Today, we would like to discuss a subject that often generates confusion, as the criteria vary depending on the tax being considered: the valuation of real estate. In addition to the disparity of criteria to be considered, since 2022, the Cadastre publishes the so-called “Valor de Referencia del Catastro” (it is public and anyone can consult it), which is intended to be a market value and affects some taxes. This value must be differentiated from the better-known “Valor Catastral”, which is the basis on which property owners pay IBI to the corresponding local councils.
For each tax, then, let us look at the criteria to be taken into account:
- ITP (Property Transfer Tax) and ISD (Inheritance and Gift Tax): the tax must be paid on the greater of:
a) The “Market Value”: in this case, the “Reference Value of the Cadastre”. If the Cadastre has not assigned this, it can be determined by applying the coefficients that the regional tax administration approves each year, depending on the location of the property. These values are considered administrative minimums that the Treasury would not question.
(b) The price agreed between the parties (purchase and sale) or the value declared by the parties (inheritance or donation).
- IP (Wealth Tax): If there is an obligation to file this tax, real estate must be declared for the greater of:
a) Cadastral Value
b) Value verified by the Administration: if the property was acquired after 01/01/2022, it will be the amount declared in the ITP or ISD; therefore, the “Valor de Referencia del Catastro” must be taken into account.
c) Price agreed between the parties or value declared by the parties.
If the highest of the three is the agreed/declared price, the costs and taxes related to the acquisition of the property should be added.
In some cases, we find ourselves obliged to declare a property at the “Cadastral Reference Value”, which we do not agree with because we consider it to be much higher than the real market value. In this case, we must pay the tax on a higher value (even if we do not agree) and subsequently request a refund of undue income from the Tax Administration, providing an appraisal report justifying that the real market value is lower, and hope that they will accept it and refund what we have paid.
On the other hand, it also affects:
- IRPF (Personal Income Tax):
- If we have a rented property, we can deduct depreciation by applying a coefficient of 3% to the higher of the cadastral value of the building and the acquisition value (of the part corresponding to the building). Land is not depreciated.
- In the case of a transfer, a capital gain can be generated by the difference between the transfer value and the acquisition value. Taxes and expenses related to the acquisition and transfer are taken into account here.
In both cases, a high acquisition value is desirable, so these costs should be considered in order to reduce the tax burden.
- IIVTNU (Municipal Capital Gains): in recent years this tax can be paid by two methods, whichever is more beneficial:
a) Objective method: based on the cadastral value of the land.
b) Actual method: according to the difference between the acquisition and transfer value (as per deed, not including expenses or taxes).
As you can see, there are different criteria for the valuation of properties depending on the tax in question. To avoid problems with the tax authorities and to manage your taxes as efficiently as possible, do not hesitate to contact me, and we will talk about it.