Changes to property transfer tax – New reference value in Spain

When property is transferred from one person to another in Spain there is a tax to pay. From January 2022, inheritance, donation and transfer tax, will all be affected by the new ‘reference value’ in Spain, in Spanish it is called Valor de Referencia.

If you have property in Spain or are considering buying somewhere, then you should be aware of the new ‘reference value’ in Spain that has been introduced. This value will determine how much tax you must pay when your property is transferred to another owner.

The new ‘valor de referencia del inmueble’ was introduced at the beginning of January 2022 in order to calculate property transfer taxes such as the ITP (Impuesto sobre Transmisiones Patrimoniales)  and ISD (Impuesto sobre Sucesiones y Donaciones) – inheritance and donation tax.

From 1^st January 2022 whenever a transfer of property is made through either sale, purchase, donation or inheritance it is the reference value that will be used to calculate how much must be paid to the taxman. Exactly how much this is, will be updated periodically based on property sale values recorded by notaries and registrars in the previous six months.

This use of a calculated value rather than the actual amount you’ve paid could cause some interesting scenarios when there are significant fluctuations in market prices. For example, following the six-month period prior to a slump or financial crisis you could find yourself being charged at the previously elevated prices, even though prices are subsequently reduced, and it has become a buyer’s market.    

The bad news is that if the sale price is higher than the reference value then the tax will be based on the sale price. However, if the sale price is less than the reference value it is the latter that will count. In other words, there is no win, win on this. You will always be charged at the higher value.

The change does not affect all property taxes. The cost of your IBI or council tax will not alter as this will still be based upon the cadastral value. The cadastral value, used to calculate the IBI tax, is updated by the laws governing state taxes. However, the reference value in Spain will be determined, as mentioned above, according to purchase and sales prices during the previous six-month period. The reference value in Spain will be publicly known whereas the cadastral value will continue to be protected data.

Calculating the reference value in Spain

Updated every year, the reference value will reflect the market value of the property, calculated from the real estate sales prices according to information provided by notaries and registrars. There will be no visit to the property and it will not take into account whether the property is to be renovated and the buyer has bought it cheaper than the market price because of this. Those buying property to refurbish will need to keep this in mind when making their purchase.

The cadastral value, on the other hand, takes into account the location, age, quality of construction, and renovations that have been carried out. It will be possible to challenge the reference value in Spain but it will be down to the person paying the tax to prove and demonstrate the discrepancy.   

The government has stated that the new reference value does not represent an increase in tax. Technically, this is correct. However, even though the percentage of tax to be paid isn’t increasing, it could still mean people paying more because of the new value attributed to the property.

So, for example, if you are intending to buy a second-hand property for €200,000 but the reference value is €240,000 it will be the reference value that will be used to calculate how much tax you must pay. So, there will be an additional €40,000 to pay tax on. It is likely that most situations will reflect this scenario, with the reference value being higher than the actual cost of the purchase. After all, everyone likes a bargain and will look for a deal that is good value.  

Higher taxes on property will also have an impact on rental costs.  Those people who buy to rent out property are likely to try and pass down the increase in overall cost of their purchase to the tenant.

Although it is early days in the use of this new value, it is important that owners and prospective owners of property in Spain build this into their budget calculations.