Friday, February 24, 2023, 10:25
We have clients who bought a property in Malaga last year through our law firm. They disagreed about the reference value (cadastral reference value or new minimum fiscal value) of the Spanish Cadastre for their urban property. Therefore, they decided to challenge this value for tax application and their arguments were upheld.
This without the need to initiate any administrative or judicial procedure. We will explain what happened in this case in this article. We hope that with this information, home buyers in Spain in similar circumstances can decide whether to challenge this reference value.
One year from the new cadastral reference value
In January 2022 the new minimum tax value In Spain the Law on Asset Transfers, Inheritances and Donations came into force. This fiscal value is called cadastral reference value and can be obtained directly from the cadastre website. But to obtain this value you will need the property’s cadastral reference and a Spanish NIF number. If there is no cadastral reference, there can be no reference value.
Why is the reference value important for the purchase of your home?
Even with the cadastral reference, some urban properties do not have a published reference value. Likewise, for the majority of homes located on non-developable or rural land these reference values are not published. In these cases, when formalizing the deed of sale, inheritance or donation, the corresponding taxes will be paid based on the value of the deed. The administration may review this declared value if it considers that the value in the deed is lower than the minimum tax value.
The reference value of a property requires paying the Property Transfer Tax (ITP) in a purchase based on said value when it is higher than the actual price paid by the buyer.
How big was the difference between the purchase price, the mortgage valuation and the reference value for our clients?
Our clients were purchasing a property in 2022, with a reference value 90% higher than the purchase price. For this reason, it was obvious that the value was excessive. This is an extreme case. These clients needed a mortgage and the mortgage valuation showed an amount for the property approximately 25% higher than the purchase price. However, this appraisal value was still well below the cadastral reference value.
These clients considered it unfair to pay the ITP over the reference value. We explained to them that they could pay the ITP based on the appraised value instead of the reference value. We did this by attaching the appraisal certificate to the deed of sale. The objective was to demonstrate that the appraised value of the mortgage was adequate to pay the taxes corresponding to the purchase.
What did our buyers decide?
Our clients decided to pay the ITP of their purchase based on the mortgage appraisal. By doing so, they took a risk by not paying the tax based on the reference value. They would be subject to sanctioning procedures and the Tax Administration would then demand payment based on the reference value in addition to a fine for late payment. They took the risk and were lucky with the result.
The fact of paying the purchase price based on the mortgage appraisal value It has a legal basis in the General Tax Law. The value of properties in this type of appraisals is one of the legal methods allowed when verifying the value of properties. The administration itself has often used these assessments to its advantage. In sales with a mortgage where the appraisal value was higher than the purchase value of the property, taxes would be required based on the appraisal.
What happened after paying the ITP tax on the purchase?
About 9 months after paying the Property Transfer Tax (ITP), the buyers received a notice from the Treasury Department of the Junta de Andalucía. In it they were informed that a value verification process had begun and they were notified of the payment proposal from the Treasury Department. This proposal required payment of the ITP based on the reference value plus a penalty for late payment.
When they discussed the situation with our tax attorney, he presented allegations on behalf of our clients. The Department approved the allegations and considered it appropriate and legal that the ITP was paid based on the appraised value of the mortgage. The Andalusian Treasury Department dismissed the sanctioning file.
Honestly, we did not expect any positive results from these initial accusations and thought we would have to “fight harder” in this matter. It was therefore a pleasant surprise that the Department decided directly to end the procedure.
What should we take into account in future home purchases in Spain?
If when purchasing a property the reference value is significantly higher than the actual price to be paid for the property, we recommend obtaining a mortgage appraisal of the property. In this case it is irrelevant whether you use a mortgage to buy. The important thing is that these appraisals are one of the methods allowed by tax regulations to establish the value of properties.
What are the costs of a mortgage appraisal?
The cost of a mortgage appraisal can range between 300 and 500 euros, depending on the type of property. If the appraisal value is similar to the reference value, it would be difficult to avoid paying the ITP based on the reference value. As a buyer, your consolation would be that the purchase price you are paying for the property will be an attractive price, below market value.
However, if the appraised value is closer to the actual price you will pay, you can take certain risks and pay ITP for your purchase based on the appraised value. You will surely receive a notice of the initiation of a sanctioning file so that you can pay the ITP based on the reference value. You will have to challenge it with the Treasury Department.
Do they have guarantees for future cases that challenge the Cadastre’s reference value?
What happened previously with our client does not mean that, in the future, the administration will accept the appraisal value in all cases. However, it does open the door to continue accepting the value of these mortgage appraisals. This is in cases where the reference value is higher than these.
Tax advice for your transfer of property by C&D Solicitors
The important thing is that you, as a buyer, are aware of the financial consequences before you decide to “fight” with the administration over the reference value. In doing so, it is very important that you obtain appropriate tax advice during the purchase, inheritance or donation/gift of your property in Spain.
C&D Solicitors is a law firm specialized in transfers, real estate law and inheritance, with experience since 2006. We provide advice on the purchase and sale of real estate for foreign clients, whether residents or non-residents. Our colleagues speak English, Dutch, Swedish, German and French.
Author: Gustavo Calero Monereo, lawyer at C&D Abogados (Málaga)