A new taxation of inherited property will soon come into effect. This regulation, which will be in force from 1st January 2022, will be decisive for those who inherit a property. If this is your case and you want to understand what your tax obligations will be, read on. We will tell you how to calculate the tax on inheritance or donations of property and how you should act in order to be in compliance with the new tax law.
Inheritance and
Gift
Tax (ISyD) is the tax that must be paid when obtaining a home through inheritance or donation, in addition to the tax on the increase in value of urban land. When the new tax modality – approved by the Congress of Deputies to fight against tax fraud – comes into force, the new methodology for calculating ISyD must be taken into account, as it will be strongly modified throughout the national territory.
How is inheritance tax calculated on the basis of the new inherited property taxation?
From next year, the tax will no longer be calculated according to the number that appears on the title deed of the property. New reference values will be established and published in the Official State Gazette (BOE) in early December and updated annually.
As a consequence of the new taxation of inherited properties, the
ISyD will be stipulated by the General Directorate of Cadastre – calculated by Notaries and Registrars – on the basis of prices in property transactions, i.e. taking into account the market value of the property.
How to calculate the new cadastral reference value?
To calculate the fees you will have to pay when you inherit a property, you should refer to Royal Legislative Decree 1/2004 (Revised Text of the Law on Real Estate Cadastre). There, the Third Final Provision states that “in the first 20 days of the month of December, the General Directorate of Cadastre will publish in the BOE an informative announcement for general knowledge of the reference values of each property, which, as they are not personal data, may be consulted permanently through the Electronic Headquarters of the Cadastre”.
The Cadastre website also informs that in the Electronic Headquarters of the Cadastre in 2022, cadastral titleholders will also be able to know the elements that have been applied in the individualised determination of the reference value of their properties.
How does the new inherited property taxation affect other taxes?
The new modality in the taxation of dwellings will also affect Wealth Tax, although it is not the taxable base. This means that it becomes compulsory to declare properties acquired at the highest value, whether it is the cadastral value, the value determined or the value verified by the Administration for the purposes of other taxes -the land registry reference value-, the price, the consideration or the value of the acquisition.
How to act until the new Cadastre value law is in force?
It is foreseen that in the case of real estate, the taxable base will be the reference value of the Cadastre. For the remainder of the year it will not yet be in force. The legal provision will be incomplete until it comes into force on 1 January 2022. In the absence of such a reference value at present, the higher of the value declared by the interested parties and the market value will have to be chosen.
For this reason, for the remainder of 2021, valuations will be made as they have always been made. In other words, using any of the means stipulated in article 57.1 of the General Tax Law: by capitalisation or imputation of income at the percentage indicated by the law of each tax; or by making an estimate by reference to the values appearing in the official tax registers.
How can I appeal against the Catastro reference value in the event of a value check?
The reference value granted by the Cadastre Directorate can be challenged by requesting the rectification of the self-assessment or by appealing the settlement notified to you, if no self-assessment has been submitted or if the value submitted is lower than the reference value.
The new wording of Article 10 of the Transfer Tax Law establishes that “if the value of the property declared by the interested parties, the price or agreed consideration, or both, are higher than the reference value, the higher of these magnitudes will be taken as the taxable base”. That is to say, if a buyer deeds for a higher value than the market value – and therefore the reference value of the Cadastre – he will be obliged to pay the higher of the two values.
Moreover, unlike in the past, it will be the taxpayer who will have to prove the mismatch, using any means of evidence admissible in law. Thus, the burden of proof will fall on the taxpayer.
In the case of Wealth Tax, the law does not establish any mechanism to challenge the reference value as of 1 January 2022. For this very reason, it will be necessary to appeal this value in the ITP or in the Inheritance and Gift Tax when the property is acquired, so that it is not taken into account in the Wealth Tax.
However, the new Cadastre reference value has been applied in Castilla La Mancha as a means of checking values since 2015 and has been annulled by the High Court of Justice of the Community (judgments of 27-5-2020, and 20-10-2020), and even by the Regional Economic-Administrative Court (TEAR) for not taking into account the circumstances of each property, i.e. because it does not take into account the improvements and reforms made to the property.
To sum up
If you are about to inherit a property, you should be aware of the new regulations so that you do not make mistakes when it comes to fulfilling your tax obligations or filing your annual tax return. We know that, many times, managing these types of procedures is not easy. You should remember that it is better to do it correctly and in an orderly manner in time than to have to make up for mistakes and pay extra costs in the future.
We hope that with this article you have cleared up all your doubts regarding the new taxation of inherited properties. If you have any questions, please do not hesitate to
contact us. Our professional team is fully committed to our clients and will be happy to advise you.
