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Reference value, a new way to calculate taxes when buying or inheriting property from January 2022

Updated: Mar 29, 2022

Law 11/2021 on measures to prevent and combat tax fraud published on July 10, 2021 in the BOE, introduced, among other things, modifications in real estate related taxes. One of the modified points is the tax base of the Property Transfer Tax (ITP in Spanish) and the Inheritance and Donations tax in relation to real estate.

Before the entry into force of this Law 11/2021, the ITP payment was made for the higher of the following values: the cadastral value, the one verified by the Administration for the purposes of other taxes, or the purchase price.

With the new reference value, taxes will be paid based on the value of the property on the market and not based on the price paid for it. Experts think this new reference value will likely trigger a higher tax rate on the ITP for those who buy a second-hand property, the Inheritance and Donations Tax and the Wealth Tax.

What are the differences between the cadastral value and the new reference value of urban real estate?

The cadastral value (valor catastral) is the value of a property as determined by the municipal government and it is usually much lower than the market value of the property. This tax is updated, when needed, by the General State Budget Laws.

The tax base for the IBI is the cadastral value and the percentage ranges from 0.405% to 1.166%, depending on the region where the property is located. This tax must be paid once a year by the legal owner of the property.

Since the cadastral value is protected data, it is not published, and its review occurs, in the case of urban real estate, within the framework of collective valuation procedures.

The reference value will be determined year by year, simultaneously in all municipalities, and will serve as the tax base for the Property Transfer Tax (ITP) and Documented Legal Acts (AJD) and on Successions and Donations. This This is not considered protected data, so it can be consulted in the Electronic Headquarters of the Cadastre. Owners will also have access to the criteria that has been taken into account when identifying the value of their property.

The legal owner of the property should make sure that the Cadastre data is correct, and if this is not the case, they can start a procedure to rectify errors or rectify discrepancies.

In case owners do not agree with the reference value used as tax base to settle the ITP or the ISD they may challenge it before the corresponding regional administration. The reference value aims to reflect a figure close to but less than market value. In general, it will be higher than the cadastral value, applicable to other taxes, and will be used to calculate the taxable base of the ITP or the ISD, unless the taxpayer declares a higher value or the price agreed in a transaction is higher, in these cases the top value will be applied.

According to the Cadastre, this reference value will have no effect on the IBI or on other taxes other than ITP and the Inheritance and Donations tax.

How is the new reference value calculated?

With this modification, the taxable base of the tax will be calculated taking into consideration the market value of real estate sales prices obtained from the information provided by Notaries and Registrars and based on the cadastral characteristics of each property.

The features and benefits of properties will not be taken into account to calculate the tax, so an interior property located in a sixth floor without a lift will have the same consideration as a penthouse in the next building with a wonderful terrace, lift and parking space in the same building. This value will be determined year by year in all municipalities.

Until now, the tax base referred to the real value of the property, which in turn was directly related to the market value. It was calculated taking into account the location of the property, its situation within the city, the year it was built, the quality of the construction materials or the renovations carried out in the building. This value was updated by the General Budget Law, although not simultaneously or uniformly for all municipalities. Some experts consider that these two values ​​are objective, and both (reference and cadastral value) will assess the same market value for two different properties in the same floor of a building, with the same surface, even though only one of them has been completely refurbished with excellent qualities. These two values ​​do not take into account the features and benefits of each property.

Why has this change been introduced?

The new real estate market reference value has been created to have a reference that is closer to the property’s real price and to avoid fraud and promote transparency.

This value will enable to detect a sale carried out well below the average price at which other similar properties have been sold in the same area.

Currently if a property is acquired below the cadastral established for that and the Treasury detects it, they can recalculate the tax and request a complementary one. With the market reference value, tax checks and readjustments are likely to increase.

When will it come into effect?

The modification of this tax goes into effect beginning January 1, 2022, so the tax increase will only affect the properties acquired from that date.

What do experts think?

Rubén Rúa, coordinator of the Group of Experts on Local Finance and Cadastre of the Spanish Association of Tax Advisors (Aedaf), is convinced that with this new way of calculating the tax base, the taxes it affects will increase and points out something important:

"We are transitioning from a system in which the taxpayer declares and the Administration checks, to a system where the Administration establishes how much what the buyers are acquiring is worth and where taxpayer have to appeal if they think the value established by the Administration is not correct. We are turning the tables.

Rúa explains that in recent years the Administration carried out massive verification procedures in order to increase the declared value of properties. "They established that one thing was the value declared in the notary, and another thing the real value." But the Courts have usually ruled in favor of the taxpayer.

“The rules of the game had to change, so the Administration decided to introduce measures and passed the Tax Fraud Prevention Act which, is basically a way to protect the legal security of the Administration itself. But that is not tax fraud, it is in a way of guaranteeing tax collection by the Administration and of avoiding litigation”.

Ultimately, with the approval of this Law, the reference value of the properties will be the one marked by the cadastre and not the real value, as until now.


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