Spain, the property deals that went sour and a chance to get your money back

Burnt Irish investors in Spanish property set to recoup losses

 

Irish buyers of properties in Spain between 1995 and 2008 stand to benefit from a new ruling compelling financial institutions there to refund deposits placed with them for property purchases.

It means that anyone who placed funds with a Spanish bank or caja during that period for a property that was not built is entitled to reclaim those funds with interest from the financial institution in question. Following a separate ruling there is now no necessity to sue the developer. This is important as many of them have been bankrupted or are not financially viable.

Spanish property deposit reclaim ruling

A Spanish supreme court ruling at the end of 2015 upheld a previous finding that Spanish financial institutions were liable to refund deposits placed with them for property purchases. The institutions fought and failed to overturn the ruling.

The rulings come about because builders and property developers were required by law to place deposits in a protected bank account and provide a bank guarantee. The bank in question was obliged to ensure that this account existed, was protected and that the bank guarantee was in place.

During the property boom in particular these rules were widely flouted by both banks and developers. Many developers were declared bankrupt and purchasers presumed their deposits had gone with them. The Spanish supreme court ruling has given a lifeline to these property buyers. It is anticipated that there will be a deluge of claims lodged against banks and cajas around Spain.

Spanish inheritance/gift tax reclaim ruling

And there’s good news for inheritors of Spanish property too. A European Court of Justice ruling in 2014 found that inheritance and gift tax charges on foreigners in Spain, which often amounted to as much as a third of the property value, were not legitimate. These taxes have been levied on thousands of foreigners inheriting property and receiving it as a gift over the years.

The ECJ declared that laws being implemented on foreigners were discriminatory and therefore against EU rules. As a result the Spanish authorities are now being forced to repay inheritance and gift tax paid by non-residents (you can find the appropriate ECJ ruling on the European Union Law website at http://eur-lex.europa.eu by searching for ‘2014/C 395/03’).

Spanish residents generally qualified for generous tax exemptions, sometimes up to 99 per cent, but owners living abroad had to pay the full amount within six months of inheriting the property. The general allowance for non-residents is just €16,000, even for a spouse or children. This left many overseas owners with a very significant tax bill on receipt of the property. The overpayment, plus interest, can now be reclaimed in full.

Some caveats

It should be noted that there is no automatic right to the reimbursement of deposits or overpaid inheritance or gift tax. You must file a legal claim to have the overpayment or deposit refunded.

The existence of the inheritance/gift tax ruling in particular is now widely known in Spain, which has led to a range of companies offering their services. Not all of them are reputable and some of them are not very good at the process.

Filling in Spanish reclaim forms and filing them is pretty complex even if you are fluent in Spanish. There is no single form to be filled in, both claims involve the completion and submission of a range of documentation. It is a task that should only be undertaken by a legal expert specialising in the area.

In all instances you should also remember that you can make a claim only once so it needs to be done correctly, there are no second chances.

Where successful, claims will generally be refunded within six to eight months of the filing date for inheritance and gift tax claims, whereas it is estimated that it will take up to 18 months to reclaim a property deposit.

A company specialising in the reclaim process should offer a free analysis of your case to see if it qualifies for a refund. If the case is taken on the company should also do so with no up-front fees and on a “no win, no fee” basis, but not all companies do so.

Reclaim companies can do this because once the criteria are met, applicants should be 100 per cent successful in reclaiming the funds with interest. Payment for the service is normally received as a proportion of the amount recovered for the client.

Diarmaid Condon is a property writer and independent overseas property consultant info@diarmaidcondon.com

Inheritance/gift tax – Reclaim requirements

1. The inheritor must be non-Spanish but resident in the EU or a country that has a tax treaty with Spain.

2. The inheritor must be a direct descendent to the deceased, i.e. spouse/ grandparent/ parent/child/ grandchild. Siblings do not qualify.

3. Tax payment must have been made in the last four years. The date is taken from the stamp on the Modelo 650 to 652 tax form so you will need to provide a copy of this.

4. Usually a minimum tax payment of around €4,000 will be required in order for the claim to be worthwhile for the reclaim company.

Property deposit: Reclaim requirements

1. The property was not completed within the timeframe outlined on the contract.

2. The “licence of first occupation” (licencia de Primera ocupación) must not have been issued.

3. The first deposit needs to have been paid not more than 15 years before the date of lodging the claim.

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