Estate agents are warning people thinking of buying a second home in Spain about ancient tax loopholes which could leave them out of pocket.

Spanish residents have a tradition of misquoting property prices to avoid high tax payments, according to the National Association of Estate Agents (NAEA).

This means on Spanish land registry documents the value of a home can be well below its market value.

If the land is open to a compulsory purchase through the Valencia land grab law, which applies to areas such as the popular Costa Blanca, the local authority or a property developer can purchase the land for well below the market value. While this only applies to the state of Valencia, other Spanish regions are reportedly considering implementing similar laws.

The land grab law is designed to speed up urban development by ensuring all developments are built with facilities such as sanitation and roads.

It allows developers to ask for land to be reclassified from rural to urban without seeking the landowners' permission and once reclassification has occurred compulsory purchase can take place.

Ian Tonge, chairman of the NAEA international working group said many Brits who have bought homes in the sun have been caught out by the custom and can do very little about it.

He said: "If the property is needed for road widening, for example, they will only receive the recorded value on it, and will be unable to prove they are owed more."