This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
Mark Stücklin
Since the start of this year the Spanish government has been using a new ‘Reference Value’ for calculating how much tax you have to pay when you buy a property in Spain, and the case of public auctions shows the only reason for the new value is to gouge buyers for more tax.
When you buy a resale property for sale in Spain today you don’t pay tax on how much you paid, you pay tax on what the government thinks you should have paid. In most cases this value is higher than what buyers actually pay, landing them with a higher tax bill for the purchase, and for all related property taxes going forward. It’s clearly unfair, but that doesn’t seem to bother the Spanish government. Find out more about the technical details of the new Cadastral Reference Value for calculating the Spanish ITP property tax.
What grounds did the government use for introducing this new ‘Reference Value’? The measure was introduced in a new law against tax evasion and fiscal fraud, so obviously it must be something to do with that, you could be forgiven for thinking. It turns out the new measure has nothing to do with tax evasion.
The government also argued that the new Reference Value would reduce disputes between the tax authorities and taxpayers over property values, and create legal security for all, which would be good for the market. There is some truth in this because, in the past, nine out of ten times there was a dispute over values that went to court, the taxman lost for obviously not having a clue about real property prices. Courts almost always sided with taxpayers against the taxman trying to charge too much tax.
So the Spanish government has come up with this wheeze to avoid going to court and losing: use a ‘Reference Value’, not real values when it comes to calculating the taxable value. The government has created a formula for deciding the ‘Reference Value’ and it seems it is usually much higher than the real value.
The case of public auctions, where properties are sold at regulated public auctions, proves the point. Since the start of this year, the government now uses the Reference Value for calculating the tax on properties purchased at public auction, even though there is no doubt whatsoever as to the real value paid. Buyers at public auctions are now paying a higher ITP tax bill when they purchase, which is obviously going to damage the public auction process. That’s not good for the market.
So it’s clear this new ‘Reference Value’ is not about reducing fraud or litigation but just about gouging more taxes out of people buying a home to live in, which leaves them with less money to spend on other things like renovations and home decor. Government talk about reducing fraud and litigation is just a smoke screen.
None of this is good for the Spanish property market, in particular in areas like Catalonia and the Valencian region, where taxes are highest. Fortunately it does not affect new build homes for sale in Spain, which attract VAT of 10% of the sale price. Tax experts I have spoken to say that the ‘Reference Value’ is so obviously unfair and bad policy that one day it will have to be withdrawn, but until then it will push foreign buyers away from high-tax areas and towards new developments.
SurveySpain says:
One wee flaw in your argument is that “most cases this value is higher than what buyers actually pay” is not supported by Survey Spain’s stats.
We’ve been keeping a record of the relationship of the Reference Value to Asking Price or Current Market Valuation, whichever is available.
The current average is that the Reference Value is 78.5% of those. It’s unlikely that the prices paid average 20+% less than the Asking Price. So, if the tax is only based on the Reference Value, then the tax office is getting less than it should.
However, your theory is true if the tax is paid on the higher of the declared price or the Reference Value, which is probably how it works. In our direct experience, the highest ‘error’ has been 138% of the Market Value, though we have heard of apocryphal tales of 200% and more.
The Reference Value is to be reviewed in October each year, with it applying from the January after. We hope that more accuracy will be the result.
Eventually, Plusvalia tax on non-existent profits was thrown out of Court, so hopefully that will be the case with Reference Value.
Mark Stücklin says:
That’s a good point. I accept that all my information is annecdotal and based on talking to experts and what I’ve read in the Spanish press. Every source that I have read and consulted reports the Reference Value mainly higher than actual values. I think I saw you say that in a previous comment but I might be mistaken. But as you point out, the taxman uses the higher of the two values, so you never pay less if the Reference Value is lower than the sale price. The overall net effect is more tax revenue based on inflated Reference Values, even if some or even a majority of buyers still pay tax based on the market price. Some/many buyers are getting gouged by the taxman using the Reference Value.