even with certificates, you should be able to do better than €70. A quick check last week suggested the bill should be closer to €50 per share class.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.