In our June 2021 post, we explained that Spain was the Property valuation method to be revised. This new valuation method has been operational since 2022. Therefore, this article provides more information on the valuation of real estate in Spain.
What is the tax value?
The tax value (Valor de Referencia del Mercado) uses administration to determine the minimum value of property in an estate or gift. This value can also be used to check whether the purchase price of a property is market-based. In this way, it is possible to combat price manipulation.
The tax value is separate from the cadastral value (valor catastral). The cadastral value, which is significantly lower, remains the basis of calculation for municipal tax (IBI), personal tax and non-resident tax.
In a nutshell, tax value applies to valuation for transactions: buying, selling, inheriting and gifting. The cadastral value applies for the calculation of periodic taxes.
What has changed about the valuation of property in Spain?
Until 2021, Spanish tax offices used a number of fixed criteria, such as built-up area, based on which they made their own estimates for each property. Specifically, they multiplied the cadastral value by a coefficient. For example, the cadastral value * 1.20.
With the new valuation method, the administration looks at different data from local registration offices. This takes into account the effectively registered purchase prices. Thus, the valuation method comes close to the market value. Therefore, there is an option to reduce the reference value by 10%.
What are the implications?
The calculation method of the new reference value will result in a higher valuation for most transactions. In practice, taxes for inheritance and gift tax will therefore increase. After all, the taxable base is higher.
A recent case resulted in the following example. A flat located in Alicante had an estimated market value of EUR 140,000 and a cadastral value of EUR 40,000.00. The tax valuation in 2021 came to EUR 90,000.00. Because of the new calculation method, the new reference value comes to EUR 120,000.00. The starting point for registration duties, gift and inheritance tax and capital gains tax is then 120,000.00 EUR.
If Flemish inheritance tax also applies, the increased reference value will also have an impact on the taxes payable in Flanders. Indeed, foreign property will be added to the estate's estate.
There is also a risk of a shortfall in property purchases. Spanish tax authorities are more likely to dispute low purchase prices. It is then important to check the tax value of a transaction in advance.
What if the tax value is higher than the market value?
In that case, you will have to prove, based on an appraisal report, that the market value is lower than the reference value. However, the Spanish administration has 4 years to dispute the valuer's valuation. Specifically, you have the choice of appointing an appraiser or paying additional taxes.
How can I access the tax value?
Self the calculating valuation of property in Spain is no longer necessary. After all, this process has been automated. Here is the link to the land registry website.
Belgian foreign KI
Belgian foreign cadastral income (KI) is separate from the new valuation method in Spain. Belgium makes the recalculation from the current sales value to the 1975 (notional) sales value.
The new rules are definitely going to be felt for future inheritances and gifts, both in Spain and in Belgium. For inheritances and gifts, taxes are going to indirectly go up.
For buying and selling transactions, you will have to take into account the reference value to avoid a shortfall.
Do you have questions about inheriting and gifting in Spain? If so, please feel free to contact on.