Today, I want to talk about a topic that often creates confusion, as the criteria vary depending on the type of tax: the valuation of real estate assets. To the disparity of valuation methods, we must add that, since 2022, the Spanish Cadastre publishes the so-called “Reference Value of the Cadastre” (which is public and accessible to everyone), intended to reflect market value, and which affects several taxes. This value must be distinguished from the better-known “Cadastral Value“, which is the basis for calculating the local property tax (IBI) paid to municipalities.
Let’s take a look at the applicable criteria for each tax:
- ITP (Transfer Tax) and ISD (Inheritance and Gift Tax): the tax must be calculated based on the higher of:
a) The “Market Value“, which in this context means the Cadaster’s Reference Value. If no such value has been assigned, it can be determined using coefficients set annually by the regional tax authorities, applied to the property’s Cadastral Value. These are considered administrative minimums, not typically challenged by the Tax Agency.
b) The agreed price between the parties (in a sale) or the declared value (in an inheritance or gift).
- IP (Wealth Tax): If the taxpayer is required to file this tax, real estate must be reported based on the highest of:
a) Cadastral Value
b) Value verified by the Administration: for properties acquired after January 1, 2022, this would be the value declared for ITP or ISD purposes — i.e., the Cadaster’s Reference Value
c) The agreed price or declared value
If the highest value is the agreed/declared one, the law states that expenses and taxes related to the acquisition must be added to the value.
Sometimes, taxpayers are forced to declare a property using the Cadaster’s Reference Value, even if they believe this value significantly exceeds the actual market value. In such situations, the tax must be paid based on the higher value, and then a refund claim can be filed with the Tax Authority, submitting a valuation report as evidence. One must then wait for the Administration to accept it and issue a refund.
We must also consider the impact on:
- Personal Income Tax (IRPF):
- If the property is rented out, you can deduct depreciation using a 3% coefficient on the higher of either the cadastral value of the building or the acquisition cost (related to the building portion only — land is not depreciable).
- In the event of a sale, a capital gain may be generated, calculated as the difference between the sale and purchase prices. Here, acquisition and sale-related costs and taxes are taken into account.
In both cases, having a high acquisition value is beneficial, so related expenses should be included to help reduce the tax burden.
- IIVTNU (Municipal Capital Gains Tax – “plusvalía municipal”): In recent years, this tax can be settled using the more favourable of two methods:
a) Objective method: based on the Cadastral Value of the land
b) Real method: based on the difference between acquisition and sale values (based on the notarial deed, excluding any expenses or taxes).
As you can see, real estate valuation depends on the specific tax in question and the particular circumstances. To avoid issues with the Tax Agency and to manage your taxes as efficiently as possible, feel free to contact me, and we can discuss your case.