Since January 1, 2022, Spain has a new reference value for homes that sets the tax base for property taxes linked to operations such as purchases, inheritances or donations. The reason for this tax appraisal, which according to the first data has achieved its objective, was to update the real value of the properties to prevent transmissions from taxing adulterated amounts and far from the market value. The new reference generated a lot of noise and doubts about its effectiveness. However, the first six months of application leave a more than favorable balance: only 0.4% of the operations subject to the fiscal value have received requests for reports to determine if any adjustment was necessary.
In the first half of 2022, just over a million operations were registered in Spain that had the new reference value as the tax base. However, the General Directorate of the Cadastre, dependent on the Treasury, has only received 4,186 requests for mandatory and binding reports, the way that taxpayers have to claim the ministry to determine if it is necessary to introduce adjustments in a specific property. In other words, 99.6% of the operations have validated the tax value set by the Cadastre.
This balance has two interpretations, according to Rocío García Ramírez, technical director of real estate taxation at Euro-Funding. “Either the new reference value is higher than the market value but the difference is so small that it is not worth claiming, or the new reference is adjusted to the real value, which is the most common.” The consequences, however, are the same: “The vast majority of taxpayers have accepted to settle for the reference value in their operations”, something that “reduces black payments and ends the litigation derived from possible claims”.
The reference value, on theory, should be 90% of the market value of the house. In other words, if a house costs 200,000 euros, it must pay taxes for at least 180,000 euros in these operations, something that neutralizes the relatively common practice of notarizing below the real value to pay less taxes.
Of these 4,186 requests for review, 92.6% were associated with the property transfer tax (ITP), the tax paid when buying a second-hand home. The rest derived from the inheritance and gift tax (ISD), the tax on documented legal acts (AJD) and corporate operations, according to the data released by the Treasury in the evaluation of the effects of the law against tax fraud, a document recently published by the department headed by María Jesús Montero.
All these figures, in the opinion of Manuel Esclapez, a member of the group of experts on local finances and cadastral valuation at the Spanish Association of Tax Advisors (Aedaf), hide another derivative. “It must be taken into account that the possibility of questioning the reference values is done through self-assessment rectification, which has a four-year term.” In other words, he adds, “many tax advisors are waiting for a ruling to open the ban on claims favorable to the taxpayer.”
The Aedaf expert also questions the effects of this measure on the fall in fraud. The reason, he adds, is that if someone wants to defraud, he can pay taxes for the reference value, which is usually lower than the market, and pay the rest of the transaction in black. It should be remembered, adds García Ramírez, that by settling for this new value, any subsequent verification is avoided. And he confirms that “we have seen some errors in the reference values, but most are due to not reaching that 90%,” he points out.
The new reference system determines for each area delimited on the Spanish map the value of the average home in that area. This allows, explains the Treasury in the report, that any citizen can know the tax file at any time and that, in case of disagreement, “can urge the appropriate cadastral procedures for its modification, avoiding possible future litigation.”
The ministry also ensures that the new method reduces litigation by providing objectivity to the calculation of the tax base, reinforces legal certainty and improves homogeneity in the determination of values throughout the national territory, avoiding comparative grievances.
The data, however, must be taken with some caution. Cadastre sources celebrate that “the number of report requests represents a very insignificant percentage of the number of transmissions produced in the time range to which it refers.” However, they add, “considering the short period of time elapsed since the implementation of the reference value for its use in determining the taxable base of these taxes, and the different circumstances that can occur in the tax management of the autonomous communities no definitive conclusions can be drawn.
risks
The Ministry of Finance itself is cautious in the document. “The reference value has been implemented on January 1, 2022, so a full year has not elapsed since its publication and effects on the tax base” of certain taxes. This, together with the deadlines established in the tax management procedures for possible rectification, means that it is not possible to “make a completely conclusive evaluation of the reform”.
In the months prior to the approval of the new value, the Aedaf, the Fundación Impuestos y Competitividad and the FIDE Foundation warned of the potential risks of the new method, citing a tax increase, lack of singularity and consideration of real estate factors in valuations, lack of clarity in their formation process and a possible lien of non-existent wealth.
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