During my visit to Bulgaria about 3 weeks ago, I had a look at the Sun City development which is at the southern end of Sunny Beach about 1km from Nessebar. For the benefit of those who have bought there it is a quality development, which I think will increase in value more than most.
I was interested in a 1-bedroom apartment but unfortunately they had all gone during my visit.
However, a 1-bed apartment did become available last week (6 July) at an increased price from those I had seen originally, nonetheless I decided to follow it up…but not anymore, let me explain why.
The price of the apartment (B26) is 89,000 Euros, which I was prepared to pay, because it is now ready for occupation. It has a fully fitted kitchen, bathroom and also has the benefit of a washing machine. All of the purchase price would have to be paid immediately but to my disappointment the developer/builder is only prepared to put a selling price of 45,000 Euros on the Notary Deed. An under-declaration of its real value of 44,000 Euros.
This means that before I even occupy the property and according to the "official" paperwork (the Notary Deed) I will be showing an immediate "profit" of 44,000 Euros, on which I will have to pay Capital Gains Tax when I come to sell.
The law in Bulgaria says that if I keep the property for 5 years, I have no liability for CGT, but that could change, especially since Bulgaria is likely to join the EU and may be obliged to "reform" some of its tax laws. And why shouldn't they in this instance, because the majority of people who will have to pay the tax would be non-Bulgarians, a popular move at home I should think.
OK you say, this is how things work in many other countries of mainland Europe. That may well be so, but in all of the other countries where it operates, e.g. Spain, Spaniards buy and sell houses/flats too, but the nationals of Bulgaria do not, because almost all Bulgarians already own their own homes, one of the few benefits provided by Communism. This situation is unlikely to change within the next 10 years or so, certainly as far as the value of the properties we Brits are buying!!.
The other option of course is to find a compliant Brit to sell on to but that won't be easy when he works out the possible tax ramifications for himself.
Don't forget also that even if the Bulgarians do not change the CGT laws in the meantime, and whether or not you retain the property beyond 5 years before you decide to sell, you still have to pay CGT in the United Kingdom.
If you remain domiciled in the UK, as I would, you'd still be liable for UK CGT, so say I sold the Sun City apartment after 5 years for 130,000 Euros, my CGT liability would be on 85,000 Euros instead of 41,000 Euros. In the UK CGT is payable on profit at the rate of 40% so my CGT bill would be 34,000 Euros instead of 16,400 Euros - quite a significant difference.
Effectively, whether this practice is legal or not, I (or you) end up paying the developer's tax liability.
I am still keen to buy in Bulgaria, it is a beautiful country with wonderful weather and wonderful people but this practice could prevent myself and many others from bringing much needed investment to the country.
Based on all the discussions on the many threads on this web site, I can see no practical way around this dual pricing. If you can find a legal way do let us know, myself and many others would love to hear.