A bit over a year ago, the new minimum tax value or cadastral reference value became effective in Spain. This new reference value is automatically assigned to nearly all urban properties as well as some rural properties and is to be used when paying the Tax on Asset Transfers (ITP) after buying a property. However, in certain cases, the value assigned by the cadastre may be significantly above the market price of the property.
Discrepancies between the market value and the cadastral reference value
In theory, the law requires payment of ITP based on the reference value, irrespective of the price stated on the deed. However, in some situations, this reference value can be challenged. Last year, we had some clients who purchased a property for which the reference value was 90% higher than the purchase price they paid and 75% higher than the mortgage appraisal value. In this situation, they decided to challenge the reference value and pay the tax based on the mortgage appraisal. Even though they received a penalty assessment from the administration, upon challenging it, it was dismissed, and they saved a significant amount in taxes.
What should I do if the purchase price of my property is below the cadastral reference value?
In this situation, it may be worth considering obtaining a mortgage appraisal (at a cost of €300 to €500) to assess the situation. These appraisals can be obtained even if you are buying the property outright. If the value of the appraisal is significantly below the reference value established by the cadastre, you may want to take a risk and pay the tax based on the appraisal value, then challenge any penalty notice you receive. If, on the other hand, the values are roughly similar, you should probably pay the tax based on the reference value and know you have managed to get a good deal on your property.
At C&D Solicitors, we can help you challenge the cadastral reference value and save a significant amount in taxes. We have over 15 years of experience in advising foreign clients on the purchase and sale of homes. Our staff speak English, Dutch, Swedish, German and French.