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The taxes to be paid by means of the Cadastral Reference Value

From 1st January 2022, homebuyers have been obliged to pay taxes on the purchase of their homes based on the so-called Cadastral Reference Value (Valor de Referencia Catastral), even when this value is higher than the price agreed with the seller and, therefore, stated in the deed of sale.

But what is the cadastral reference value and who sets it? What changes does it imply in the taxation of house purchases? What can buyers who do not agree with this value do? What is the real purpose of the law?

We try to answer all these questions in this article, explaining the previous situation and the changes introduced by Law 11/2021 of 9th July, on measures to prevent and combat tax fraud.

Situation before 1st January 2022

Until 2021, taxes on the purchase of a property were calculated on the basis of the real value of the property being purchased, and there was a presumption of certainty of the data included in the deed of sale and, therefore, of the self-assessment of taxes made by the purchaser.

The Administration could check the value of the property declared in the taxes but this verification had to be justified and the difference in value of the property had to be proved by providing a report from an expert who would have to visit the property to prepare his report, otherwise the courts would not accept the alleged value check.

Current situation. New Cadastral Reference Value

Law 11/2021, of 9th July, modified the way to determine the taxable base used to calculate various taxes related to the acquisition of a property in Spain, establishing that as of 1st January 2022, the actual value of the property will no longer be used, but the market value, which by default will coincide with the reference value of the land registry and which will always be considered as the minimum value.

What are the practical consequences of the reference value acting as a minimum value?

Firstly, it obliges buyers to check the cadastral reference value before signing the deed of sale at the Notary’s office and, if the agreed price is higher than the cadastral reference value, the buyer must pay taxes on the value that appears in the deed of sale. However, if the reference value is lower, then the buyer will have to pay taxes on the cadastral reference value and not on the price that appears in the deed of purchase.

What taxes are affected by the new reference value?

The taxes that have been most affected by the establishment of the cadastral reference value are the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales) to be paid on the purchase and sale of second-hand homes, the Inheritance and Gift Tax (Impuesto de Sucesiones y Donaciones) and, to a lesser extent, the Stamp Duty (Impuesto de Actos Jurídicos Documentados) payable on the purchase of new homes.

How is the Cadastral Reference Value determined?

The reference value of the cadastre is public and freely accessible and is drawn up each year by the General Directorate of Cadastre after analysing the information provided by notaries on signed sales and purchases. Based on this information, it draws up value maps for the whole of Spain, assigning average values to which a corrective coefficient or reduction factor is applied.

As it is an objective value, it presents the problem of not taking into account the specific circumstances of each property, assigning, for example, the same value to two houses that are located in the same street, in the same year of construction and that have the same dimensions, even if one of them has been refurbished to the highest standards and the other has not.

What happens if the buyer is not satisfied with the reference value?

Buyers who are unhappy with the reference value assigned to the property they are buying have two ways of objecting to it:

  • The first is to settle the purchase taxes according to the cadastral reference value, pay them, and then request the rectification of your own self-assessment of taxes and, therefore, the refund of undue income.
  • The second way is to declare the taxes in accordance with the price agreed with the seller, waiting for the Administration to notify a complementary liquidation using the cadastral reference value and claiming the payment of the difference in taxes and even a penalty for non-compliance, and then appealing this notification, first before the Administration, and then before in Court.

True intention of the law

Although Law 11/2021 of 9th July 2021 was supposedly created for the purpose of preventing and combating tax fraud in Spain, many see it as a real collection drive by the Spanish state.

In the few months that it has been applied, it has been seen that the properties most affected by the new Cadastral Reference Value are mainly homes acquired at public auctions and homes that come from mortgage repossessions, where we are dealing with official prices and in which there is no possibility of tax fraud. Despite this, all these buyers have been forced to pay higher taxes for a value assigned by the Administration that does not coincide with the price actually paid for the property.

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