The recent Law 11/2021, of June 30, on measures to prevent and combat tax fraud, makes numerous changes across the national legal landscape, with the aim of adapting Spanish legislation in this area 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 from it. Specifically, and as a highlight, we point out the introduction of a new concept: the market reference value.
This value has directly affected the determination of the taxable base for taxes such as the Inheritance and Donations Tax (ISD), the Tax on Transmissions of Patrimonial and Legal Acts (ITPAJD), or the Property Tax (IP). However, the same does not apply to the Real Estate Tax (IBI), in which the reference will remain the cadastral value of the property.
As regards the ISD and the ITPAJD, the taxable base is set at the market reference value, unless the value declared by the interested parties is higher. If no such reference value exists, the taxable base will be the higher of the market value or the value declared by the interested parties.
Furthermore, the possibility is recognized that the taxpayer may challenge this market benchmark when appealing the administrative settlement or when requesting the rectification of the self-assessment, and the possibility that the Administration will verify the value of the property when using the market benchmark or a higher one is excluded.
With regard to IP, it is established that real estate (both rustic and urban) will be calculated using the higher of the following three values: the cadastral value, determined or verified by the Administration for the purposes of other taxes (the market reference value) or the price, consideration or value of the acquisition.
Now, what is the market benchmark value?
According to Law 11/2021, both in its preamble and in various articles, the General Directorate of Cadastre will determine objectively, based on the data collected in the Cadastre, that reference value, which will be the result of an analysis based on the prices communicated by public officials in real estate sales and purchases carried out.
To this end, the Directorate General 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 value map delimiting the territorial areas of valuation, to which it will assign average value modules for real estate products.
The limit of the reference value for real estate will be the market value, and, in order for that value not to exceed that of the market, reduction factors will be set for the same-class goods.
Both the elements for determining the reference value of each property and the corresponding reduction factors shall be approved, by resolution, by the General Directorate of Cadastre before October 30 of the year preceding that in which they are to take effect.
Prior to its approval, a collective hearing will be held, during which interested parties will be able to present the arguments and evidence they deem appropriate. Furthermore, the resolution of the General Directorate of Cadastre may be appealed through economic-administrative means or through a review appeal.
However, while regulatory development is not approved, the Law distinguishes between urban and rural real estate, for which it establishes the application of value modules in accordance with the following guidelines:
The criteria for the value of urban real estate will be based on technical valuation standards and building regulations. Furthermore, the land values for each area will allow the reproduction of the average value modules in each homogeneous territorial valuation area.
The resolution to be approved by the General Directorate of Cadastre will define its scope of application and specify calculation criteria, basic modules for land and construction, land values for each zone and their construction costs, as well as, where applicable, fields of application for correcting coefficients.
On the other hand, regarding rustic properties without structures, the resolution to be approved by the General Directorate of Cadastre will define its scope of application, specifying calculation criteria as well as, where appropriate, amounts and fields of application of correction coefficients for location, agronomic and socio-economic factors.
While it is true that this is a new benchmark, it is surprising that a valuation is established that, in essence, ignores certain particular circumstances that could increase or decrease the value of a property, such as sunlight, the location of a bar beneath the property, the architecture of the building 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 list of other factors that can decrease or increase by 10% or 20% depending on the specific circumstances of the property.
These are the most important aspects that, in terms of taxation of real estate investment, can be found within the modifications made by Law 11/2021, of June 30, on measures to prevent and combat tax fraud.
If you would like to learn more about related matters, or if you intend to make real estate investments with confidence, please do not hesitate to contact our Real Estate department via our email. info@busquets.legal or by calling 934 160 004.