Do you know what the reference value is and how it affects taxes such as transfer tax? From 1 January 2022 the reference value started to be applied. This value affects various taxes related to the transfer of real estate and changes the way in which they are calculated. In this article we explain the essential aspects of the reference value.
What is the reference value of a property?
The reference value of a property or other real estate is defined by the General Directorate of Cadastre and is obtained as a result of an analysis of the prices of all real estate sales made before a notary, based on the data of each property in the cadastre.
One of the main characteristics of the reference value of a property is that it will not exceed the market value. In order for this to happen, the so-called reduction factor is applied.
This value was created as a fiscal reference to avoid fraud when a transfer of a property takes place.
Regulatory law
The reference value derives from three regulations which are as follows:
The General State Budget Law for the year 2018, which refers to a subsequent regulation and which modifies section 1 of article 3 of the Law on Real Estate Cadastre which states the following:
1. The cadastral description of the real estate will include its physical, economic and legal characteristics, including location and cadastral reference, surface area, use or destination, type of cultivation or exploitation, quality of constructions, graphic representation, market reference value, cadastral value and the cadastral owner, with their tax identification number or, where applicable, foreigner’s identity number. When the properties are coordinated with the Land Registry, this circumstance will be incorporated together with their registry code.
Law 11/2021 on measures to prevent and combat tax fraud (which transposes the European Directive laying down rules against the practice of tax avoidance). This law amends, among others, the Law on Transfer Tax and establishes that:
In the case of immovable property, its value will be the reference value provided for in the regulations governing the land registry, at the date of accrual of the tax.
However, 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 values will be taken as the taxable base.
Order HFP/1104/2021 approving the reduction factor applicable to the determination of the reference values of real estate. This Order establishes the following reduction factors:
For urban properties: 0.9.
For rustic properties: 0.9.
The purpose of the reduction factor is to ensure that the reference value of an urban or rural property does not exceed the market value.
What is the reference value for and what taxes does it apply to?
The reference value of a property is used to determine the taxable base for Transfer Tax and Stamp Duty (ITP-AJD) and Inheritance and Gift Tax (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados).
In the case of a transfer of a property, e.g. through a sale or inheritance, if the value given to the property is higher than the reference value, the higher value will be used to determine the tax base.
How does the reference value differ from the cadastral value?
The cadastral value is updated by the General State Budget Laws and is used to define the taxable base for Real Estate Tax. It is not public data and is revised by means of collective valuation procedures.
The reference value of real estate is defined annually and at the same time in all municipalities and serves to determine, as we have seen, the ITP-AJD and the ISD. It is not protected data and is published in the Cadastre’s electronic office.
How is it calculated?
In the Electronic Headquarters of the Cadastre you can find maps with average values throughout Spain and the territory is divided into zones (they are called Homogeneous Territorial Areas and are larger than municipalities, they can even include several municipalities), so that each zone has an average value calculated according to the sales that have been made in the previous year. This value is fixed in euros/square metre. Coefficients are applied to this value that take into account:
The category of the property.
The age of the property.
The state of conservation.
In the case of plots of land (rustic property), the same procedure is applied and the purchase and sale prices of rustic land in the same area are taken into account.
To which taxes does the reference value apply?
The reference value is applied to three taxes, as follows:
The Tax on Property Transfer and Stamp Duty. This tax is devolved to the autonomous communities and the applicable rate varies from 4% to 10%. It is levied, for example, on the purchase and sale of a second-hand home or the execution of a deed before a notary.
Inheritance and Gift Tax. This is also devolved to the autonomous communities and the amount of this tax varies greatly from one place to another. It is levied on the transfer of goods and rights by inheritance and donation, among other cases.
Wealth tax. Only the reference value of the land registry applies for properties acquired after 1 January 2022.
How do I declare the sale and purchase of a second-hand property?
Before 1 January 2022, when a second-hand property was purchased and sold, the ITP had to be paid based on the real value of the property, i.e. based on the price that appeared in the public deed of sale. If the tax authorities considered that this was not the market value, they could request an appraisal by an expert and, if the result was higher, make you pay more tax.
As of 1 January 2022, the tax authorities no longer have to request an appraisal, because the reference value of the property has already been established.
Can the reference value be appealed?
In the event that the reference value is used for the calculation of a tax (ITP or IS), it can be appealed. The way to do this is to present a valuation prepared by an expert appraiser who establishes the reasons why the reference value is not correct and the value that should be applied.
In short, if you are going to transfer a second-hand property or you have inherited a property, you must know the reference value of the property in order to settle and pay taxes. Our team of experts in real estate law can help you to know this value and carry out the transaction with legal certainty. Contact us so that we can study your case and advise you.
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