The recent Law 11/2021, of June 30, on measures for the prevention and fight against tax fraud, makes numerous modifications throughout the national legal panorama, with the purpose of adapting Spanish regulations in this matter to the regulations in force within the European Union.
One of the most relevant areas subject to modification has been real estate investment and the tax implications that may arise therefrom. Specifically, and as the most outstanding point, we point out the introduction of a new concept: the market reference value.
This value directly affects, since July 11, the determination of the taxable base of taxes such as the Inheritance and Gift Tax (ISD), the Tax on Property Transfer and Stamp Duty (ITPAJD), or the Wealth Tax (IP). However, the same does not occur with the Real Estate Tax (IBI), in which the reference will continue to be the cadastral value of the property.
As regards ISD and ITPAJD, the taxable base is set at the market reference value, unless the value declared by the interested parties is higher. If there is no such reference value, the taxable base will be the higher of the market value and the value declared by the interested parties.
It also recognizes the possibility for the taxpayer to challenge this market reference value when appealing the administrative liquidation or when requesting the rectification of the self-assessment, and excludes the possibility for the Administration to check the value of the property when the market reference value or a higher one is used.
In relation to the IP, it is established that real estate (both rustic and urban) will be computed at the highest of the following three values: the cadastral value, the value determined or verified by the Administration for purposes of other taxes (the market reference value) or the price, consideration or value of the acquisition.
Now, what does the market reference value consist of?
According to Law 11/2021, both in its Preamble and in several articles, the General Directorate of Cadastre will determine in an objective manner, from the data collected in the Cadastre, said reference value, which will be the result of an analysis based on the prices reported by the public notaries in the real estate sales and purchases made.
For this purpose, the General Directorate of Cadastre will include the conclusions of the analysis of these prices in an annual report on the real estate market, as well as in a map of values delimiting the territorial areas of valuation, to which it will assign modules of average value of real estate products.
The limit of the reference value of the real estate will be the market value, and, in order not to exceed it, market reduction factors will be established for properties of the same class.
Both the elements for determining the reference value of each property and the corresponding reduction factors will be approved, by resolution, by the General Directorate of Cadastre before October 30 of the year prior to the year in which they are to take effect.
Prior to its approval, a collective hearing will be held, during which the interested parties may present the allegations and evidence they deem appropriate. Likewise, the resolution of the General Directorate of Cadastre may be appealed through economic-administrative channels or by means of an appeal for reconsideration.
However, until the regulatory development is approved, the Law distinguishes between urban and rural real estate, to which it establishes the application of the value modules in accordance with the following guidelines:
The criteria for the value of urban real estate will be based on the technical standards of valuation and constructions. In addition, the land values of each zone will allow the reproduction of the average value modules in each homogeneous territorial area of valuation.
The resolution to be approved by the General Directorate of Cadastre will define its scope of application and will specify calculation criteria, basic land and construction modules, land values of each zone and their construction costs, as well as, if applicable, fields of application of corrective coefficients.
On the other hand, in relation to rural properties without buildings, the resolution to be approved by the General Directorate of Cadastre will define its scope of application, specifying calculation criteria as well as, if applicable, amounts and fields of application of corrective coefficients of location, agronomic and socioeconomic factors.
Although it is true that this is a new reference value, it is surprising that it establishes a valuation that, basically, ignores certain particular circumstances that may increase or decrease the value of a property, such as sunlight, the location of a bar under the property, the architecture of the building itself with columns or master walls where work cannot be carried out, the condition of the property itself, the amount of community expenses and a long etcetera of factors that may decrease or increase by 10% or 20% depending on the specific circumstances of the property.
These are the most important aspects that, with regard to the taxation of real estate investment, can be found in the amendments made by Law 11/2021, of June 30, on measures to prevent and combat tax fraud.
If you wish to know more about related matters, or if you intend to make real estate investments with security, do not hesitate to contact our Real Estate department through our email info@busquets.legal or by calling 934 160 004.