Real Estate Taxation Values to change in 2022
By Armin Gutschick & Anja Sämann-Gutschick
On July 10, 2021, Law 11/2021 on Measures to Prevent and Combat Tax Fraud (Ley de Medidas de Prevención y Lucha contra el Fraude Fiscal) was published in the Official Gazette. It includes a number of important changes in the area of wealth tax, real estate transfer tax and inheritance tax. Most important is that a general real estate market reference value will be established, which in Spanish is “valor de referencia del mercado inmobiliario”.
Before this law there were three possible real estate values for property tax, of which the highest one was used: the cadastral value, a value determined by the public administration or the purchase price on the notarial deed of purchase. This tax base was declared to be the actual value (“valor real”) of the transferred asset. The determination of this ‘actual value’, and the dispute over this indefinite legal term, have triggered a large number of legal disputes over the years.
The new reference values will begin to be applied in 2022. The starting point for determining these numbers is an annual report on the property market by the General Directorate of the cadastre for all of Spain. This report is based on the regular information that they receive from notaries on the recorded purchase prices of properties. On October 30th of each year the central cadastre will issue valuation maps (“mapas de valores”) that will be used for determining the valueof properties in each area of the country. The general management of the land registry must publish these reference values in the official gazette during the first 20 days of December. They will be the basis for the valuation of each individual property in the coming year. The cadastral authority is thus entrusted with the very difficult task of setting objective real estate values for the whole of Spain. It can be assumed that in the vast majority of cases this tax reference value will be higher than the existing cadastral value, and thus the reference value will be closer to market value. The new regulation of the tax base will affect the calculations for the real estate transfer tax and it will have a particularly drastic effect on the inheritance and gift taxes. The tax basis for inheritances and gifts are often somewhere between the cadastral value and the market value, so one has to assume that the new higher reference value will push this valuation upwards. The annual municipal property tax (IBI) and the municipal capital gains tax (plusvalia) will not be affected, according to statements by the tax authorities. The cadastral value will continue to be the relevant basis for those taxes. Income taxes (IRPF) will only be affected if the taxpayer sells a property and has to declare the gain from the sale on their tax return.
At this point we have to ask ourselves whether these measures that attempt to adapt property values to reality can be successful. It is highly doubtful that the cadastre will be able to predict a fair valuation in October for the entire following year, as house prices can fluctuate widely over the course of a year. Furthermore, a general assessment can never take into account the specific situation of a transferred property. For instance, a renovated apartment has a higher real value than a rundown property in the same area. Another change introduced by the new law could have serious consequences: the burden of proof has been shifted from the administration to the taxpayer. Until now, the administration had to prove to the taxpayer that the value declared in the deed did not correspond to the real value of the property. It is now the taxpayer who, after paying what he considers to be an unjustifiably high tax, must try to refute the reference value. What was not an easy undertaking in the past, has now become almost an impossibility.