In January 2022, the new minimum tax value for property transfer, inheritance and the gift came into effect in Spain. This fiscal value is called the cadastral reference value and can be retrieved directly on the website of the cadastre.
To obtain this value you will need the cadastral reference of the property and a Spanish NIF number. If there is no cadastral reference, there can be no reference value.
Why is the reference value important for your home purchase?
Even with the cadastral reference, some urban properties do not have a published reference value. Likewise, for most homes in undevelopable or rural areas, these reference values are not published. In these cases, when the deed of purchase, inheritance or gift is executed, the corresponding taxes will be paid based on the value of the deed. The administration can revise this declared value. But only if it believes that the value in the deed is lower than the minimum fiscal value.
The reference value of a property makes it necessary to pay transfer tax (ITP) on a purchase based on the stated value when it exceeds the actual price paid by the buyer.
To illustrate the importance of this value, we use a case study from a law firm specialising in real estate in Málaga. Clients of C&D Solicitors bought a home in Málaga last year. They disagreed on the cadastral reference value (valor de referencia catastral or new minimum tax value) of the Spanish Land Registry for their urban property. So they decided to challenge this value for their tax filing. Their arguments were upheld.
Challenge the value
This was without the need to start an administrative or legal procedure. We will explain what happened here in the hope of helping property buyers in Spain in similar circumstances. They may then be able to decide whether or not to challenge this reference value.
The difference between the purchase price, appraisal value and cadastral reference value
In 2022, the customers bought a home with a reference value of 90% above the purchase price. That was excessive and an extreme case. Because these clients needed a mortgage, the mortgage appraisal came to an amount for the property that was approximately 25% higher than the purchase price. However, the appraisal value was still well below the cadastral reference value.
These customers felt it was unreasonable to pay ITP based on the reference value. C&D Solicitors explained to them that they could pay ITP based on the appraisal value instead of the reference value. They did this by adding the appraisal certificate to the deed of sale. In doing so, they wanted to demonstrate that the appraisal value of the mortgage was suitable for calculating the corresponding taxes for the purchase.
What did the buyers decide?
The clients decided to pay the ITP for their purchase based on the mortgage appraisal. However, by not paying the tax based on the reference value, they took a risk. They might be subject to a fine procedure. Moreover, in addition to a fine for late payment, the Tax and Customs Administration would also demand the declaration based on the reference value. They took the risk and they were lucky with the outcome.
Payment of the purchase price based on the appraisal value of the mortgage has a legal basis in the General Tax Act. The value of the real estate in such appraisals is one of the legal methods allowed in verifying the value of the real estate. The administration itself has often used these valuations to its advantage. If sold with a mortgage where the appraisal value was higher than the purchase value of the property, it would demand tax payments based on the appraisal.
What happened after the ITP tax was paid for the purchase?
About nine months after paying the Transfer Tax (ITP), the buyers received a notice from the Ministry of Finance of the Regional Government of Andalucia (Junta de Andalucia). In it, they were informed that the value verification procedure had started and they were informed of the Ministry’s payment proposal. This proposal required payment of the ITP based on the cadastral reference value plus a penalty for late payment.
Related post: Spain revises cadastral value of 825,000 homes
After discussing the situation with C&D Solicitors’ tax attorney, he filed an appeal on behalf of the buyers. The ministry approved the appeal. It was considered appropriate and legal for ITP to be paid based on the appraisal value of the mortgage. The fine procedure was subsequently cancelled by the ministry.
Please note that the tax attorney did not expect a positive outcome of this initial appeal. He assumed that a “tougher fight” was necessary. It surprised both clients and C&D Solicitors pleasantly that the ministry terminated the procedure.
Be careful with future home purchases in Spain
When purchasing a property, if the reference value is significantly higher than the actual price to be paid for it, C&D Solicitors recommends obtaining a mortgage appraisal for the property. Whether you use a mortgage to buy is irrelevant in this case. Most importantly, these appraisals are one of the methods allowed by tax rules to determine the value of the real estate.
What are the costs for a mortgage appraisal?
The costs of a mortgage appraisal vary between €300 and €500, depending on the type of property. In case the appraisal value is comparable to the reference value, it will be difficult not to pay ITP based on the reference value. As a buyer, your consolation is in such a case that the purchase price you pay for the property would be attractive, below market value.
However, if the appraisal value is closer to the actual price you pay, you can take certain risks and pay ITP for your purchase based on the appraisal value. You will certainly be notified of the start of a penalty procedure to pay ITP based on the reference value. You will then have to contest this with the Ministry of Finance.
No guarantees for future cases
What happened in the above example does not mean the administration will accept appraisal values in all future cases. However, it does open the door to continue accepting the value of these mortgage appraisals. This is in cases where it is lower than the reference value.
Fiscal advice
The most important thing is that you, as a buyer, are well aware of the financial consequences before you decide to “challenge” the administration over the reference value. Therefore, obtain appropriate tax advice in good time when purchasing, inheriting or gifting/donating your home in Spain.
C&D Solicitors is a law firm specialising in purchase guidance, property law and inheritance law, with experience since 2006. We advise on the purchase and sale of real estate for foreign clients, both residents and non-residents. Our colleagues speak English, Dutch, Swedish, German and French.
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