No refunds in hard times at the Hacienda: Proceeds elude sellers of Spanish homes

THE property market may be taking off in Spain as prices start to rise and purchasers are ready to buy holiday homes again, but there are still problems when it comes to selling.

Since 1992 Spanish law has stipulated that when a property is sold the Hacienda (Inland Revenue) will retain 10 per cent of the sale price to cover any capital gains that may have been incurred and any income tax that may not have been paid for that year.

Once these have been deducted, the balance is supposed to be returned to the house seller. But now it seems that some of the departments involved do not have the money to refund.

Bill Caswell, who sold a property in June 1992, is still waiting to see the rest of the 10 per cent that was taken off the sale price returned to him.

'I bought my two bedroom maisonette, overlooking Mahon harbour in Minorca, in 1988. When I tried to sell it there were no foreign buyers and so I sold it to a Spaniard, who paid me Ptas10,000,000.

'The 10 per cent is taken off at the point of sale through the notary who handles the transaction, and he lodges the money with the Hacienda. I also had to pay a transfer charge because I was paid in pesetas.'

If the amount is more than Ptas5,000,000, a bank charge can be levied. Before 1992 there were strict currency controls on money taken out of the country, but a European Commission directive put a stop to that.

After the sale, a tax declaration form has to be filled in and lodged with the Hacienda, which is meant to refund the money remaining after deductions within a reasonable time. Mr Caswell does not think that two years is very reasonable.

Mr Caswell speaks fluent Spanish and has a Spanish accountant, so he is probably in a better position than most to tackle this sort of problem. However, he is at a loss over what to do next.

'I went into the office in Mahon a year ago and saw my particulars on the screen. I was Ptas1m in credit and after deductions was owed Ptas834,134 - which is around pounds 4,000.

'The tax officer told me the files had been forwarded to Palma in Majorca and would be dealt with from there.

'I rang that office, only to be told that they couldn't pay me the money now, but expected to be able to pay it within 50 days. This was in March. At the end of April I rang again, to be told that they had just changed director and therefore nothing had been looked into or dealt with. Then they told me that there was no money in the budget to pay me.'

Mr Caswell says that his accountant is aware of literally hundreds of cases in which money is owed in the Balearic Islands alone.

Keith Baker of Croft Baker & Co, solicitors, has been dealing with Spanish property transactions for some years. 'Local rumour recently has been that some offices cannot pay back the money they have been holding,' he said.

'It seems that people who sold very soon after the new regime have done worse than those who sold a year later. By that time, the tax offices had sorted out the new computerisation and got their act a bit more together. Before 1992 there was no way that the income tax people could establish which foreigners owned what and how much they owed.

'The Spanish state has no obligation to pay interest on this money either, which I think is discrimination, as they do have to pay interest on other amounts of money held for tax reasons.

'I get the feeling that the Spanish government is discreetly moving the goal posts and is now going to use the retention money as a lever for people to pay back-tax - wealth tax for five years and income tax for two years.

'Although they are correct in wanting it paid, it is an abuse of power for them to block significant sums of money when their own legislation does not permit them to lock the issues together.'

Jose Luis Solano, the Spanish consul, said: 'It seems a very strange reason to say there is no money. I cannot believe that the Spanish government has no money.

'One year ago there was a problem because the system was new and it was taking rather a long time to refund the monies. But now the impression I get from notaries is that it should only be three or four months. I wonder if Mr Caswell's solicitor or accountant has not taken all the correct steps?'

Mr Caswell says that, as far as he is aware, everything has been done absolutely to the letter, but he has still not had his money returned.

(Photograph omitted)